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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
HOUSE OF FABRICS, INC.
(NAME OF SUBJECT COMPANY [ISSUER])
FCA ACQUISITION CORPORATION
FABRI-CENTERS OF AMERICA, INC.
(BIDDERS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
441758109
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
ALAN ROSSKAMM
FCA ACQUISITION CORPORATION
C/O FABRI-CENTERS OF AMERICA, INC.
5555 DARROW ROAD
HUDSON, OHIO 44236
TELEPHONE: (216) 656-2600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
------------------------
COPY TO:
JAMES R. CARLSON, ESQ.
THOMPSON HINE & FLORY LLP
3900 KEY CENTER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114-1216
TELEPHONE: (216) 566-5500
------------------------
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee
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$22,660,277.50 $4,532.06
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* For purposes of calculating fee only. This amount assumes the purchase at a
purchase price of $4.25 per share of an aggregate of 5,331,830 shares of
common stock. The amount of the filing fee, calculated in accordance with
Regulation 240.0-11 of the Securities Exchange Act of 1934, as amended,
equals 1/50th of one percent of the aggregate of the cash offered by the
bidders for the shares of the issuer.
[ ]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
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Amount Previously Paid: NONE Filing Party: N/A
Form or Registration No: N/A Date Filed: N/A
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This Schedule 14D-1 Tender Offer Statement (this "Statement") relates to
the offer by FCA Acquisition Corporation, a Delaware corporation (the
"Purchaser") and a wholly owned subsidiary of Fabri-Centers of America, Inc., an
Ohio corporation (the "Parent"), to purchase all of the outstanding shares of
common stock, par value $.01 per share (the "Shares"), of House of Fabrics,
Inc., a Delaware corporation (the "Company"), at a price of $4.25 per Share, net
to the seller in cash, without interest thereon (the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
February 6, 1998 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are
annexed hereto as Exhibits (a)(2) and (a)(3), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is House of Fabrics, Inc., a Delaware
corporation with its principal executive offices at 13400 Riverside Drive,
Sherman Oaks, California 91423-2598.
(b) The information set forth in the Introduction of the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in Section 6 of the Offer to Purchase is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a-d, g) This Statement is being filed on behalf of the Parent and the
Purchaser for purposes of Schedule 14D-1. The information set forth in the
Introduction, Section 9 and Schedule I of the Offer to Purchase is incorporated
herein by reference.
(e-f) During the last five years, neither the Parent nor the Purchaser,
nor, to the best knowledge of the Parent and the Purchaser, the persons listed
in Schedule I of the Offer to Purchase, has been (i) convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree, or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a-b) The information set forth in the Introduction, Sections 8, 9 and 11
and Schedule I of the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a-c) The information set forth in Section 10 of the Offer to Purchase is
incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS.
(a-b) The information set forth in the Introduction and Sections 11, 12
and 13 of the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Sections 11, 12 and 13 of the Offer to
Purchase is incorporated herein by reference.
(d-e) The information set forth in Sections 6, 7, 12 and 13 of the Offer to
Purchase is incorporated herein by reference.
(f-g) The information set forth in Sections 7, 12 and 13 of the Offer to
Purchase is incorporated herein by reference.
2
<PAGE> 3
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth in the Introduction, Section 9 and Schedule
I of the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in the Introduction, Section 9 and Schedule
I of the Offer to Purchase is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction and Sections 9, 11, 12 and 13
of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and Sections 11 and 16 of the
Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 of the Offer to Purchase is
incorporated herein by reference.
The incorporation by reference herein of the above-referenced financial
information does not constitute an admission that such information is material
to a decision by a stockholder of the Company whether to sell, tender or hold
Shares being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in Sections 8, 9, 11, 12 and 13 of the Offer
to Purchase is incorporated herein by reference.
(b-c, e) The information set forth in Sections 13, 14 and 15 of the Offer
to Purchase is incorporated herein by reference.
(d) The information set forth in Sections 7, 12 and 13 of the Offer to
Purchase is incorporated herein by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1) Press Release, dated February 2, 1998.
(a)(2) Offer to Purchase, dated February 6, 1998.
(a)(3) Letter of Transmittal.
(a)(4) Notice of Guaranteed Delivery.
(a)(5) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(7) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(8) Summary Advertisement, dated February 6, 1998.
(b)(1) Credit Agreement, dated as of September 30, 1994, among Fabri-Centers of America, Inc.,
various financial institutions and KeyBank National Association (formerly Society National
Bank), as Agent (incorporated by reference to Exhibit 10(a) of Fabri-Centers of America,
Inc.'s Current Report on Form 8-K filed on October 17, 1994).
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(b)(2) Amendment No. 1 to Credit Agreement, dated as of June 2, 1997, among Fabri-Centers of
America, Inc., various financial institutions and KeyBank National Association
(formerly Society National Bank), as Agent (incorporated by reference to Exhibit 10
of Fabri-Centers of America, Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended May 3, 1997).
(c) The Agreement and Plan of Merger, dated February 1, 1998, by and among Fabri-Centers
of America, Inc., FCA Acquisition Corporation and House of Fabrics, Inc.
(d) None.
(e) Not applicable.
(f) None.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: February 6, 1998
FCA ACQUISITION CORPORATION
By: /s/ BRIAN P. CARNEY
------------------------------------
Name: Brian P. Carney
Title: Executive Vice President and
Chief Financial Officer
FABRI-CENTERS OF AMERICA, INC.
By: /s/ BRIAN P. CARNEY
------------------------------------
Name: Brian P. Carney
Title: Executive Vice President and
Chief Financial Officer
5
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EXHIBIT INDEX
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EXHIBIT PAGE
NUMBER EXHIBIT NAME NUMBER
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(a)(1) Press Release, dated February 2, 1998.
(a)(2) Offer to Purchase, dated February 6, 1998.
(a)(3) Letter of Transmittal.
(a)(4) Notice of Guaranteed Delivery.
(a)(5) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(6) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(7) Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(8) Summary Advertisement, dated February 6, 1998.
(b)(1) Credit Agreement, dated as of September 30, 1994, among Fabri-Centers of
America, Inc., various financial institutions and KeyBank National Association
(formerly Society National Bank), as Agent (incorporated by reference to
Exhibit 10(a) of Fabri-Centers of America, Inc.'s Current Report on Form 8-K
filed on October 17, 1994).
(b)(2) Amendment No. 1 to Credit Agreement, dated as of June 2, 1997, among
Fabri-Centers of America, Inc., various financial institutions and KeyBank
National Association (formerly Society National Bank), as Agent (incorporated
by reference to Exhibit 10 of Fabri-Centers of America, Inc.'s Quarterly Report
on Form 10-Q for the quarterly period ended May 3, 1997).
(c) The Agreement and Plan of Merger, dated February 1, 1998, by and among
Fabri-Centers of America, Inc., FCA Acquisition Corporation and House of
Fabrics, Inc.
</TABLE>
6
<PAGE> 1
Exhibit (a)(1)
[FABRI-CENTERS OF AMERICA, INC. LETTERHEAD]
NEWS RELEASE
------------
FOR IMMEDIATE RELEASE
- ---------------------
CONTACT: Brian P. Carney Investor Relations:
Executive Vice President and Naomi Rosenfeld/Carolyn Capaccio
Chief Financial Officer Heather Anthony
Fabri-Centers of America, Inc. Press: Stacy Berns
330/656-2600 Morgen-Walke Associates, Inc.
http://www.joann.com 212/850-5600
HOUSE Donald L. Richey Investor Relations:
OF President and Roger Pondel/Michele Feller
FABRICS Chief Executive Officer Pondel, Parsons & Wilkinson
CONTACT: House of Fabrics 310/207-9300
818/385-2300
FABRI-CENTERS TO ACQUIRE HOUSE OF FABRICS
HUDSON, OH, February 2, 1998 -- Fabri-Centers of America, Inc. (NYSE:FCA.A and
FCA.B) and House of Fabrics, Inc. (NASDAQ:HFAB) today jointly announced an
agreement for Fabri-Centers to acquire House of Fabrics. The two companies have
signed a definitive merger agreement under which FCA Acquisition Corporation, a
Fabri-Centers subsidiary, will commence a cash tender offer to acquire all of
the outstanding shares of House of Fabrics for $4.25 per share. House of
Fabrics' Board of Directors has unanimously approved the tender offer and the
merger and recommends that House of Fabrics shareholders tender their shares.
Following the completion of the tender offer, Fabri-Centers intends to
consummate a second step merger in which all remaining House of Fabrics
shareholders will also receive the same cash price paid in the tender offer.
Excluding one-time costs of integrating the operations of the two companies,
Fabri-Centers expects the transaction to have a slightly accretive impact to
earnings in the current fiscal year and to be accretive to earnings in
subsequent years.
Alan Rosskamm, Chairman of the Board and Chief Executive Officer of
Fabri-Centers, commented, "We are very excited about the combination of
Fabri-Centers and House of Fabrics.
-more-
<PAGE> 2
-2-
This merger represents a win-win opportunity for both companies' shareholders,
employees and customers. With Fabri-Centers' financial resources, technological
expertise and marketing capability, we can together grow the combined
company's customer base and increase our sales potential. House of Fabrics is
already a leader in many of its markets. Its real estate base is in very good
condition and complements Fabri-Centers' store base well, particularly in West
Coast markets where House of Fabrics' stores are concentrated. We will be able
to build on that strength as we introduce our broader product line. Among other
efficiencies, this combination will allow the combined company to spread costs
over a larger base of stores. This will assist us in maintaining competitive
prices for our customers."
Donald L. Richey, President and Chief Executive Officer of House of Fabrics,
added, "Our Board of Directors unanimously concluded that this transaction with
Fabri-Centers is in the best interests of House of Fabrics' shareholders and
employees. At $4.25 per share in cash, this offering price represents a
substantial premium over House of Fabrics' stock price for the recent period
before Fabri-Centers commenced its tender offer and provides immediate liquidity
to House of Fabrics' shareholders. We look forward to a rapid completion of the
transaction and to working with Fabri-Centers to ensure the smoothest transition
possible for our customers and employees."
House of Fabrics has approximately 6 million shares and eligible options to
acquire shares outstanding on a fully diluted basis. The total value of the
transaction, including the amount of outstanding secured bank and long-term debt
of House of Fabrics, is approximately $100 million. The offer price of $4.25 per
share represents a premium of approximately 110% over the last 60 days average
trading price and provides immediate liquidity to House of Fabrics shareholders.
Fabri-Centers intends to finance the tender offer through a combination of cash
on hand and available bank borrowings. The tender offer is conditioned upon the
acquisition of a majority of House of Fabrics' shares on a fully diluted basis
and the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The complete terms and
conditions of the tender offer will be set forth in the offering documents to be
filed with the Securities and Exchange Commission later this week. The tender
offer is scheduled to expire at midnight (EDT) on March 6, 1998.
Fabri-Centers has annual revenues of approximately $970 million and operates 907
fabric and craft stores in 48 states, primarily under the names of Jo-Ann
Fabrics and Crafts, Cloth World, New York Fabrics and Jo-Ann etc. House of
Fabrics has annual revenues of approximately $240 million and operates 262
fabric and craft stores in 27 states under the names of House of Fabrics, SoFro
Fabrics, Fabricland and Fabric King.
###
<PAGE> 1
EXHIBIT (a)(2)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
BY
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
FABRI-CENTERS OF AMERICA, INC.
AT
$4.25 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, HAS
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
The Offer is conditioned upon, among other things, there being validly
tendered a number of Shares which, when added to the Shares beneficially owned
by the Parent, would represent at least a majority of the Shares outstanding on
a fully diluted basis on the date of purchase. The Offer is not conditioned on
the receipt of financing.
------------------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of
Transmittal (or such facsimile) and any other required documents to the
Depositary and either deliver the certificates for such Shares to the Depositary
along with the Letter of Transmittal (or facsimile) or deliver such Shares
pursuant to the procedure for book-entry transfer set forth in Section 2 or (ii)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. A stockholder
having Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such stockholder desires to tender such
Shares.
If a stockholder desires to tender Shares and such stockholder's
certificates for Shares are not immediately available or the procedure for
book-entry transfer cannot be completed on a timely basis, or time will not
permit all required documents to reach the Depositary prior to the Expiration
Date, such stockholder's tender may be effected by following the procedure for
guaranteed delivery set forth in Section 2.
Questions and requests for assistance may be directed to McDonald & Company
Securities, Inc., the Dealer Manager, or to Corporate Investor Communications,
Inc., the Information Agent, at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
and other related materials may be obtained from the Information Agent or from
brokers, dealers, commercial banks and trust companies.
------------------------------------
The Dealer Manager for the Offer is:
MCDONALD & COMPANY SECURITIES, INC.
February 6, 1998
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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Section 1. Terms of the Offer......................................................... 2
Section 2. Procedures for Tendering Shares............................................ 3
Section 3. Withdrawal Rights.......................................................... 6
Section 4. Acceptance for Payment and Payment......................................... 6
Section 5. Certain Federal Income Tax Consequences.................................... 7
Section 6. Price Range of Shares; Dividends on the Shares............................. 8
Section 7. Effect of the Offer on the Market for the Shares; Exchange Act
Registration; Margin Regulations........................................... 8
Section 8. Certain Information Concerning the Company................................. 9
Section 9. Certain Information Concerning the Parent and the Purchaser................ 11
Section 10. Source and Amount of Funds................................................. 14
Section 11. Background of the Offer.................................................... 15
Section 12. Purpose of the Offer; Plans for the Company................................ 18
Section 13. The Merger................................................................. 19
Section 14. Certain Conditions of the Offer............................................ 27
Section 15. Certain Legal Matters...................................................... 29
Section 16. Fees and Expenses.......................................................... 30
Section 17. Miscellaneous.............................................................. 31
SCHEDULE I
Directors and Executive Officers of the Parent and the Purchaser.......................... 32
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF SHARES OF HOUSE OF FABRICS, INC.:
FCA Acquisition Corporation, a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of Fabri-Centers of America, Inc., an Ohio corporation
(the "Parent"), hereby offers to purchase all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of House of Fabrics, Inc., a
Delaware corporation (the "Company"), at a price of $4.25 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer. The Purchaser will pay all charges and expenses of McDonald & Company
Securities, Inc. ("McDonald & Company"), as Dealer Manager (in such capacity,
the "Dealer Manager"), Harris Trust Company of New York, as Depositary (the
"Depositary"), and Corporate Investor Communications, Inc., as Information Agent
(the "Information Agent"), incurred in connection with the Offer. See Section
16.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
February 1, 1998 (the "Merger Agreement"), among the Purchaser, the Parent and
the Company. The Merger Agreement provides, among other things, for the merger
of the Purchaser with and into the Company (the "Merger") following the purchase
of Shares pursuant to the Offer. In the Merger, each then outstanding Share
(other than Shares owned by the Parent or any subsidiary of the Parent, Shares
held as treasury shares by the Company, and Shares owned by stockholders who
perfect appraisal rights under Delaware law) will be converted into the right to
receive $4.25 per Share net in cash. See Section 13.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, HAS
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
The Offer is subject to the fulfillment of a number of conditions (the
"Offer Conditions"), including, among other things, there being validly tendered
a number of Shares which, when added to the Shares beneficially owned by the
Parent, constitutes at least a majority of the Shares outstanding on a fully
diluted basis on the date of purchase (the "Minimum Condition"). For purposes of
this Offer, "on a fully diluted basis" means, as of any date, the number of
Shares outstanding, together with Shares that the Company is then required to
issue upon exercise of outstanding warrants and employee stock options (assuming
all such warrants and options are then exercisable) or pursuant to any other
obligation.
According to representations made by the Company in the Merger Agreement,
as of February 2, 1998, (i) 5,331,830 Shares were issued and outstanding, (ii)
907,758 Shares were reserved for future issuance upon exercise of outstanding
employee stock options, and (iii) 376,158 Shares were reserved for future
issuance upon exercise of Series B and Series C Warrants. According to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended October
31, 1997 (the "Company 10-Q"), no Shares were held by the Company in treasury as
of October 31, 1997. As of the date of the Offer, the Parent owns 19,200 Shares
and Alan Rosskamm, Chairman of the Board, President and Chief Executive Officer
of the Parent, owns 100 Shares. See Section 9.
Certain other Offer Conditions are described in Section 14. The Purchaser
expressly reserves the right, in its sole discretion, to waive any one or more
of the Offer Conditions (except that the Purchaser may not, without the consent
of the Company, waive the Minimum Condition). See Sections 14 and 15. The Offer
is not conditioned on the receipt of financing.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1
<PAGE> 4
SECTION 1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date. The term "Expiration Date" means 12:00
midnight, Eastern Standard Time, on Friday, March 6, 1998, unless the Purchaser
extends the period of time during which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by the Purchaser, will expire.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF THE
MINIMUM CONDITION, THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED
BY THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE
REGULATIONS THEREUNDER (THE "HSR ACT") AND THE SATISFACTION OF THE OTHER OFFER
CONDITIONS SET FORTH IN SECTION 14. THE OFFER IS NOT CONDITIONED ON THE RECEIPT
OF FINANCING.
The Merger Agreement provides that, at the Company's request, the Purchaser
will extend the Expiration Date from time to time for up to an aggregate of ten
business days following the Expiration Date if the Minimum Condition is not
fulfilled prior to 12:00 p.m. on the Expiration Date. The Merger Agreement also
provides that the Purchaser may, in its discretion, extend the Expiration Date
to the extent required by applicable law, if the Minimum Condition or any of the
other Offer Conditions are not satisfied, or if less than 90% of the outstanding
Shares have been validly tendered and not withdrawn pursuant to the Offer.
Extension of the Expiration Date would delay the acceptance for payment of and
the payment for any Shares. During any such extension, all Shares previously
tendered and not properly withdrawn will remain subject to the Offer and subject
to the right of a tendering stockholder to withdraw such stockholder's Shares.
See Section 3. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE
PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO
EXTEND THE OFFER.
If, by the Expiration Date (including any extension required by the Merger
Agreement), any or all of the Offer Conditions have not been satisfied or
waived, the Purchaser reserves the right (but will not be obligated), subject to
the applicable rules and regulations of the Securities and Exchange Commission
(the "Commission"), to (a) terminate the Offer and not accept for payment or pay
for any Shares and return all tendered Shares to tendering stockholders, (b)
waive all the unsatisfied Offer Conditions and accept for payment and pay for
all Shares validly tendered prior to the Expiration Date (except that the
Purchaser may not, without the consent of the Company, accept for payment any
Shares so tendered unless the Minimum Condition has been satisfied), (c) extend
the Offer and, subject to the right of stockholders to withdraw Shares until the
Expiration Date, retain the Shares that have been tendered during the period or
periods for which the Offer is extended, or (d) amend the Offer. The Merger
Agreement provides that the Purchaser may not decrease the price payable in the
Offer, change the form of consideration payable in the Offer, change the Offer
Conditions, impose additional conditions to the Offer, or change any other terms
of the Offer in a manner adverse to the holders of the Shares, except that the
Purchaser may extend the Expiration Date to the extent required by applicable
law, if any of the Offer Conditions are not satisfied, or if less than 90% of
the outstanding Shares have been validly tendered and not withdrawn pursuant to
the Offer.
The rights reserved by the Purchaser in the two preceding paragraphs are in
addition to the Purchaser's rights pursuant to Section 14. There can be no
assurance that the Purchaser will exercise its right to extend the Offer beyond
the period required by the Merger Agreement. Any extension, amendment or
termination will be followed as promptly as practicable by public announcement.
In the case of an extension, Rule 14e-l(d) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), requires that the announcement be issued
no later than 9:00 a.m., Eastern time, on the next business day after the
previously scheduled Expiration Date, or the first opening of The NASDAQ Stock
Market ("NASDAQ") on the next business day after the previously scheduled
Expiration Date, in accordance with the public announcement requirements of Rule
14d-4(c) under the Exchange Act. Subject to applicable law (including Rules
14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material
change in the information published, sent or given to stockholders in connection
with the Offer be promptly disseminated to stockholders in a manner reasonably
designed to inform stockholders of such
2
<PAGE> 5
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 under the
Exchange Act.
If the Purchaser extends the Offer or if the Purchaser is delayed in its
acceptance for payment of or payment (whether before or after its acceptance for
payment of Shares) for Shares or it is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser
and such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described in Section 3. However, the
ability of the Purchaser to delay the payment for Shares that the Purchaser has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
tendered by or on behalf of holders of securities promptly after the termination
or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will extend the Offer and disseminate additional tender offer
materials to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in the percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. With
respect to a change in price or a change in the percentage of securities sought,
a minimum period of 10 business days is generally required to allow for adequate
dissemination to stockholders and investor response.
The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
lists or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
SECTION 2. PROCEDURES FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (a) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or, in
the case of a book-entry transfer, an Agent's Message (as defined below), and
any other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either certificates for tendered Shares ("Share
Certificates") must be received by the Depositary at one of such addresses or
such Shares must be delivered pursuant to the procedures for book-entry transfer
set forth below (and a Book-Entry Confirmation (as defined below) received by
the Depositary), in each case prior to the Expiration Date, or (b) the tendering
stockholder must comply with the guaranteed delivery procedures set forth below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Co. (the "Book-Entry Transfer Facility")
for purposes of the Offer within two business days after the date of this Offer
to Purchase. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's Message
(as defined below), and any other required documents, must, in any case, be
transmitted to and received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedures
described below. The confirmation
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<PAGE> 6
of a book-entry transfer of Shares into the Depositary's account at the
Book-Entry Transfer Facility as described above is referred to herein as a
"Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARE
CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS WILL BE
DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN
THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (a) the Letter of Transmittal is signed by the registered holder
(which term, for purposes of this Section, includes any participant in the
Book-Entry Transfer Facility's system whose name appears on a security position
listing as the owner of the Shares) of Shares tendered therewith and such
registered holder has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the Letter
of Transmittal or (b) such Shares are tendered for the account of a financial
institution (including most commercial banks, savings and loan associations and
brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (an "Eligible Institution"). In
all other cases, all signatures on the Letter of Transmittal must be guaranteed
by an Eligible Institution. See Instructions 1 and 5 to the Letter of
Transmittal. If Share Certificates are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made or
Share Certificates for Shares not tendered or not accepted for payment are to be
returned to a person other than the registered holder of the Share Certificates
surrendered, the tendered Share Certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holders appear on the Share Certificates, with the signatures on
the Share Certificates or stock powers guaranteed as described above. See
Instructions 1 and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser, is received
by the Depositary, as provided below, prior to the Expiration Date; and
(iii) the Share Certificates, representing all tendered Shares, in
proper form for transfer (or a Book-Entry Confirmation with respect to all
such Shares), together with a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message,
and any other required documents are received by the Depositary within
three trading days after the date of execution of such Notice of Guaranteed
Delivery. A "trading day" is any day on which the New York Stock Exchange,
Inc. is open for business.
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<PAGE> 7
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) Share Certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and (c) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when Share Certificates or Book-Entry Confirmations with respect to Shares
are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE
PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS
OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The Purchaser's acceptance for payment of Shares validly tendered pursuant
to the Offer will constitute a binding agreement between the tendering
stockholder and the Purchaser upon the terms and subject to the conditions of
the Offer.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Purchaser
as such stockholder's attorneys-in-fact and proxies in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities or rights issued or issuable in respect
of such Shares on or after February 5, 1998. All such proxies will be
irrevocable and considered coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, the Purchaser
accepts such Shares for payment pursuant to the Offer. Upon such acceptance for
payment, all prior powers of attorney, proxies and consents given by such
stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney,
proxies, consents or revocations may be given (and, if given, will not be deemed
effective). The designees of the Purchaser will thereby be empowered to exercise
all voting and other rights with respect to such Shares and other securities or
rights in respect of any annual, special, adjourned or postponed meeting of the
Company's stockholders, actions by written consent in lieu of any such meeting
or otherwise, as they in their sole discretion deem proper. The Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon the Purchaser's acceptance for payment of such
Shares, the Purchaser must be able to exercise full voting, consent and other
rights with respect to such Shares and other securities or rights, including
voting at any meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser, in its sole discretion, whose
determination will be final and binding on all parties. The Purchaser reserves
the absolute right to reject any or all tenders determined by it not to be in
proper form or the acceptance for payment of or payment for which may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the
absolute right to waive any defect or irregularity in the tender of any Shares
of any particular stockholder whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares will be deemed
to have been validly made until all defects or irregularities relating thereto
have been cured or waived. None of the Purchaser, the Parent, the Depositary,
the Information Agent, the Dealer Manager or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification. The Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding on all
parties.
Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide such stockholder's correct TIN or fails to provide
the certifications
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<PAGE> 8
described above, the Internal Revenue Service (the "IRS") may impose a penalty
on such stockholder and the payment of cash to such stockholder pursuant to the
Offer may be subject to backup withholding of 31% of the amount of such payment.
All stockholders surrendering Shares pursuant to the Offer should complete and
sign the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Purchaser and the Depositary). Noncorporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
SECTION 3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares pursuant
to the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn pursuant to the procedures set forth below at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Purchaser
pursuant to the Offer, may also be withdrawn at any time after April 6, 1998.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase and must
specify the name of the person having tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If Share Certificates have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedure
for book-entry transfer as set forth in Section 2, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. However, withdrawn Shares may be retendered by again following one
of the procedures described in Section 2 at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding on all parties. None
of the Purchaser, the Parent, the Depositary, the Information Agent, the Dealer
Manager or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
SECTION 4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for all Shares
validly tendered promptly after the Expiration Date. All questions as to the
satisfaction of such terms and conditions will be determined by the Purchaser,
in its sole discretion, whose determination will be final and binding on all
parties. See Sections 1 and 14. The Purchaser expressly reserves the right, in
its sole discretion, to delay acceptance for payment of or payment for Shares in
order to comply in whole or in part with any applicable law, including, without
limitation, the HSR Act. See Section 15. Any such delays will be effected in
compliance with Rule 14e-l(c) under the Exchange Act (relating to a bidder's
obligation to pay for or return tendered securities promptly after the
termination or withdrawal of such bidder's offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) Share
Certificates for (or a timely Book-Entry Confirmation with respect to) such
Shares, (b) a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and (c) any other documents required by
the Letter of Transmittal. The per Share consideration paid to any stockholder
pursuant to
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<PAGE> 9
the Offer will be the highest per Share consideration paid to any other
stockholder of the same class pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser as,
if and when the Purchaser gives oral or written notice to the Depositary of the
Purchaser's acceptance for payment of such Shares. Payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for validly tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT. Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering stockholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering stockholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
any stock transfer taxes with respect to the transfer and sale to it or its
order pursuant to the Offer, except as otherwise provided in Instruction 6 of
the Letter of Transmittal, as well as any charges and expenses of the Depositary
and the Information Agent.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act),
the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to exercise, and duly exercise, withdrawal rights as
described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, Share Certificates for any such unpurchased Shares will be returned,
without expense to the tendering stockholder (or, in the case of Shares
delivered by book-entry transfer of such Shares into the Depositary's account at
the Book-Entry Transfer Facility pursuant to the procedure set forth in Section
2, such Shares will be credited to an account maintained at the Book-Entry
Transfer Facility), as promptly as practicable after the expiration, termination
or withdrawal of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to the Parent, or to one or more direct or indirect wholly
owned subsidiaries of the Parent, the right to purchase Shares tendered pursuant
to the Offer, but any such transfer or assignment will not relieve the Purchaser
of its obligations under the Offer and will in no way prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
SECTION 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash pursuant to the Offer or the Merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may also be a taxable transaction under
applicable state, local or foreign income or other tax laws. Generally, for
federal income tax purposes, a tendering stockholder will recognize gain or loss
equal to the difference between the amount of cash received by the stockholder
pursuant to the Offer or the Merger and the aggregate tax basis in the Shares
tendered by the stockholder and purchased pursuant to the Offer or converted in
the Merger, as the case may be. Gain or loss will be calculated separately for
each block of Shares tendered and purchased pursuant to the Offer or converted
in the Merger, as the case may be.
If Shares are held by a stockholder as capital assets, gain or loss
recognized by the stockholder will be capital gain or loss, which will be
long-term capital gain or loss if the stockholder's holding period for the
Shares exceeds one year. In addition, any gain on the sale of Shares by an
individual may be taxed at the maximum rate of 20% if, as of the date of sale,
the Shares were held by such individual for more than 18 months.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED AS COMPENSATION OR WITH
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<PAGE> 10
RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE
CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF
SHARES IN LIGHT OF INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM
(INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND
OTHER TAX LAWS) OF THE OFFER AND THE MERGER.
SECTION 6. PRICE RANGE OF SHARES; DIVIDENDS ON THE SHARES
The Shares are listed on NASDAQ under the symbol HFAB. The following table
sets forth the high and low closing sales prices per Share for the last two
years as reported on NASDAQ, together with the per Share dividends paid by the
Company during the same period of time as reported in publicly available
sources. The Shares began trading on August 1, 1996 concurrent with the
emergence of the Company from Chapter 11 reorganization. Prices for the common
shares of the Company prior to that date are not comparable and, accordingly,
are not shown below.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
----- ----- ---------
<S> <C> <C> <C>
Year Ended
January 31, 1997:
First quarter........................................ n/a n/a $0.00
Second quarter....................................... n/a n/a 0.00
Third quarter........................................ $5.25 $3.25 0.00
Fourth quarter....................................... 6.00 2.38 0.00
Year Ended
January 31, 1998:
First quarter........................................ $5.50 $3.50 $0.00
Second quarter....................................... 3.88 2.13 0.00
Third quarter........................................ 2.63 1.88 0.00
Fourth quarter....................................... 3.25 1.69 0.00
</TABLE>
On January 30, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement and the Purchaser's
intention to commence the Offer, the closing sale price for the Shares was $3.19
per Share. On February 5, 1998, the last full trading day before commencement of
the Offer, the closing sale price for the Shares was $4.06 per Share.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
SECTION 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; EXCHANGE ACT
REGISTRATION; MARGIN REGULATIONS
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public.
Depending on the number of Shares purchased in the Offer, the Shares may no
longer meet the requirements of NASDAQ for continued listing. According to
NASDAQ's published guidelines, NASDAQ would consider delisting the Shares if,
among other things, (i) the number of Shares publicly held should fall below
200,000, (ii) the number of persons holding Shares should fall below 400 and the
number of persons holding at least 100 Shares should fall below 300, or (iii)
the aggregate market value of publicly held Shares should fall below $1,000,000.
According to the Company's Annual Report on Form 10-K for the year ended January
31, 1997 (the "Company 10-K"), there were approximately 4350 holders of record
of Shares as of April 21, 1997. If NASDAQ were to delist the Shares, it is
possible that the Shares would trade on another securities exchange or in the
over-the-counter market and that price quotations for the Shares would be
reported by such exchange or market or through other sources. The extent of the
public market for the Shares and availability of such quotations would,
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<PAGE> 11
however, depend upon such factors as the number of holders of Shares, the
aggregate market value of the publicly held Shares at such time, the interest in
maintaining a market in the Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act and other
factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application by the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more holders
of record. Termination of registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its stockholders and to the Commission and would make certain
provisions of the Exchange Act no longer applicable to the Company, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement of furnishing a proxy statement pursuant to Section 14(a) of the
Exchange Act in connection with stockholders' meetings and the related
requirement of furnishing an annual report to stockholders, and the requirements
of Rule 13e-3 under the Exchange Act with respect to "going private"
transactions. Furthermore, the ability of "affiliates" of the Company and
persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 or 144A promulgated under the Securities Act of
1933, as amended, may be impaired or eliminated. The Purchaser intends to seek
to cause the Company to apply for termination of registration of the Shares
under the Exchange Act as soon after the completion of the Offer as the
requirements for such termination are met.
If registration of the Shares is not terminated prior to the Merger, then
the Shares will be delisted from all stock exchanges and the registration of the
Shares under the Exchange Act will be terminated following the consummation of
the Merger.
Margin Regulations. The Shares are not currently "margin securities" under
the regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
preventing brokers from extending credit on the collateral of the Shares.
Depending upon factors similar to those described above regarding listing and
market quotations, it is possible that, following the Offer, the Shares would be
less likely to constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board.
SECTION 8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal offices at 13400
Riverside Drive, Sherman Oaks, California 91423-2598. The Company's principal
line of business is operating retail home sewing/craft outlets in the United
States. The Company is one of the largest home sewing/craft retailers in the
United States, operating 262 Company-owned stores in 27 states as of October 31,
1997. The Company was incorporated in 1946 and has been in retail fabric and
notions business since that date.
The Company's sales consist of fabrics, sold by the yard and used
principally for clothing, home decorating and crafts, sewing notions and
accessories, crafts, and sewing machines and related accessories. Needlecrafts
and sewing machines are sold in substantially all of the Company's stores.
All of the Company's stores located west of the Rocky Mountains are
operated under the names "House of Fabrics," "Fabricland" or "Fabric King." Its
stores in other states are operated under the name "So-Fro Fabrics" or "House of
Fabrics." The Company operates substantially all of its stores in leased
premises, principally in neighborhood shopping centers or stand-alone locations,
and does not engage in any franchising activity. The Company's stores range in
size, generally between 10,000 and 29,000 square feet.
The Company has historically purchased finished goods directly from mills
and manufacturers and formerly had a facility in South Carolina for processing
and warehousing merchandise for distribution to its stores. The Company sold its
South Carolina facility in November 1996. Processing and warehousing is
currently contracted out to third parties with facilities on the West Coast of
the United States and in the Northeastern part of the United States.
On November 2, 1994, the Company and four of its former subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for
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the Central District of California (the "Bankruptcy Court"). On July 10, 1996,
the Bankruptcy Court confirmed the Third Amended Joint Plan of Reorganization
(the "Plan") of the Company and its subsidiaries. On July 31, 1996, all
conditions required for the effectiveness of the Plan were achieved, and the
Plan became effective.
In accordance with the Plan, the Company issued the Shares as its newly
reorganized common stock (the "New Common Stock"), including shares of the New
Common Stock issuable upon resolution of claims. As of October 31, 1997,
5,331,830 shares of the New Common Stock were issued, including 188,079 shares
issued upon the exercise of Series A Warrants, pursuant to the Plan. The secured
bank group received approximately 257,000 shares (or 5%) of the New Common
Stock. Holders of general unsecured claims that were not covered by insurance
received approximately 4,776,000 shares (or 93%) of the New Common Stock.
Holders of the old common stock of the Company received a pro-rata distribution
of approximately 103,000 shares (or 2%) of the New Common Stock (subject to
dilution), plus warrants to purchase additional shares of the New Common Stock.
A total of 188,079 Series A Warrants were exercised by the deadline of April 29,
1997, out of 257,381 issued. Each warrant exercised was converted into one share
of the New Common Stock for a price of $3.02 per share and entitles the holder
to a Series B Warrant which may be exercised at a later date for a different
price. Warrants not exercised have no further rights.
Set forth below is certain selected financial information with respect to
the Company excerpted from the information contained in the Company 10-K and the
Company 10-Q. Because the assets and liabilities of the Company were restated to
reflect their reorganization value upon emergence of the Company from Chapter 11
proceedings, the Company is referred to as "Predecessor Co." for periods prior
to August 1, 1996 and "Successor Co." for periods thereafter. In addition, per
share data for periods prior to August 1, 1996 have been omitted as these
amounts do not reflect the current capital structure of the Company and
therefore are not comparable. More comprehensive financial information is
included in the Company 10-K, the Company 10-Q and other documents filed by the
Company with the Commission, and the following summary is qualified in its
entirety by reference to such information. The Company 10-K, the Company 10-Q
and such other documents should be available for inspection and copies thereof
should be obtainable in the manner set forth below under "Available
Information."
10
<PAGE> 13
HOUSE OF FABRICS, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
OCT 31, 1996 JAN 31, 1997
---------------------------------- ----------------------------------
NINE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS SIX MONTHS FISCAL YEAR ENDED
ENDED ENDED ENDED ENDED ENDED --------------------------
OCT 31, 1997 OCT 31, 1996 JULY 31, 1996 JAN 31, 1997 JULY 31, 1996 JAN 31, 1996 JAN 31, 1995
------------ --------------- ----------------- --------------- ----------------- ------------ ------------
(SUCCESSOR CO.) (PREDECESSOR CO.) (SUCCESSOR CO.) (PREDECESSOR CO.)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales..... $165,806 $ 69,953 $ 111,355 $ 143,324 $ 111,355 $333,501 $416,276
Income (loss)
before
extraordinary
items....... (10,825) 520 (37,366) 925 (37,366) (70,367) (95,385)
Net income
(loss)...... (10,825) 520 63,593 925 63,593 (70,367) (95,385)
BALANCE SHEET
DATA (AT END
OF PERIOD):
Working
capital..... $ 28,387 $ 28,231 N/A $ 38,789 N/A $ 99,149 $179,696
Total
assets...... 139,545 159,070 N/A 137,830 N/A 230,554 327,597
Long-term
debt........ 551 908 N/A 903 N/A 80 309
Stockholders'
equity...... 30,113 39,672 N/A 40,387 N/A (15,343) 55,024
PER COMMON
SHARE:
Net earnings
before
extraordinary
items....... ($2.05) $0.10 N/A $0.18 N/A N/A N/A
Net
earnings.... (2.05) 0.10 N/A 0.18 N/A N/A N/A
Net
earnings -- assuming
full
dilution.... (2.05) 0.10 N/A 0.18 N/A N/A N/A
</TABLE>
Available Information. The Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, is required to
file reports relating to its business, financial condition and other matters.
Information as of particular dates concerning the Company's directors and
officers, their remuneration, stock options and other matters, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the Commission. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549-1004, and at the
following regional offices of the Commission: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such information should be obtainable, by mail, upon payment of
the Commission's customary charges, by writing to the Commission's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC
20549-1004. Such material should also be available on-line through EDGAR, which
is located on the Commission's public access site at http://www.sec.gov.
Company Information. The information concerning the Company contained in
this Offer to Purchase has been supplied by the Company for inclusion herein or
has been taken from or based upon publicly available documents on file with the
Commission and other publicly available information. Although the Parent and the
Purchaser do not have any knowledge that any such information is untrue, neither
the Purchaser nor the Parent takes any responsibility for the accuracy or
completeness of such information or for any failure by the Company to disclose
events that may have occurred and may affect the significance or accuracy of any
such information.
SECTION 9. CERTAIN INFORMATION CONCERNING THE PARENT AND THE PURCHASER
The Purchaser is a newly incorporated Delaware corporation and a wholly
owned subsidiary of the Parent which to date has not conducted any business
other than in connection with the Offer and the Merger. The Parent is an Ohio
corporation. The principal executive offices of the Parent and the Purchaser are
located at 5555 Darrow Road, Hudson, Ohio 44236.
The Parent is the nation's largest retailer serving the fabric and craft
industry. The Parent was incorporated in February 1951; however, the business
conducted by its predecessors began in 1943 when the first store was
11
<PAGE> 14
opened in Cleveland, Ohio offering fabrics and notions for sale under the name
"Cleveland Fabric Shops." The Parent's stores currently do business under the
names of "Jo-Ann Fabrics and Crafts," "Jo-Ann etc," "Cloth World" and "New York
Fabrics."
As of February 1, 1997, the Parent operated 914 stores in 48 states
offering a wide variety of competitively priced items, including fashion,
decorator, quilting and craft fabrics, notions, patterns, craft components,
seasonal merchandise and silk and dried flowers. The Parent had 864 stores in
operation during fiscal year 1997, with average sales of $1,021,000 per store.
In October 1994, the Parent acquired Cloth World, a division of Brown Group
Inc., a chain of fabric stores located primarily in the southern half of the
United States, a market not served by the Parent at that time. Throughout fiscal
1996, the Parent converted 302 Cloth World stores to the Jo-Ann Fabrics and
Crafts format, adding to these stores a broad selection of craft, floral and
seasonal merchandise. The average investment per converted store was
approximately $60,000 for leasehold improvements and additional fixtures and
$100,000 for incremental inventory.
In fiscal 1996, the Parent opened an expanded research and development
store in Hudson, Ohio under the name of Jo-Ann etc (experience the creativity).
The 45,000 square foot store is about three times larger than the Parent's
standard new store format. The etc store offers a significantly more extensive
fabric and craft assortment, a wide array of services and numerous merchandise
demonstrations and classes. The Company opened six Jo-Ann etc stores in a
variety of geographic markets during fiscal 1998.
The Parent's stores are located primarily in high-traffic strip shopping
centers and average approximately 12,700 square feet. At the end of fiscal year
1997, 90 percent of the Parent's stores were over 9,000 square feet. The Parent
owns substantially all of the fixtures in its stores. The Parent believes that
it effectively utilizes its selling space and that its equipment is maintained
and suitable for its requirements. It is the Parent's practice to transfer
fixtures and inventory from closed stores to new or existing stores. During
fiscal year 1997, the average investment in each new store was approximately
$135,000 for leasehold improvements and additional fixtures.
Each of the Parent's stores offers a wide variety of merchandise primarily
for customers to make their own clothing and to complete home decorating and
craft projects. The stores also feature seasonal and holiday merchandise. The
products offered by major category are as follows: fabrics, including a wide
assortment of apparel fabrics, quilting, crafting, drapery and upholstery;
notions, including cutting implements, trimmings, buttons, threads, ribbons,
zippers and sewing accessories such as needles, pins and elastic; craft
supplies, including those used for stitchery, stenciling, woodworking, doll
making, fabric painting, jewelry making and artificial floral arranging; and
seasonal merchandise, including items for Easter, Halloween, Thanksgiving and
the Christmas holidays.
Set forth below is a summary of certain consolidated financial information
with respect to the Parent and its subsidiaries excerpted or derived from the
information contained in the Parent's Annual Report on Form 10-K for the year
ended February 1, 1997 (the "Parent 10-K"), and the Parent's Quarterly Reports
on Form 10-Q for the quarters ended November 1, 1996 and 1997 (the "Parent
10-Qs"). More comprehensive financial information is included in the complete
financial statements of the Parent contained in the Parent 10-K and the Parent
10-Qs on file with the Commission, and such financial statements are
incorporated herein by reference.
12
<PAGE> 15
FABRI-CENTERS OF AMERICA, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED FISCAL YEAR ENDED
---------------------- -----------------------------------
NOV 1, OCT 26, FEB 1, JAN 27, JAN 28,
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales......................... $663,480 $621,480 $928,951 $834,617 $677,279
Income before extraordinary
item........................... 10,905 6,615 24,603 17,458 11,734
Net earnings...................... 9,769 6,615 24,603 17,458 11,734
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................... $199,485 $220,538 $177,047 $232,157 $198,247
Total assets...................... 481,003 493,057 429,180 479,648 427,304
Long-term debt.................... 88,500 136,883 72,083 155,483 126,983
Stockholders' equity.............. 215,284 180,252 199,410 180,963 161,719
PER COMMON SHARE:
Net earnings before extraordinary
items.......................... $0.56 $0.36 $1.30 $0.91 $0.63
Net earnings...................... 0.50 0.36 1.30 0.91 0.63
Net earnings -- assuming full
dilution....................... 0.50 0.36 1.26 0.89 0.63
</TABLE>
Available Information. The Parent is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports
relating to its business, financial condition and other matters. Information as
of particular dates concerning the Parent's directors and officers, their
remuneration, stock options and other matters, the principal holders of the
Parent's securities and any material interest of such persons in transactions
with the Parent is required to be disclosed in proxy statements distributed to
the Parent's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
Commission and copies thereof should be obtainable from the Commission (and
on-line through EDGAR) as set forth with respect to the Company in Section 8.
Forward-Looking Statements. Certain statements contained in this Offer to
Purchase that are not historical facts are forward-looking statements that are
subject to certain risks and uncertainties. When used herein, the terms
"anticipates," "plans," "expects," "believes" and similar expressions as they
relate to the Parent, the Purchaser or their respective managements are intended
to identify such forward looking statements. The Parent's and the Purchaser's
actual results, performance or achievements may materially differ from those
expressed or implied in the forward-looking statements. Risks and uncertainties
that could cause or contribute to such material differences include, but are not
limited to, changes in customer demand, changes in trends in the fabric and
craft industry, changes in the competitive pricing for products, the impact of
competitor store openings and closings, the availability of acceptable store
locations, the availability of merchandise and general economic conditions.
Beneficial Ownership of Company Securities, Transactions with the Company,
etc. As of the date of the Offer, the Parent owns 19,200 Shares, which
represents approximately 0.36% of the issued and outstanding Shares of the
Company, and Alan Rosskamm owns 100 Shares, which represents less than 0.002% of
the issued and outstanding Shares of the Company. The Parent purchased on the
open market, through McDonald & Company as its broker, 9,200 Shares on January
22, 1998 at a price of $2.125 per Share and 10,000 Shares on January 27, 1998 at
a price of $2.25 per Share. The Parent also holds 10 shares of old common stock
of the Company which were not converted into the New Common Stock of the Company
(i.e., the Shares) upon the Company's emergence from Chapter 11 reorganization.
Except as set forth in this Offer to Purchase, neither the Purchaser, the
Parent nor, to the best knowledge of the Purchaser or the Parent, any of the
persons listed in Schedule I hereto, or any associate or majority owned
subsidiary of such persons, beneficially owns any equity security of the
Company, and neither the Purchaser, the Parent nor, to the best knowledge of the
Purchaser or the Parent, any of the persons listed in Schedule I hereto,
13
<PAGE> 16
any associate or majority owned subsidiary of such persons, or any of their
respective directors, executive officers or subsidiaries, has effected any
transaction in any equity security of the Company during the past 60 days.
Except as set forth in this Offer to Purchase, neither the Purchaser, the
Parent nor, to the best knowledge of the Purchaser or the Parent, any of the
persons listed in Schedule I hereto has any contract, arrangement, understanding
or relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guaranties
of loans, guaranties against loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, neither the Purchaser, the Parent
nor, to the best knowledge of the Purchaser or the Parent, any of the persons
listed in Schedule I hereto has had any transactions with the Company or any of
its executive officers, directors or affiliates that would require reporting
under the rules of the Commission.
Except as set forth in this Offer to Purchase, there have been no contacts,
negotiations or transactions between the Purchaser, the Parent or, to the best
knowledge of the Purchaser or the Parent, any of the persons listed in Schedule
I hereto or any subsidiary of such persons, on the one hand, and the Company or
its executive officers, directors or affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, election of directors or a sale or other transfer of a material
amount of assets that would require reporting under the rules of the Commission.
SECTION 10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase all of the
Shares pursuant to the Offer and to pay fees and expenses related to the Offer
and the Merger is estimated to be approximately $24 million. The Purchaser plans
to obtain all funds needed for the Offer and the Merger through a capital
contribution from the Parent.
The Parent plans to obtain funds for such capital contribution through a
combination of cash on hand and borrowings under its existing Credit Agreement,
dated as of September 30, 1994, as amended on June 2, 1997, among the Parent,
various financial institutions (the "Bank Group") and KeyBank National
Association (formerly Society National Bank), as Agent (the "Credit Facility").
The Credit Facility, which is unsecured, provides for revolving credit of up to
$200 million for general corporate purposes through May 31, 2001. As of the date
of the Offer, there is approximately $10 million of outstanding indebtedness
under the Credit Facility. Interest on borrowings under the Credit Facility is
payable at an applicable margin over prime, federal funds or LIBOR rates. The
applicable margin ranges between 0.25 percent and 1.00 percent, based on the
achievement of specified ranges of certain financial covenants. The Credit
Facility contains financial covenants which limit the Parent's capital
expenditures and defined leverage ratio, as well as require the Parent to
maintain a minimum tangible net worth, fixed charge coverage ratio and current
funded indebtedness ratio. The Parent has an interest rate cap agreement with
one of the banks in the Bank Group which extends to June 24, 1998. The interest
rate cap establishes a maximum interest rate payable when the variable rate
exceeds a certain rate. The total notional amount under the interest rate cap is
$20 million, having a capped LIBOR rate of 7.5 percent.
Although no definitive plan or arrangement for repayment of borrowings
under the Credit Facility has been made, the Parent anticipates such borrowings
will be repaid with internally generated funds (including, if the Merger is
accomplished, those of the Company) and from other sources which may include the
proceeds of future refinancings. No decision has been made concerning the method
the Parent will use to repay the borrowings under the Credit Facility. Such
decision will be made based on the Parent's review from time to time of the
advisability of particular actions, as well as prevailing interest rates,
financial and other economic conditions and such other factors as the Parent may
deem appropriate.
14
<PAGE> 17
SECTION 11. BACKGROUND OF THE OFFER
In the Spring of 1994, the Parent and the Company had extensive discussions
about a possible merger of the Company with a wholly owned subsidiary of the
Parent. In the transaction discussed at that time, outstanding shares of common
stock of the Company would have been converted into the right to receive shares
of common stock of the Parent. Prior to the execution of a definitive merger
agreement, these discussions terminated.
After termination of the discussions with the Company, the Parent pursued
an acquisition of substantially all the assets of Cloth World, Inc., a
subsidiary of Brown Group, Inc. that operated approximately 342 stores selling
craft, home decorating and sewing fabrics and notions, patterns and sewing
machines. The Parent entered into a definitive asset acquisition agreement with
Cloth World and Brown Group in August 1994 and closed the acquisition in October
1994.
In November 1994, the Company and four of its former subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Proceedings") in the United States
Bankruptcy Court for the Central District of California (the "Bankruptcy
Court").
In the Summer of 1995, the Parent expressed an interest in buying assets of
the Company as part of a plan of reorganization in the Bankruptcy Proceedings
and asked for information needed to evaluate the Company and its business. In
July 1995, the Parent and the Company entered into a confidentiality agreement
covering all such information furnished by the Company to the Parent and its
advisors. At least two other entities expressed an interest in the Company and
executed confidentiality agreements.
From December 1995 through March 1996, the Parent held discussions with the
Company and certain of its creditors regarding the possible terms of an
acquisition by the Parent. In March 1996, the Parent submitted a proposal to
purchase, as part of a plan of reorganization of the Company and its
subsidiaries in the Bankruptcy Proceedings, substantially all of the assets of
the Company and its subsidiaries, other than deferred taxes and tax refunds, the
Company's office building and leasehold interests in the Company's warehouse and
processing facility in South Carolina, for $118.8 million in cash, subject to
significant adjustments for changes in the book value of the assets, but without
the assumption of any liabilities other than certain store leases. The Company
also received a proposal from another entity. The Company's Board of Directors,
after discussion with the representatives of its secured creditors, unsecured
creditors committee and the equity holders committee, rejected both proposals as
inadequate.
On July 10, 1996, the Bankruptcy Court confirmed the Third Amended Joint
Plan of Reorganization of the Company and its subsidiaries (the "Plan"). On July
31, 1996, all conditions required for the effectiveness of the Plan were
satisfied.
In January 1997, the Company was approached by another entity regarding a
possible acquisition of the Company. That entity executed a confidentiality
agreement and commenced due diligence. On January 24, 1997, the Company retained
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") as its exclusive
financial advisor in connection with the Company's evaluation of strategic
alternatives, including a possible sale, merger or other business combination.
DLJ received a $100,000 retainer fee at the time of its engagement. In the
course of the engagement DLJ investigated a number of strategic alternatives
including the sale of the Company and the possibility of raising additional
equity capital with new investors. The entity that had expressed interest prior
to DLJ's engagement ultimately declined to make an offer for the Company after
completing its due diligence. That entity did express interest in purchasing
specific stores; the Company, however, determined that such a sale was not in
the best interests of the Company and discussions with that entity ceased in
April, 1997. Other parties contacted by DLJ did not return with proposals the
Company wished to pursue.
In May 1997, the Company was approached by the Parent regarding the
purchase by the Parent of certain of the Company's stores; the Company
determined, however, that such a sale was not in the best interests of the
Company.
In June, 1997, the Company and DLJ mutually determined that DLJ would not
continue to be actively involved in the Company's efforts to procure the
additional capital it was seeking.
15
<PAGE> 18
In August 1997, the Company retained F.M. Roberts & Company, Inc. ("F.M.
Roberts") to advise it on financing alternatives and enhancing shareholder
value. F.M. Roberts contacted approximately 10 entities that were possible
sources of capital financing for the Company or that might be interested in
acquiring the Company. On September 26, 1997, Fredric Roberts, President of F.M.
Roberts, telephoned Alan Rosskamm, Chairman of the Board, President and Chief
Executive Officer of the Parent, to determine whether the Parent was interested
in acquiring the Company.
On October 24, 1997, Mr. Roberts and Mr. Rosskamm spoke again by telephone.
At that time, Mr. Roberts advised Mr. Rosskamm that the Company was continuing
to explore the possibility of capital financing and that, if the Parent wished
to submit a proposal to acquire the Company, it should do so before the
financing was completed.
On October 27, 1997, Mr. Rosskamm telephoned Donald L. Richey, President
and Chief Executive Officer of the Company, and told him that the Parent was
considering an acquisition of the Company and was prepared to move quickly.
On October 30, 1997, the Parent and the Company entered into a
confidentiality agreement covering information furnished by the Parent to the
Company and its advisors in connection with their evaluation of a possible
transaction with the Company.
On November 26, 1997, Brian P. Carney, Executive Vice President and Chief
Financial Officer of the Parent, had a telephone conversation with John E.
Labbett, Executive Vice President-Chief Financial Officer of the Company, to
request information about the Company and to express an interest in a
face-to-face meeting. Following the discussion, Mr. Labbett faxed to Mr. Carney
a copy of the Company's third quarter press release, which had been made public
that day.
On December 2, 1997, Mr. Carney sent to Mr. Labbett a letter requesting
additional information and materials relating to the Company.
On December 11, 1997, the Company entered into a Commitment Letter with
Chiplease, Inc., which provided that Chiplease, Inc. would make an investment of
$10 million in the Company through the purchase of common stock, preferred stock
and warrants. The Commitment Letter provided that the commitment to invest by
Chiplease, Inc. was subject to, among other things, the execution of a mutually
satisfactory definitive purchase agreement by January 15, 1998 and the
completion by Chiplease, Inc. of such due diligence as it deemed appropriate.
The Company and Chiplease, Inc. were unable to agree on the definitive terms of
the proposed investment by Chiplease, Inc. and, on January 15, 1998, the
Commitment Letter terminated by its terms.
On December 16, 1997, Mr. Carney and other representatives of the Company
and its financial advisor, McDonald & Company, met in Santa Monica, California,
with Mr. Richey, Mr. Labbett, R.N. Hankin, Chairman of the Board of the Company,
and representatives of F.M. Roberts to review the information and materials
requested by Mr. Carney in his letter of December 2, 1997 to Mr. Labbett.
On January 9, 1998, Mr. Carney and Timothy Lemieux, Director of Systems
Development of the Parent, participated in a telephone call with Mr. Labbett and
representatives of the firm retained by the Company to install point-of-sale
equipment. The purpose of the call was to determine the compatibilities of the
hardware and software platforms used by the Company and the Parent at their
respective stores.
On January 9, 1998, Mr. Roberts wrote a letter formally inviting interested
parties, including the Parent, to submit a non-binding indication of interest in
an acquisition of the Company and specifying the information to be contained in
the indication of interest.
On January 14, 1998, the Parent's Board of Directors met to discuss the
advisability of an acquisition of the Company by the Parent, as well as the
terms and conditions of such an acquisition. J.W. Sean Dorsey of McDonald &
Company, financial advisor to the Parent, participated in the meeting by
conference telephone. A preliminary draft of the Merger Agreement was sent to
each of the directors prior to the meeting. At the meeting, the Parent's
directors unanimously approved the acquisition on the terms discussed.
16
<PAGE> 19
On January 16, 1998, the Parent submitted a non-binding proposal for the
acquisition of the Company. The principal terms of that proposal were: (1) a
price of $4.10 per share in cash, subject to reduction if the Company's secured
lender did not waive the termination fee payable under the Company's existing
financing arrangement or the Company's investment bankers did not agree to cap
their fees at $1,500,000 in the aggregate, (2) the acquisition to be structured
as a tender offer followed by a merger in which non-tendering stockholders of
the Company would receive the same cash price as was paid in the tender offer,
(3) prompt filing by the Parent and the Company of their Notification and Report
Forms under the HSR Act, and (4) an agreement by the Company not to solicit or
encourage acquisition proposals from other bidders or to furnish nonpublic
information to other bidders. The members of the Company's Board of Directors
were informed as to the content of the Parent's non-binding proposal.
On January 19, 1998, the Parent submitted to the Company a draft of the
Merger Agreement and a Stock Option Agreement, that provided for the grant by
the Company to the Parent of an option to purchase Shares comprising 19% of the
outstanding Shares prior to exercise of the option (the "Lock-up Option").
On January 20, 1998, the Company's Board of Directors met and reviewed the
proposal from the Parent. Mr. Roberts and Richard Boehmer of O'Melveny & Myers
LLP, counsel to the Company, discussed the proposal with the Board. The Board
concluded that the Company's management, Mr. Roberts and counsel should discuss
the proposal further with the Parent and report back to the Board regarding
their discussions.
Following discussions between Mr. Roberts and Mr. Dorsey, on January 22,
1998, the Parent increased the price to $4.25 per share in cash, removed the
provision for a reduction of the price and clarified the extent of the due
diligence to be conducted by the Parent prior to the execution of a definitive
Merger Agreement. On January 22, 1998, Mr. Richey wrote Mr. Rosskamm and agreed
not to engage in discussions with third parties about a merger with the Company
until February 6, 1998 or the earlier termination of discussions between the
Parent and the Company.
On January 27 and 28, 1998, representatives of the Parent met with
representatives of the Company, F.M. Roberts and counsel to the Company to
negotiate the terms of the Merger Agreement. During the course of those
discussions, a number of issues were addressed, including the amount of the
Termination Fee requested by the Parent, the proposed Offer Conditions, and the
extent of the representations, warranties and covenants to be made by the
Company in the Merger Agreement. As a result of these discussions,
representatives of the Parent agreed to drop their request for the Lock-up
Option, to decrease the amount of the Termination Fee being requested and to
eliminate or revise certain of the Company's representations, warranties and
covenants.
On January 28, 1998, the Company's Board of Directors met. Mr. Roberts and
Mr. Boehmer summarized for the Board the negotiations to date with the Parent
and discussed open issues, including the extent of the representations and
warranties requested by the Parent, the Termination Fee demanded by the Parent
and the proposed Offer Conditions.
On January 29, 1998, the then current draft of the Merger Agreement was
provided to all of the directors of the Company. Also, the Company requested
that DLJ review the proposed transaction and, when requested by the Company, to
deliver an opinion as to the fairness from a financial point of view of the
consideration to be received by the Company stockholders in the proposed
transaction. The Company and DLJ then signed a letter agreement confirming DLJ's
fee for such an opinion and waiving certain other fees which had been provided
for in the agreement the Company had signed with DLJ on January 24, 1997.
On January 30, 1998, counsel to the Parent and the Company exchanged
comments on a draft of the Merger Agreement and continued to discuss open
issues, including the amount of the Termination Fee and wording of the Offer
Conditions.
On February 1, 1998, the Company's Board of Directors met to consider the
proposed transaction with the Parent. Mr. Boehmer reviewed with the Board the
proposed terms of the Merger Agreement in detail. The Board continued to be
concerned regarding the amount of the proposed Termination Fee and the wording
of the Offer Condition regarding the possible divestiture of stores by the
Parent. The Board instructed Mr. Roberts to contact the Parent regarding these
matters. Mr. Roberts telephoned Mr. Carney, and they agreed on a further
reduction in
17
<PAGE> 20
the amount of the Termination Fee and on the wording of the Offer Conditions. A
revised draft of the Merger Agreement was prepared reflecting the changes.
The Company's Board of Directors reconvened later on February 1, 1998. At
that meeting, Mr. Boehmer described the terms of the proposed Merger Agreement.
Representatives of DLJ joined the meeting and made a presentation to the
Company's Board of Directors. After the presentation, DLJ delivered its written
opinion that the consideration to be received by the stockholders of the Company
pursuant to the Merger Agreement is fair to such stockholders from a financial
point of view. The Company's Board of Directors then unanimously determined that
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, were fair to the stockholders of the Company, approved the
Merger Agreement, and recommend that the Company's stockholders tender their
shares of Common Stock pursuant to the Offer and, if applicable, approve the
Merger Agreement and the transactions contemplated therein, including the
Merger.
SECTION 12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY
Purpose. The purpose of the Offer and the Merger is to enable the Parent
to acquire control of, and the entire equity interest in, the Company. The
Offer, as the first step in the acquisition of the Company, is intended to
facilitate the acquisition of all the Shares. The purpose of the Merger is to
acquire all Shares not purchased pursuant to the Offer or otherwise. Pursuant to
the Merger, each then outstanding Share (other than Shares owned by the Parent
or any of its subsidiaries, Shares held as treasury shares by the Company, and
Shares owned by stockholders who perfect appraisal rights under Delaware law)
will be converted into the right to receive an amount in cash equal to the price
per Share paid by the Purchaser pursuant to the Offer. Although it is the
Purchaser's intention to consummate the Merger as promptly as practicable, there
can be no assurance that the Merger will be consummated or, if consummated, of
the timing thereof. In addition to approval by the Company's Board of Directors,
which occurred on February 1, 1998, consummation of the Merger will require the
affirmative vote of the holders of a majority of the Shares; except that, if the
Purchaser purchases 90% or more of the Shares pursuant to the Offer, the Merger
could be consummated without the approval of the stockholders through a "short
form" merger (described below in Section 13).
Plans for the Company. In connection with the Offer and the Merger, the
Parent and the Purchaser have reviewed and will continue to analyze, on the
basis of available information, various possible business strategies that they
might pursue in the event that the Purchaser acquires the Company pursuant to
the Offer and the Merger.
At present, the Parent expects to close a number of stores in markets
currently served by both the Parent and the Company, although exact number or
location of the stores to be closed has not yet been determined. The Parent also
expects to close the Company's headquarters in Sherman Oaks, California. Some of
the headquarters staff will be given an opportunity to relocate to the Parent's
headquarters in Hudson, Ohio. The closure of stores and the Company's
headquarters will, however, result in a net reduction in the Company's
workforce. The Parent expects to provide to those employees of the Company that
are retained benefits that are, in the aggregate, substantially comparable to
those provided by the Parent to its own employees in similar positions. The
Parent has agreed to pay Donald L. Richey, President and Chief Executive Officer
of the Company, approximately $210,000 as a "stay on" bonus for Mr. Richey to
assist the Parent in assimilating the Company into the Parent's operations. In
addition, following completion of the Merger, the Parent may change the dividend
policy of the Company in order to meet the cash requirements of the Parent and
its subsidiaries, as well as those of the Company.
Except as described in this Offer to Purchase, the Parent and the Purchaser
have no present plans or proposals that would result in an extraordinary
corporate transaction, such as a merger, consolidation, reorganization,
liquidation or sale or transfer of a material amount of assets, involving the
Company, or any material changes in the Company's present capitalization,
employee benefit plans, corporate structure or business or any material changes
or reductions in the composition of its management or personnel. Except as so
described, the Parent and the Purchaser have no present plans or proposals to
establish, terminate, convert or amend employee benefit plans, close any retail
store of the Company, change or reduce the workforce of the Company or make any
other major changes in its business or policies of employment.
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SECTION 13. THE MERGER
The Merger Agreement. The following is a summary of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement,
which has been filed as an exhibit to the Schedule 14D-1 and is incorporated
herein by reference.
The Tender Offer. Pursuant to the terms of the Merger Agreement, the
Purchaser has agreed to, and the Parent has agreed to cause the Purchaser
to, offer to purchase each outstanding Share of the Company tendered
pursuant to the Offer at a price of $4.25 per share, net to the seller in
cash, and to cause the Offer to remain open until the close of business on
the twentieth business day after the commencement of the Offer. The
obligations of the Purchaser and the Parent to consummate the Offer and to
accept for payment and purchase the Shares tendered in the Offer is subject
only to the Offer Conditions. At the Company's request, the Purchaser will,
and the Parent will cause the Purchaser to, extend the expiration date of
the Offer from time to time for up to an aggregate of ten business days
following the Expiration Date if the Minimum Condition is not fulfilled
prior to 12:00 p.m. on the Expiration Date. The Purchaser will not decrease
the price payable in the Offer, change the form of consideration payable in
the Offer, reduce the number of Shares subject to the Offer, change the
Offer Conditions, impose additional conditions to its obligation to
consummate the Offer and to accept for payment and purchase Shares tendered
in the Offer, or change any other terms of the Offer in a manner adverse to
the stockholders of the Company, except that the Purchaser may extend the
Expiration Date to the extent required by applicable law, if any of the
Offer Conditions are not satisfied, or if less than 90% of the outstanding
Shares have been validly tendered and not withdrawn pursuant to the Offer.
The Company has agreed to include in its Tender Offer
Solicitation/Recommendation Statement filed with the Commission on Schedule
14D-9 a recommendation by the Company's Board of Directors that the
Company's stockholders accept the Offer and tender their Shares pursuant to
the Offer. The Company's Board of Directors has resolved to recommend that
the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer and has received an opinion from DLJ that, as of the
date of such opinion, the cash consideration to be received by the
stockholders of the Company pursuant to the Offer and the Merger is fair to
such stockholders from a financial point of view.
Board Designees. The Merger Agreement provides that promptly
following the purchase by the Purchaser pursuant to the Offer of that
number of Shares which, when aggregated with the Shares then owned by the
Parent and any of its affiliates, represents at least a majority of the
Shares then outstanding on a fully diluted basis, the Company will, if
requested by the Purchaser or the Parent, take all actions necessary to
cause persons designated by the Purchaser to become directors of the
Company so that the total number of directors so designated equals the
product, rounded up to the next whole number, of (i) the total number of
directors of the Company multiplied by (ii) the ratio of the number of
Shares beneficially owned by the Purchaser or its affiliates at the time of
such purchase over the number of Shares then outstanding. In furtherance
thereof, the Company will take whatever action is necessary, including, but
not limited to, amending the Company's bylaws to increase the size of its
Board of Directors, or using reasonable efforts to secure the resignation
of directors, or both, as is necessary to permit that number of the
Purchaser's designees to be elected to the Company's Board of Directors;
provided that, prior to the Effective Time (as defined below), the
Company's Board of Directors will always have at least two members who are
currently directors of the Company, except to the extent that no such
individuals wish to be directors ("Continuing Directors"). The Company's
obligations to appoint designees to its Board of Directors will be subject
to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.
The Parent and the Purchaser will supply to the Company and will be solely
responsible for any information with respect to either of them and their
nominees, officers, directors, and affiliates required by Section 14(f) and
Rule 14f-1. The Company will promptly take all actions required pursuant to
Section 14(f) and Rule 14f-1 in order to fulfill these obligations and
(provided that the Purchaser shall have provided to the Company on a timely
basis all information required to be included in the Information Statement
with respect to the Purchaser's designees) will include in the Schedule
14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1. Following the
election or appointment of the
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Purchaser's designees, any amendment to the Merger Agreement, any
termination of the Merger Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations of the
Purchaser or the Parent under the Merger Agreement (except as expressly
permitted under the Merger Agreement), any recommendation to stockholders
or any modification or withdrawal of any such recommendation, any retention
of counsel and other advisors in connection with the transactions
contemplated by the Merger Agreement, or any waiver of any of the Company's
rights under the Merger Agreement will require the concurrence of a
majority of the Continuing Directors, unless no individuals who are
currently directors of the Company wish to be directors.
The Merger. Pursuant to the terms of the Merger Agreement, the
Purchaser will be merged with and into the Company in accordance with the
Delaware General Corporate Law (the "DGCL"). As a result of the Merger, the
separate existence of the Purchaser will cease and the Company will be the
surviving corporation (the "Surviving Corporation"). As soon as practicable
after satisfaction or waiver of all conditions to the Merger set forth in
the Merger Agreement, the parties will cause a certificate of merger to be
duly filed with the Delaware Secretary of State. The Merger will become
effective when the certificate of merger is so filed (the "Effective
Time").
By virtue of the Merger, at the Effective Time: (i) each share of
common stock of the Purchaser then issued and outstanding will be converted
into one share of common stock of the Surviving Corporation; and (ii) each
Share then issued and outstanding, except for Shares held by the Company as
treasury shares or owned by the Parent or any subsidiary of the Parent
(which Shares will be immediately canceled and no payment will be made with
respect thereto), will be converted, by virtue of the Merger and without
any action on the part of the holder thereof, into the right to receive,
without interest, an amount in cash equal to the price per Share paid in
the Offer (the "Merger Consideration"). Subject to the right of
stockholders to dissent from the Merger and require appraisal of their
Shares pursuant to the DGCL, from and after the Effective Time all Shares
will be canceled and retired and cease to exist and each holder of a
certificate representing any Shares immediately prior to the Effective Time
will thereafter cease to have any rights with respect to such Shares,
except the right to receive the Merger Consideration therefor or payment
from the Surviving Corporation of the "fair value" of such Shares as
determined under Section 262 of the DGCL.
Until amended in accordance with applicable law, the certificate of
incorporation and bylaws of the Purchaser in effect immediately prior to
the Effective Time will be the certificate of incorporation and bylaws of
the Surviving Corporation after the consummation of the Merger. Until
successors are duly elected or appointed and qualified in accordance with
applicable law, from and after the Effective Time, the directors and
officers of the Purchaser immediately prior to the Effective Time will be
the directors and officers of the Surviving Corporation after the
consummation of the Merger.
Stock Options; Series B Warrants. At the Effective Time, each
outstanding option (a "Company Option") to purchase Shares granted to
employees, directors or F.M. Roberts, whether or not exercisable, will be
canceled and converted into the right to receive, without interest, an
amount in cash (the "Cash Payment") equal to the product of (i) the number
of Shares subject to the Company Option and (ii) the excess of (a) the
Merger Consideration over (b) the exercise price per share of the Company
Option; provided that, with respect to any Person subject to Section 16 of
the Exchange Act, any such amount will be paid, without interest, as soon
as practicable after the first date payment can be made without liability
of such Person under Section 16(b) of the Exchange Act.
At the Effective Time, the Parent will cause the Surviving Corporation
to assume the performance of the covenants and conditions of the Series B
Warrant Agreement (the "Series B Warrant Agreement") and the Series C
Warrant Agreement (the "Series C Warrant Agreement"), each executed by and
between the Company and American Stock Transfer & Trust Company, as the
warrant agent (the "Warrant Agent"), and dated as of July 31, 1996, that
was to be performed by the Company under each agreement, by supplemental
agreement (the "Supplemental Warrant Agreement"). The Supplemental Warrant
Agreement will further provide that each holder of a Series B Warrant will
have the right after the Effective Time (a) upon exercise of each Series B
Warrant and payment of the Exercise Price (as defined in the Series B
Warrant Agreement) in effect immediately prior to the Effective Time, to
receive the Merger Consideration and one Series C
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Warrant and (b) upon exercise of each Series C Warrant and payment of the
Exercise Price (as defined in the Series C Warrant Agreement) in effect
immediately prior to the Effective Time, to receive the Merger
Consideration.
Representations and Warranties of the Company. In the Merger
Agreement, the Company has made customary representations and warranties to
the Purchaser and the Parent, including, but not limited to,
representations and warranties relating to the following: the organization
and qualification of the Company; the authority of the Company to enter
into and perform its obligations under the Merger Agreement; required
consents and approvals; the capitalization of the Company; filings made by
the Company with the Commission; the accuracy of the Company's financial
statements; inventory; contracts and commitments; the absence of certain
changes or developments since October 31, 1997; litigation; necessary
permits; labor and employee benefit matters; taxes; real estate; personal
property; intellectual property rights; environmental matters; insurance;
indemnification; board approval and recommendation; stockholder approval;
opinion of a financial advisor; finders and investment bankers; and state
takeover statutes.
Representations and Warranties of the Parent and the Purchaser. The
Parent and the Purchaser have also made customary representations and
warranties in the Merger Agreement, including, but not limited to,
representations and warranties relating to the following: the organization
and qualification of the Parent and the Purchaser; the authority of each of
the Parent and the Purchaser to enter into and perform their obligations
under the Merger Agreement; required consents and approvals; filings made
by the Parent with the Commission; the accuracy of the Parent's
consolidated financial statements; litigation; stockholder approval;
availability of sufficient funds to consummate the Offer; the absence of
fraudulent conveyances; and finders and investment bankers.
Covenants of the Company. In the Merger Agreement, the Company has
agreed that, except as contemplated or permitted by the Merger Agreement or
specifically disclosed in the schedules thereto, or as otherwise approved
in writing by the Parent, from the date of the Merger Agreement until the
time that the designees of the Purchaser have been appointed to the Board
of Directors of the Company, the Company will conduct its business in the
ordinary course consistent with past practice. Throughout this same period
of time the Company will not (i) adopt or approve any amendment in its
certificate of incorporation or bylaws; (ii) merge, consolidate, or enter
into a share exchange with any other individual, corporation, partnership,
association, trust or other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof (a
"Person"), acquire a material amount of capital stock or assets of any
other Person, or sell, lease, license, mortgage, pledge or otherwise
dispose of any material assets, except for the purchase or sale of
merchandise inventory in the ordinary course of business consistent with
past practice; (iii) declare, set aside, or pay any dividends or make any
distributions in respect of the Shares or redeem, repurchase, or otherwise
acquire any Shares; (iv) issue, deliver or sell, or authorize the issuance,
delivery or sale of, any capital stock or other securities of the Company,
other than upon the exercise of outstanding Company Options or Series B
Warrants granted prior to the date hereof, split, combine or reclassify any
Shares, or amend the terms of any outstanding voting securities; (v)
without the prior written consent of the Parent, which consent shall not be
unreasonably withheld or delayed, enter into any new store lease, extend
the term of any existing store lease, or enter into certain other contracts
or commitments; (vi) except to the extent required by law or by existing
written agreements or plans disclosed in Company reports to the Commission
or the Company disclosure schedule, increase in any manner the compensation
or fringe benefits of any of its directors or officers (other than annual
increases, in the ordinary course of business, in the compensation or
fringe benefits of officers who are not executive officers), pay any
pension or retirement allowance to any such director or officer, become a
party to, amend, or commit itself to any pension, retirement,
profit-sharing, welfare-benefit plan, or employment agreement with or for
the benefit of any such director or officer, grant any severance or
termination pay or stay-in-place bonus to any such director or officer, or
increase the benefits payable under any existing severance or termination
pay or stay-in-place bonus policies; (vii) make any material tax election
or settle or compromise any material federal, state, local or foreign tax
liability; (viii) change its accounting procedures and practices in any
material
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respects, including but not limited to those relating to inventory
valuation and reserves, except to the extent require by changes in
generally accepted accounting principles; and (ix) agree to do any of the
foregoing.
In the Merger Agreement, the Company has further agreed that, from the
date of the Merger Agreement until the Effective Time, it will not, and
will direct and use all reasonable efforts to cause the officers,
directors, employees and agents of the Company not to, directly or
indirectly, (i) take any action to solicit, to initiate or knowingly to
encourage any good faith offer or proposal for (x) a merger or other
business combination involving the Company and any Person (other than the
Parent, the Purchaser or any subsidiary of either the Parent or the
Purchaser), (y) an acquisition by any Person (other than the Parent, the
Purchaser or any subsidiary of either the Parent or the Purchaser) of
assets or earning power of the Company, in one or more transactions,
representing 15% or more of the assets or earning power of the Company, or
(z) an acquisition by any Person (other than the Parent, the Purchaser or
any subsidiary of either the Parent or the Purchaser) of securities
representing 15% or more of the voting power of the Company (any of the
events in (x), (y) and (z) being a "Company Acquisition Proposal"), (ii)
engage or participate in discussions or negotiations, or enter into
agreements, with any Person with respect to a Company Acquisition Proposal,
or (iii) in connection with a Company Acquisition Proposal, disclose any
nonpublic information relating to the Company or afford access to the
properties, books or records of the Company to any Person, except that the
Company may take action described in clause (ii) or (iii) if (A) such
action is taken in connection with an unsolicited Company Acquisition
Proposal, (B) in the good faith judgment of the Board of Directors of the
Company, after consultation with outside counsel, the failure to take such
action would not be consistent with the fiduciary duties of the Board of
Directors under applicable law, and (C) in the case of the disclosure of
nonpublic information relating to the Company in connection with a Company
Acquisition Proposal, such information is covered by a confidentiality
agreement that provides substantially the same protection to the Company as
is afforded by the confidentiality agreement, dated October 30, 1997,
between the Parent and the Company (the "Confidentiality Agreement"). The
Company will promptly notify the Parent orally and in writing of any
Company Acquisition Proposal or any inquiries with respect thereto.
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 the Parent or the Purchaser, the approval or
recommendation by such Board of Directors or such committee of the Offer,
the Merger or the Merger Agreement, (ii) approve or recommend, or propose
publicly to approve or recommend, any Company Acquisition Proposal, or
(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (in each case,
an "Acquisition Agreement") related to any Company Acquisition Proposal,
except that, in any case set forth in clause (i), (ii) or (iii) above,
prior to the acceptance for payment of Shares pursuant to the Offer, the
Board of Directors of the Company may, in response to an unsolicited
Company Acquisition Proposal, (A) withdraw or modify its approval or
recommendation of the Offer, the Merger or the Merger Agreement or (B)
approve or recommend any such Company Acquisition Proposal if, in the case
of any action described in clause (A) or (B), in the good faith judgment of
the Board of Directors of the Company, after consultation with outside
counsel, the failure to take such action would not be consistent with the
fiduciary duties of the Board of Directors under applicable law and, in the
case of the actions described in clause (B), concurrently with such
approval or recommendation the Company terminates the Merger Agreement and
promptly thereafter enters into an Acquisition Agreement with respect to a
Company Acquisition Proposal.
Merger Meeting; Proxy Statement. The Merger will be consummated as
soon as practicable (and in no event later than six months) after the
purchase of Shares pursuant to the Offer. If the Purchaser is able to do so
under the DGCL, it will consummate the Merger pursuant to the "short form"
merger provisions of the DGCL. The Parent will vote, or cause to be voted,
all Shares beneficially owned by it in favor of the Merger. If required by
the DGCL in order to consummate the Merger, as soon as practicable
following the purchase of Shares pursuant to the Offer, the Company will
take all action necessary in accordance with the DGCL and with the
Company's certificate of incorporation and bylaws to convene a meeting of
its stockholders to approve the Merger and adopt the Merger Agreement (the
"Merger Meeting"). The Company's Board of Directors will recommend that the
Company's stockholders approve the Merger and adopt the Merger Agreement,
and will cause the Company to use all reasonable efforts to solicit from
the
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stockholders proxies to vote therefor, unless (i) in the good faith
judgment of the Board of Directors of the Company, after consultation with
outside counsel, such recommendation would not be consistent with the
fiduciary duties of the Board of Directors under applicable law or (ii) the
Merger Agreement is terminated in accordance with its terms. The Company
will, if required by law for the consummation of the Merger, prepare and
file with the Commission preliminary proxy materials relating to the
approval of the Merger and the adoption of the Merger Agreement by the
Company's stockholders, and will file with the Commission revised
preliminary proxy materials, if appropriate, and definitive proxy materials
in a timely manner as required by the rules and regulations of the
Commission. Except as otherwise provided in clauses (i) and (ii) of this
paragraph, the proxy materials relating to the Merger Meeting will include
the recommendation of the Company's Board of Directors.
Covenants of the Parent and the Purchaser. The Merger Agreement
provides that, from and after the Effective Time, the Parent and the
Surviving Corporation will jointly and severally indemnify, defend and hold
harmless the present and former directors and officers of the Company
against all losses, claims, damages and liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, to
which any of them was or is a party or is threatened to be made a party by
reason of the fact that he or she was or is a director or officer of the
Company in respect of acts or omissions occurring at or prior to the
Effective Time to the fullest extent that the Company would have been
permitted to indemnify such person under applicable law and the certificate
of incorporation and bylaws of the Company or any other agreements or
commitments in effect on the date of the Merger Agreement. The Parent will
use all reasonable efforts to, without any lapse in coverage, either (i)
for at least six years after the Effective Time, provide directors' and
officers' liability insurance ("D&O Insurance") in respect of acts or
omissions occurring at or prior to the Effective Time covering each such
Person currently covered by the Company's D&O Insurance policy on terms
with respect to coverage and amount no less favorable than those of such
policy in effect on the date of the Merger Agreement; provided that the
Parent will not be required to pay per annum more than 150% of the last
premium (annualized) paid by the Company for such policy prior to the date
of the Merger Agreement, (ii) purchase tail insurance in respect of the
Company's existing D&O Insurance for six years for a premium not to exceed
the present value (discounted at the rate of 10% per annum) of the maximum
annual premiums payable under clause (i) above, or (iii) if such D&O
Insurance or tail insurance is only available at premiums in excess of the
maximum premiums set forth in clauses (i) or (ii), as applicable, then
purchase the highest level of D&O Insurance or tail insurance available at
such applicable premium.
Employee Benefits. The Parent expects that it will provide the
employees of the Company with benefits which, in the aggregate, are
substantially comparable to the benefits provided from time to time by the
Parent to other employees of the Parent or its subsidiaries in similar
positions. The Parent agrees in the Merger Agreement that, during the
period commencing at the Effective Time and ending on the second
anniversary thereof, the benefits provided to such employees will be not
less favorable, in the aggregate, than the benefits provided by the Company
on the date of the Merger Agreement. The Parent will cause each employee
benefit plan of the Parent in which employees of the Company are eligible
to participate to take into account, for purposes of eligibility and
vesting thereunder, the service of such employees with the Company as if
such service were with the Parent, to the same extent that such service was
credited under a comparable plan of the Company. The Parent will, and will
cause the Surviving Corporation to, honor in accordance with their terms
(i) all employee benefit obligations to current and former employees of the
Company accrued and vested as of the Effective Time and (ii) to the extent
set forth in the Company disclosure schedule, all employee severance plans
in existence on the date of the Merger Agreement and all employment or
severance agreements entered into prior to the date of the Merger
Agreement.
Covenants of the Company, the Parent and the Purchaser. Subject to
the terms and conditions of the Merger Agreement, the Company, the Parent
and the Purchaser agree to use all reasonable efforts to take all actions
and to do all things necessary or advisable under applicable laws and
regulations to satisfy the conditions to closing and consummate the
transactions contemplated by the Merger Agreement as promptly as
practicable. The Company and the Parent will each promptly file
Notification and Report Forms under the
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HSR Act and respond as promptly as practicable to all requests for
additional information or documentation received from the Antitrust
Division of the United States Department of Justice (the "Antitrust
Division") or the Federal Trade Commission (the "FTC"). Notwithstanding the
foregoing, nothing contained in the Merger Agreement will require the
Company, the Parent or any of the Parent's subsidiaries (i) to initiate or
defend any material pending or threatened litigation to which any
governmental or regulatory authority (including the Antitrust Division and
the FTC) is a party, (ii) to agree or otherwise become subject to any
material limitations on (A) the right of the Parent or the Company, as the
Surviving Corporation, effectively to control or operate the business,
assets or operations of the Company following the Offer or the Merger, (B)
the right of the Parent or the Company, as the Surviving Corporation, to
acquire or hold the business, assets or operations of the Company as a
result of the Merger, (C) the right of the Purchaser to exercise its rights
of ownership of the Shares purchased by it in the Offer, or the right of
the Parent to exercise its rights of ownership of the shares of common
stock of the Company, as the Surviving Corporation, after consummation of
the Merger, including but not limited to the right to vote such shares of
common stock on all matters properly presented to the Company's
stockholders, or (iii) to agree or otherwise be required to sell or dispose
of, hold separate (through the establishment of a trust or otherwise), or
divest itself of twenty-five (25) stores or more (whether stores of the
Company, the Parent or any of the Parent's subsidiaries).
Conditions to the Merger. The obligations of the Company, the Parent
and the Purchaser to consummate the Merger are subject to the satisfaction
of the following conditions: (i) if required by applicable law, the Merger
has been approved, and the Merger Agreement has been adopted, by the
requisite vote of the Company's stockholders; (ii) the Purchaser has
purchased all validly tendered and not properly withdrawn Shares in
accordance with the Offer; and (iii) no provision of any applicable
domestic law or regulation and no judgment, injunction, order or decree of
a court or governmental agency or authority of competent jurisdiction is in
effect that has the effect of making the Offer or the Merger illegal or
otherwise restrains or prohibits the purchase of Shares pursuant to the
Offer or the consummation of the Merger. The obligations of the Parent and
the Purchaser to consummate the Merger are subject to compliance by the
Company with its obligation to cause persons designated by the Parent to
become directors of the Company in accordance with the Merger Agreement.
Termination. The Merger Agreement may be terminated and the Offer and
the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding any prior approval of the Merger and adoption of the Merger
Agreement by the Company's stockholders, (i) by the mutual written consent
of the Company, the Parent and the Purchaser; (ii) by the Company if the
Purchaser has not purchased Shares pursuant to the Offer by May 31, 1998,
or by either the Company or the Parent if the Merger has not been
consummated by October 31, 1998, provided that such right of termination
will not be available to any party that, at the time of termination, is in
material breach of its obligations under the Merger Agreement; (iii) by
either the Company or the Parent if any applicable domestic law, rule or
regulation makes consummation of the Offer or the Merger illegal or if any
judgment, injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction restrains or prohibits the consummation
of the Offer or the Merger and such judgment, injunction, order or decree
has become final and nonappealable; (iv) by either the Company or the
Parent if the requisite vote of the Company's stockholders approving the
Merger and adopting the Merger Agreement has not been obtained at the
Merger Meeting; provided that the right to so terminate the Merger
Agreement will not be available to (a) the Parent if it has not voted, or
caused to be voted, all Shares beneficially owned by it in favor of the
Merger, or (b) the Company if it has not taken all action necessary to
convene a meeting of its stockholders to approve the Merger and adopt the
Merger Agreement; (v) by either the Company or the Parent if the Offer
terminates without the purchase of Shares thereunder; provided that the
right to so terminate the Merger Agreement shall not be available to (a)
the Parent, if the Purchaser has breached its obligations to conduct the
Offer in accordance with the terms of the Merger Agreement, or (b) any
party whose willful failure to perform any of its obligations under the
Merger Agreement results in the failure of any of the Offer Conditions or
if the failure of any such Offer Conditions results from facts or
circumstances that constitute a material breach of the representations or
warranties of such party under the Merger Agreement; (vi) prior to the
purchase of Shares by the Purchaser pursuant to the Offer, by the Parent if
(a) the Company violates its obligations under the terms of the Merger
Agreement
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<PAGE> 27
regarding Company Acquisition Proposals in any material respects and
thereafter any Person publicly makes a Company Acquisition Proposal or (b)
the Board of Directors of the Company does not publicly recommend in the
Schedule 14D-9 that the Company's stockholders accept the Offer and tender
their Shares pursuant to the Offer and approve the Merger and adopt the
Merger Agreement, or if the Board of Directors of the Company withdraws,
modifies or changes such recommendation in any manner materially adverse to
the Parent; or (vii) by the Company if the Company receives an unsolicited
Company Acquisition Proposal that the Board of Directors determines in good
faith, after consultation with its legal and financial advisors, is likely
to lead to a merger, acquisition, consolidation or similar transaction that
is more favorable to the stockholders of the Company than the transactions
contemplated by the Merger Agreement; provided that the Company has given
the Parent at least five days notice of the material terms of such Company
Acquisition Proposal and such termination shall not be effective until the
Company has paid the Termination Fee (as defined below), if and to the
extent required under the terms of the Merger Agreement.
In the event of any such termination of the Merger Agreement and
abandonment of the Offer and the Merger, no party to the Merger Agreement
(or any of its directors, officers, employees, agents or advisors) will
have any liability or further obligation to any other party to the Merger
Agreement except (i) for obligations of the Company to pay, under
circumstances described below, the Termination Fee and certain expenses of
the Parent and the Purchaser, (ii) for obligations arising out of the
applicability of the Confidentiality Agreement to information provided
pursuant to the Merger Agreement, and (iii) for liability for any breach of
covenants or agreements of the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that, except as set
forth below, all costs and expenses incurred in connection with the Merger
Agreement will be paid by the party incurring the costs and expenses.
Pursuant to the Merger Agreement, if (i) any Person publicly makes a
Company Acquisition Proposal and thereafter the Merger Agreement is
terminated by the Company or the Parent because the requisite vote of the
Company's stockholders approving the Merger and adopting the Merger
Agreement has not been obtained at the Merger Meeting, (ii) any Person
publicly makes a Company Acquisition Proposal and thereafter the merger
Agreement is terminated by the Company or the Parent because an
insufficient number of Shares are tendered pursuant to the Offer, (iii)
prior to the Purchase of Shares by the Purchaser pursuant to the Offer, the
Merger Agreement is terminated by the Parent because (a) the Company has
violated its obligations under the terms of the Merger Agreement regarding
Company Acquisition Proposals in any material respects and thereafter any
Person publicly makes a Company Acquisition Proposal or (b) the Board of
Directors of the Company has not publicly recommended in the Schedule 14D-9
that the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer and approve the Merger and adopt the Merger
Agreement, or if the Board of Directors of the Company has withdrawn,
modified or changed such recommendation in any manner materially adverse to
the Parent, or (iv) the Merger Agreement is terminated by the Company
because the Company receives an unsolicited Company Acquisition Proposal
that the Board of Directors of the Company determines in good faith, after
consultation with its legal and financial advisors, is likely to lead to a
merger, acquisition, consolidation or similar transaction that is more
favorable to the stockholders of the Company than the Merger, then the
Company will reimburse the Parent and the Purchaser for all of the
reasonable documented out-of-pocket expenses and fees actually incurred by
the Parent and the Purchaser in connection with the transactions
contemplated by the Merger Agreement prior to the termination of the Merger
Agreement, including, without limitation, all reasonable fees and expenses
of counsel, financial advisors, accountants and environmental and other
experts and consultants to the Parent and the Purchaser ("Transaction
Costs"); except that the Company will not be required to reimburse the
Parent or the Purchaser for Transaction Costs in excess of $750,000 in the
aggregate.
Pursuant to the Merger Agreement, if (i) any Person publicly makes a
Company Acquisition Proposal, thereafter the Merger Agreement is terminated
by the Company or the Parent because the requisite vote of the Company's
stockholders approving the Merger and adopting the Merger Agreement has not
been obtained at the Merger Meeting, and within 12 months after termination
the Company agrees to or
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<PAGE> 28
consummates any Company Acquisition Proposal, (ii) any Person publicly
makes a Company Acquisition Proposal, thereafter the merger Agreement is
terminated by the Company or the Parent because an insufficient number of
Shares are tendered pursuant to the Offer, and within 12 months after
termination the Company agrees to or consummates any Company Acquisition
Proposal, (iii) prior to the Purchase of Shares by the Purchaser pursuant
to the Offer, the Merger Agreement is terminated by the Parent because (a)
the Company has violated its obligations under the terms of the Merger
Agreement regarding Company Acquisition Proposals in any material respects
and thereafter any Person publicly makes a Company Acquisition Proposal or
(b) the Board of Directors of the Company has not publicly recommended in
the Schedule 14D-9 that the Company's stockholders accept the Offer and
tender their Shares pursuant to the Offer and approve the Merger and adopt
the Merger Agreement, or if the Board of Directors of the Company has
withdrawn, modified or changed such recommendation in any manner materially
adverse to the Parent, or (iv) the Merger Agreement is terminated by the
Company because the Company receives an unsolicited Company Acquisition
Proposal that the Board of Directors of the Company determines in good
faith, after consultation with its legal and financial advisors, is likely
to lead to a merger, acquisition, consolidation or similar transaction that
is more favorable to the stockholders of the Company than the Merger, then,
in addition to reimbursing the Parent and the Purchase for their
Transaction Costs, the Company will pay to the Parent a fee of $750,000
(the "Termination Fee"). If the Parent is required to file suit to seek the
Termination Fee, and it ultimately succeeds on the merits, it will be
entitled to all expenses, including reasonable attorneys' fees, that it has
incurred in enforcing its right to receive the Termination Fee. If the
Parent receives a Termination Fee under circumstances in which a
Termination Fee is payable, neither the Parent, the Purchaser nor any of
their affiliates will assert or pursue in any manner, directly or
indirectly, any claim or cause of action against the Company or any of its
directors, officers, employees, agents or representatives based in whole or
in part upon its or their receipt, consideration, recommendation or
approval of a Company Acquisition Proposal, including the Company's
exercise of its right of termination of the Merger Agreement upon receipt
of certain Company Acquisition Proposals.
Waiver and Amendment. Subject to applicable law and the terms of the
Merger Agreement, any provision of the Merger Agreement may be amended or
waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and duly executed and delivered, in the case of an
amendment, by each of the parties to the Merger Agreement or, in the case
of a waiver, by the party against whom the waiver is to be effective.
Required Vote. In general, under Delaware law and the Company's
certificate of incorporation, the Merger requires the approval of the Company's
Board of Directors and the approval of the holders of a majority of all
outstanding Shares.
Accordingly, if the Purchaser acquires more than a majority of the
outstanding Shares pursuant to the Offer, the Purchaser would have the voting
power to approve the Merger without the vote of any other stockholders and could
effect the Merger by so voting and by action of the Board of Directors of the
Purchaser, the Company's Board of Directors having already approved the Merger
on February 1, 1998. This will be the case if the Minimum Condition is
satisfied. In the Merger Agreement, the Purchaser has agreed to vote in favor of
the Merger all of the Shares purchased pursuant to the Offer.
Further, Delaware law provides that, if a parent corporation owns 90% or
more of each class of outstanding shares of a subsidiary, the parent corporation
may merge the subsidiary into itself, or merge itself into the subsidiary, by
action of the board of directors of the parent corporation and without action or
vote by the stockholders of either corporation. Accordingly, if the Purchaser
owns 90% or more of the outstanding Shares after consummation of the Offer, a
"short form" merger could be effected by action of the Purchaser's Board of
Directors and without the approval of the Company's stockholders.
Dividends and Distributions. The Company has agreed that, from the date of
the Merger Agreement until the time that the designees of the Purchaser have
been appointed to the Board of Directors of the Company, the Company will not
declare, set aside or pay any dividends or make any distributions on the Shares.
See Section 13.
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<PAGE> 29
Appraisal Rights. Stockholders do not have appraisal rights as a result of
the Offer. However, if the Merger is consummated, stockholders of the Company at
the time of the Merger who comply with all statutory requirements and do not
vote in favor of the Merger will have the right under the DGCL to demand an
appraisal of, and receive payment in cash of the fair value of, their Shares
outstanding immediately prior to the Effective Time in accordance with Section
262 of the DGCL.
Under the DGCL, stockholders who properly demand appraisal and otherwise
comply with the applicable statutory procedures will be entitled to receive a
judicial determination of the fair value of their Shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash. Any such judicial
determination of the fair value of such Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market price of the Shares. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Stockholders should recognize that the value so determined
could be equal to, higher or lower than the price per Share paid pursuant to the
Offer or the price per Share to be paid in the Merger.
In addition, several decisions by Delaware courts have held that in certain
circumstances a controlling stockholder of a corporation involved in a merger
has a fiduciary duty to other stockholders that requires the merger to be fair
to the other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of the consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and Rabkin v. Phillip A. Hunt Chemical Corp. that the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above. However, a damages remedy or injunctive relief may
be available if a merger is found to be the product of unfairness, including
fraud, misrepresentation or other misconduct.
THE FOREGOING SUMMARY OF THE RIGHTS OF STOCKHOLDERS DOES NOT PURPORT TO BE
A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING
TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF
APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF
DELAWARE LAW.
"Going Private" Transactions. The Commission has adopted Rule 13e-3 under
the Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the Merger. However, Rule
13e-3 would be inapplicable if (i) the Shares are deregistered under the
Exchange Act prior to the Merger or other business combination or (ii) the
Merger or other business combination is consummated within one year after the
purchase of Shares pursuant to the Offer and the amount paid per Share in the
Merger or other business combination is at least equal to the amount paid per
Share in the Offer. If applicable, Rule 13e-3 requires, among other things, that
certain financial information concerning the fairness of the proposed
transaction and the consideration offered to minority stockholders in such
transaction be filed with the Commission and disclosed to stockholders prior to
the consummation of the transaction.
SECTION 14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term or provision of the Offer, the Purchaser
will not be required to accept for payment or, subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) under the Exchange
Act (relating to a bidder's obligation to pay for or return tendered shares
after the termination or withdrawal of the Offer), to pay for any Shares not
theretofore accepted for payment or paid for pursuant to the Offer, if (1) there
are not validly tendered and not properly withdrawn prior to the expiration of
the Offer that number of Shares which, when aggregated with the Shares then
owned by the Parent and any of its affiliates, represents at least a majority of
the Shares then outstanding on a fully diluted basis (the "Minimum Condition")
or (2) at any time on or after the date of the Merger Agreement and before the
acceptance of such Shares for payment any of the following conditions exist:
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<PAGE> 30
(a) Any provision of any applicable domestic law or regulation, or any
judgment, injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction, is in effect that makes the Offer or
the Merger illegal or otherwise, directly or indirectly, prohibits or
materially restrains the making of the Offer, the acceptance for payment
of, payment for or ownership, directly or indirectly, of some or all of the
Shares by the Purchaser or the Parent, makes the foregoing substantially
more costly or materially delays the Merger.
(b) Any consents, authorizations, orders and approvals of, or filings
or registrations with, any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Agreement has not been obtained or made, except (i) the
filing of appropriate certificates of merger in accordance with Delaware
law and (ii) where the failure to obtain or make any such consent,
authorization, order, approval, filing or registration is not reasonably
likely to have, individually or in the aggregate, a material adverse effect
on the financial condition, results of operations or business of the
Company (a "Company Material Adverse Effect"), or on the financial
condition, results of operations or business of the Parent and the
Purchaser, taken as a whole (a "Parent Material Adverse Effect"), and would
not render the Offer or the Merger illegal or provide a reasonable basis to
conclude that the parties or their affiliates or any of their respective
directors or officers will be subject to the risk of criminal liability.
(c) Any requirement that the Parent, the Purchaser or the Company (i)
initiate or defend against any material pending or threatened litigation to
which any governmental or regulatory authority (including the Antitrust
Division and the FTC) is a party, (ii) agree or otherwise become subject to
any prohibition or material limitations on (A) the right of the Parent or
the Company, as the Surviving Corporation, effectively to control or
operate the business, assets or operations of the Company following the
Offer or the Merger, (B) the right of the Parent or the Company, as the
Surviving Corporation, to acquire or hold the business, assets or
operations of the Company as a result of the Merger, (C) the right of the
Purchaser to exercise its rights of ownership of the Shares purchased by it
in the Offer, or the right of the Parent to exercise its rights of
ownership of the Shares of the Company, as the Surviving Corporation, after
consummation of the Merger, including but not limited to the right to vote
the Shares on all matters properly presented to the Company's stockholders,
or (iii) to agree or otherwise be required to sell or dispose of, hold
separate (through the establishment of a trust or otherwise) or divest
itself of twenty-five (25) stores or more (whether stores of the Company,
the Parent or any of the Parent's subsidiaries).
(d) Any third party consents required for the consummation of the
Offer have not been obtained except where the failure to obtain any such
third party consents is not reasonably likely to have, individually or in
the aggregate, a Company Material Adverse Effect or a Parent Material
Adverse Effect.
(e) The Company has failed to perform the obligations to be performed
by it under the Merger Agreement at or prior to such time or any
representations and warranties of the Company contained in the Merger
Agreement are not true at such time as if made at and as of such time
(unless the representation or warranty is made as of a specified date, in
which case such representation or warranty will be true as of such date),
except to the extent that the failure to perform such obligations and the
untruth of such representations and warranties is not reasonably likely to
have, individually or in the aggregate, a Company Material Adverse Effect
and the Parent has received a certificate signed by an executive officer
and by the chief financial officer of the Company to the foregoing effect.
For purposes of determining whether this condition has been satisfied, all
qualifications in the representations and warranties as to materiality will
be disregarded, and all qualifications as to the knowledge of the Company
will be deemed to mean the knowledge of the Company at the time such
certificate is signed.
(f) The Merger Agreement has been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of the Purchaser and the
Parent and may be waived by the Purchaser in whole or in part at any time and
from time to time in its sole discretion (except that the Purchaser may not,
without the consent of the Company, waive the Minimum Condition). The failure by
the Purchaser at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances will not be deemed a waiver with respect to
any other
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facts and circumstances and each such right will be deemed an ongoing right that
may be asserted at any time and from time to time.
SECTION 15. CERTAIN LEGAL MATTERS
General. Except as otherwise disclosed herein, based on information
furnished by the Company or filed by the Company with the Commission, neither
the Purchaser nor the Parent is aware of (i) any license or regulatory permit
that appears to be material to the business of the Company, taken as a whole,
that might be adversely affected by the acquisition of Shares by the Purchaser
pursuant to the Offer or the Merger or (ii) any approval or other action, by any
governmental, administrative or regulatory agency or authority, domestic,
foreign or supranational, that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser currently contemplates that
such approval or action would be sought. Although the Purchaser does not
currently intend to delay the acceptance for payment of Shares tendered pursuant
to the Offer pending the outcome of any such matter, there can be no assurance
that any such approval or action, if needed, would be obtained or would be
obtained without substantial conditions or that adverse consequences might not
result to the business of the Company, the Purchaser or the Parent or that
certain parts of the businesses of the Company, the Purchaser or the Parent
might not have to be disposed of in the event that such approvals were not
obtained or any other actions were not taken. The Purchaser's obligation under
the Offer to accept for payment and pay for Shares is subject to certain
conditions. See Section 14.
Antitrust. Under the HSR Act, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. The Parent filed a Notification and Report Form with respect to the
Offer on February 5, 1998, and the Company expects to file a Notification and
Report Form with respect to the Offer during the week of February 8, 1998.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by the Parent. Accordingly,
because the Parent made the filing on February 5, 1998, the waiting period with
respect to the Offer will expire at 11:59 p.m., Eastern Standard Time, on
February 20, 1998 unless the Parent or the Company receives a request for
additional information or material, or the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-day period,
either the Antitrust Division or the FTC requests additional information or
material from the Parent or the Company concerning the Offer, the waiting period
will be extended and would expire at 11:59 p.m., Eastern Standard Time, on the
tenth calendar day after the date of substantial compliance by the Parent or the
Company with such request. Only one extension of the waiting period pursuant to
a request for additional information is authorized by the HSR Act. Thereafter,
such waiting period may be extended only by court order or with the consent of
the Parent. The Purchaser will not accept for payment Shares tendered pursuant
to the Offer unless and until the waiting period requirements imposed by the HSR
Act with respect to the Offer have been satisfied. See Section 14.
Private parties and state attorneys general may also bring action under the
antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which the Parent
and the Company are engaged, the Parent and the Purchaser believe that the
acquisition of Shares by the Purchaser will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Shares by the Purchaser on antitrust grounds will not be made or,
if such a challenge is made, of the result.
Certain State Laws; Certificate of Incorporation. Section 203 of the DGCL
provides that, except in certain circumstances, a Delaware corporation may not
engage in a "business combination" with an "interested" stockholder for three
years following the date on which the stockholder became an "interested"
stockholder unless, among other things, prior to such date the board of
directors of the corporation approved either the "business combination" or the
transaction that resulted in the stockholder becoming an "interested"
stockholder. If the Minimum Condition is satisfied, the Purchaser will become an
"interested" stockholder of the Company when it purchases Shares pursuant to the
Offer, and the Merger will be a "business combination." However, the
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Board of Directors of the Company has approved both the Offer and the Merger
and, therefore, the Company will not need to wait for three years before
completing the Merger.
Similarly, Article Ninth of the Company's certificate of incorporation
provides that unless the Board of Directors of the Company by a vote of not less
than seventy-five percent (75%) of the then authorized number of directors
expressly approves the merger between the Company and a "related corporation,"
the affirmative vote of the holders of not less than seventy-five percent (75%)
of the total voting power of all outstanding shares of voting common stock of
the Company will be required for the authorization of a merger between the
Company and a "related corporation." Since the Purchaser will become a "related
corporation" if the Minimum Condition is satisfied, the Merger must comply with
Article Ninth of the Company's certificate of incorporation. However, since the
Board of Directors has unanimously approved the Merger, the affirmative vote of
the holders of not less than seventy-five percent (75%) of the Shares will not
be necessary for the consummation of the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, the Supreme Court of the United
States in Edgar v. MITE Corp. invalidated on constitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987, the Supreme Court in CTS Corp. v. Dynamics Corp. of America held that
the Indiana Control Share Acquisition Act was constitutional. Such Act, by its
terms, is applicable only to corporations that have a substantial number of
stockholders in Indiana and are incorporated there. Subsequently, a number of
federal courts ruled that various state takeover statutes were unconstitutional
insofar as they apply to corporations incorporated outside the state of
enactment.
The Company conducts business in a number of states throughout the United
States, some of which have enacted takeover laws. The Purchaser does not know
whether any of these laws will, by their terms, apply to the Offer and has not
complied with any such laws. Should any person seek to apply any state takeover
law, the Purchaser will take such action as then appears desirable, which may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. In the event it is asserted that one or more
state takeover law is applicable to the Offer and the Merger, and an appropriate
court does not determine that it is inapplicable or invalid as applied to the
Offer, the Purchaser might be required to file certain information with, or
receive approvals from, the relevant state authorities. In addition, if
enjoined, the Purchaser might be unable to accept for payment any Shares
tendered pursuant to the Offer or be delayed in continuing or consummating the
Offer. In such case, the Purchaser may not be obligated to accept for payment
any Shares tendered. See Section 14.
SECTION 16. FEES AND EXPENSES
McDonald & Company is acting as Dealer Manager in connection with the Offer
and serving as exclusive financial advisor to the Parent in connection with the
Offer and the Merger. Pursuant to the terms of McDonald & Company's engagement,
the Parent has agreed to pay McDonald & Company a fee of $400,000 in connection
with the Offer and the Merger. In addition, the Parent has agreed to reimburse
McDonald & Company for its reasonable out-of-pocket expenses, including, without
limitation, reasonable fees and expenses of its legal counsel, incurred in
connection with the Offer and the Merger or otherwise arising out of McDonald &
Company's engagement, and has also agreed to indemnify McDonald & Company and
certain related parties against certain liabilities and expenses, including,
without limitation, certain liabilities under the federal securities laws,
arising out of McDonald & Company's engagement.
Corporate Investor Communications, Inc. has been retained by the Purchaser
as Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee stockholders to
forward material relating to the Offer to beneficial owners of Shares. The
Purchaser will pay the Information Agent reasonable and customary compensation
for all such services in addition to reimbursing the Information Agent for
reasonable out-of-pocket expenses in connection therewith. The Purchaser has
agreed to indemnify the
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<PAGE> 33
Information Agent against certain liabilities and expenses in connection with
the Offer, including, without limitation, certain liabilities under the federal
securities laws.
Harris Trust Company of New York has been retained as the Depositary. The
Purchaser will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, will reimburse the Depositary for its
reasonable out-of-pocket expenses in connection therewith and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including, without limitation, certain liabilities under the federal securities
laws.
Except as set forth above, neither the Parent nor the Purchaser will pay
any fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks,
trust companies and other nominees will, upon request, be reimbursed by the
Parent or the Purchaser for customary clerical and mailing expenses incurred by
them in forwarding offering materials to their customers.
SECTION 17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the securities,
blue sky or other laws of such jurisdiction. Neither the Purchaser nor the
Parent is aware of any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. To the extent the Purchaser or the Parent becomes aware of any
state law that would limit the class of offerees in the Offer, the Purchaser
will amend the Offer and, depending on the timing of such amendment, if any,
will extend the Offer to provide adequate dissemination of such information to
such holders of Shares prior to the expiration of the Offer. In any jurisdiction
the securities, blue sky or other laws of which require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf of the Purchaser
by the Dealer Manager or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THE PURCHASER AND THE PARENT HAVE FILED WITH THE COMMISSION A TENDER OFFER
STATEMENT ON SCHEDULE 14D-1 PURSUANT TO RULE 14D-3 UNDER THE EXCHANGE ACT,
TOGETHER WITH EXHIBITS, FURNISHING CERTAIN ADDITIONAL INFORMATION WITH RESPECT
TO THE OFFER, AND MAY FILE AMENDMENTS THERETO. SUCH SCHEDULE 14D-1 AND ANY
AMENDMENTS THERETO, INCLUDING EXHIBITS, MAY BE INSPECTED AND COPIES MAY BE
OBTAINED IN THE MANNER SET FORTH IN SECTION 8 WITH RESPECT TO THE COMPANY
(EXCEPT THAT SUCH MATERIAL WILL NOT BE AVAILABLE AT THE REGIONAL OFFICES OF THE
COMMISSION).
FCA ACQUISITION CORPORATION
February 6, 1998
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT AND THE PURCHASER
The Parent. Set forth below are the names, business addresses and present
principal occupations or employment, and material occupations, positions,
offices or employments for the past five years, of each director and executive
officer of the Parent. Except as otherwise noted, the business address of each
such person is 5555 Darrow Road, Hudson, Ohio 44236, and each such person is a
United States citizen. Directors of the Parent are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT,
NAME 5-YEAR EMPLOYMENT HISTORY
- ---------------------------- ---------------------------------------------------------------
<S> <C>
Alan Rosskamm*.............. Mr. Rosskamm (age 48) currently serves as Chairman of the
Board, President and Chief Executive Officer of the Parent. He
has served as President since April 1993, Chairman of the
Board since July 1992, and Chief Executive Officer for more
than five years. Mr. Rosskamm is also currently a member of
the Board of Directors of Charming Shoppes Inc., a women's
apparel retailer. Mr. Rosskamm has been a Director of the
Parent since 1985.
Brian P. Carney............. Mr. Carney (age 37) has served as Executive Vice President and
Chief Financial Officer of the Parent since October 1997. Prior
to joining the Parent, he served as Senior Vice
President-Finance, from May 1996 to August 1997, and Vice
President and Controller, from June 1992 to May 1996, of
Revco D.S., Inc. (previously a public company).
David E. Bolen.............. Mr. Bolen (age 46) has served as Executive Vice
President-Business Development of the Parent since August 1997.
He served as Senior Vice President-General Manager E.T.C. of
the Parent from March 1997 to August 1997. Prior to joining
the Parent, Mr. Bolen served as Executive Vice
President-Operations of Michaels Stores, from July 1994 to
August 1996, and as Executive Vice President, Chief Operating
Officer and Director of Leewards Creative Crafts, from
January 1986 to July 1994.
Jane A. Aggers.............. Ms. Aggers (age 49) has served as Executive Vice
President-Merchandising, Marketing, Logistics and Inventory
Management of the Parent since April 1993. Prior to April
1993, she served as Senior Vice President-General Merchandise
Manager of the Parent from May 1990 to April 1993.
John W. Hermsen............. Mr. Hermsen (age 51) has served as Executive Vice
President-Stores of the Parent since August 1995. Prior to
joining the Parent, he served as Executive Vice
President-Store Operations and Distribution of Ames
Department Stores, Inc., from June 1993 to July 1995, and as
Vice President-Stores of Shopko Stores Inc., from May 1986 to
June 1993.
John Z. Stec................ Mr. Stec (age 73) has served as Senior Vice President-Real
Estate of the Parent for more than 5 years.
Betty Rosskamm*............. Ms. Rosskamm (age 69) has served as Senior Vice President and
Secretary of the Parent for more than five years. Ms. Rosskamm
has been a director of the Parent since 1967.
Alma Zimmerman*............. Ms. Zimmerman (age 84) has served as Senior Vice President of
the Parent for more than five years. Ms. Zimmerman has been a
director of the Parent since 1967.
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT,
NAME 5-YEAR EMPLOYMENT HISTORY
- ---------------------------- ---------------------------------------------------------------
<S> <C>
Gregg A. Searle*............ Mr. Searle (age 49) joined the Parent's Board of Directors in
1996. He has served as President and Chief Operating Officer,
since November 1996, and Executive Vice President, from
August 1993 to February 1996, of Diebold, Incorporated. He
also served as Vice President of Diebold, Incorporated and
General Manager of InterBold from January 1992 to August
1993. Mr. Searle is also currently a member of the Board of
Directors of Diebold, Incorporated.
Scott S. Cowen*............. Mr. Cowen (age 51) joined the Parent's Board of Directors in
1987. He has served as Dean of the Weatherhead School of
Management and A. J. Weatherhead III Professor of Management
at Case Western Reserve University since 1984. Mr. Cowen is
also currently a member of the Boards of Directors of
American Greetings Corporation, Forest City Enterprises,
Inc., Rubbermaid Inc. and Weatherhead Industries.
Ira R. Gumberg*............. Mr. Gumberg (age 44) joined the Parent's Board of Directors in
1992. He has served as Chief Executive Officer and President of
J.J. Gumberg Co., a real estate management and development
company, since 1989. Mr. Gumberg is also currently a member
of the Boards of Directors of Mellon Bank, N.A. and J.J.
Gumberg Co.
Francis A. Newman*.......... Mr. Newman (age 49) joined the Parent's Board of Directors in
1991. He has served as Chairman of the Board, since February
1997, Chief Executive Officer, since February 1996,
President, since July 1993, and Chief Operating Officer, from
July 1993 to February 1996, of Eckerd Corporation, which
operates retail pharmacy stores. Prior to joining Eckerd in
July 1993, he served as President and Chief Executive Officer
of F & M Distributors for more than five years. Mr. Newman is
also currently a member of the Boards of Directors of Eckerd
Corporation, AmSouth Bancorporation and Jabil Circuits, Inc.
</TABLE>
The Purchaser. The name and position with the Purchaser of each director and
executive officer of the Purchaser are set forth below. The business address,
present principal occupation or employment, five-year employment history and
citizenship of each such person is set forth above.
<TABLE>
<CAPTION>
NAME POSITION WITH THE PURCHASER
- ---------------------------- ---------------------------------------------------------------
<S> <C>
Alan Rosskamm............... Chairman of the Board, Chief Executive Officer and Director
Brian P. Carney............. Vice President, Treasurer and Director
Betty Rosskamm.............. Vice President, Secretary and Director
</TABLE>
33
<PAGE> 36
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company or
other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Delivery:
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
</TABLE>
By Facsimile Transmission:
(212) 701-7636
For Information Telephone:
(212) 701-7624
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses or telephone numbers
set forth below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and all other tender offer materials may be obtained from the
Information Agent as set forth below and will be furnished promptly at the
Purchaser's expense. You may also contact your broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road - Carlstadt, New Jersey 07072-2586
Banks and Brokers call (800) 346-7885
All others call Toll Free (888) 203-7315
The Dealer Manager for the Offer is:
MCDONALD & COMPANY SECURITIES, INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
(216) 443-2300
<PAGE> 1
EXHIBIT (a)(3)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED FEBRUARY 6, 1998
BY
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FABRI-CENTERS OF AMERICA, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Delivery:
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
</TABLE>
By Facsimile Transmission:
(212) 701-7636
For Information Telephone:
(212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS
LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9
PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Co. (the "Book-Entry Transfer
Facility") pursuant to the book-entry transfer procedure described in Section 2
of the Offer to Purchase (as defined below). Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Depositary.
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined in Section l of the Offer to Purchase) or who cannot complete
the procedure for delivery by book-entry transfer on a timely basis and who wish
to tender their Shares must do so pursuant to the guaranteed delivery procedure
described in Section 2 of the Offer to Purchase. See Instruction 2.
<PAGE> 2
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution _________________________________________________
Account Number ___________________ Transaction Code Number ___________________
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY:
Name(s) of Registered Holder(s) _______________________________________________
Window Ticket No. (if any) ____________________________________________________
Date of Execution of Notice of Guaranteed Delivery ____________________________
Name of Institution which Guaranteed Delivery _________________________________
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARE SHARES EVIDENCED NUMBER
CERTIFICATE BY SHARE OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL SHARES
------------------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the
Depositary are being tendered hereby. See Instruction 4.
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to FCA Acquisition Corporation, a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Fabri-Centers of
America, Inc., an Ohio corporation (the "Parent"), the above-described shares of
common stock, par value $.01 per share (the "Shares"), of House of Fabrics,
Inc., a Delaware corporation (the "Company"), pursuant to the Purchaser's offer
to purchase all outstanding Shares, at $4.25 per Share, net to the seller in
cash, without interest thereon (the "Offer Price"), upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated February 6, 1998
(the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer"). The undersigned understands that the Purchaser reserves the right
to transfer or assign, in whole or from time to time in part, to one or more of
its affiliates the right to purchase all or any portion of the Shares tendered
pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms and conditions of such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby and all dividends, distributions (including,
without limitation, distributions of additional Shares and other securities) and
rights declared, paid or distributed in respect of such Shares on or after
February 5, 1998 (collectively, "Distributions"), and irrevocably appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares and all Distributions, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver Share Certificates evidencing such
Shares and all Distributions, or transfer ownership of such Shares and all
Distributions on the account books maintained by the Book-Entry Transfer
Facility, together, in either case, with all accompanying evidences of transfer
and authenticity, to or upon the order of the Purchaser, (ii) present such
Shares and all Distributions for transfer on the books of the Company, and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares and all Distributions, all in accordance with the terms of the
Offer.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints Alan Rosskamm, Brian P. Carney and Betty Rosskamm of the Purchaser as
proxies of the undersigned, each with full power of substitution, to the full
extent of the undersigned's rights with respect to the Shares tendered by the
undersigned and accepted for payment by the Purchaser (and any and all
Distributions). All such proxies shall be considered coupled with an interest in
the tendered Shares. This appointment will be effective if, when and only to the
extent that the Purchaser accepts such Shares for payment pursuant to the Offer.
Upon such acceptance for payment, all prior proxies given by the undersigned
with respect to such Shares (and any such other Shares and securities) will,
without further action, be revoked, and no subsequent proxies may be given nor
any subsequent written consent executed by the undersigned (and, if given or
executed, will not be deemed to be effective) with respect thereto. The
designees of the Purchaser named above will, with respect to the Shares and
other securities for which the appointment is effective, be empowered to
exercise all voting and other rights of the undersigned as they in their sole
discretion may deem proper at any annual or special meeting of the stockholders
of the Company or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise, and the Purchaser reserves the right to
require that, in order for Shares or other securities to be deemed validly
tendered, immediately upon the Purchaser's acceptance for payment of such
Shares, the Purchaser must be able to exercise full voting rights with respect
to such Shares or other securities.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, and that when such Shares are accepted
for payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto and to all Distributions, free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Distributions. In
addition, the undersigned shall remit and transfer promptly to the Depositary
for the account of the Purchaser all Distributions in respect of the Shares
tendered hereby, accompanied by appropriate documentation of transfer, and,
pending such remittance and transfer or appropriate assurance thereof, the
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby or deduct from such purchase price the amount or value of such
Distribution, as determined by the Purchaser in its sole discretion.
<PAGE> 4
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as otherwise stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 2 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. The Purchaser's acceptance of such Shares for
payment will constitute a binding agreement between the undersigned and the
Purchaser upon the terms and subject to the conditions of the Offer, including,
without limitation, the undersigned's representation and warranty that the
undersigned owns the Shares being tendered.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered, in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. The undersigned recognizes that the Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any Shares
from the name of the registered holder(s) thereof if the Purchaser does not
purchase any of the Shares tendered hereby.
<PAGE> 5
- -------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificate(s) evidencing Shares not tendered or not
purchased are to be issued in the name of someone other than the
undersigned.
Issue [ ] Check [ ] Share Certificate(s) to:
Name:
----------------------------------------------------
(PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(ZIP CODE)
------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
===============================================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificate(s) evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned or to the
undersigned at an address other than that shown under "Description of
Shares Tendered."
Mail [ ] Check [ ] Share Certificate(s) to:
Name:
----------------------------------------------------
(PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(ZIP CODE)
- -------------------------------------------------------------------------------
<PAGE> 6
IMPORTANT
STOCKHOLDER(S): SIGN HERE
(ALSO PLEASE COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
X _____________________________________________________________________________
X _____________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Dated: _________________1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Share Certificate(s) or on a security position listing or by a person authorized
to become a registered holder by certificates and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please provide the following information. See
Instruction 5.)
Name(s):_______________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT)
Capacity (full title): ________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: __________________________________________________
Taxpayer Identification or Social Security No.: _______________________________
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or by a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (an
"Eligible Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) of the Shares (which term, for purposes of this document,
shall include any participant in the Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered hereby
and such holder(s) has (have) completed neither the box entitled "Special
Payment Instructions" nor the box entitled "Special Delivery Instructions" or
(ii) such Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter
of Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth in Section 2 of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or a confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered by book-entry transfer, in each case together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and any other documents required by this Letter of Transmittal, must be
received by the Depositary at one of its addresses set forth at the front hereof
prior to the Expiration Date (as defined in Section l of the Offer to Purchase).
If Share Certificates are forwarded to the Depositary in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery. Stockholders whose Share Certificates are not immediately
available, who cannot deliver their Share Certificates and all other required
documents to the Depositary prior to the Expiration Date or who cannot complete
the procedure for delivery by book-entry transfer on a timely basis may tender
their Shares pursuant to the guaranteed delivery procedure described in Section
2 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be
made by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Purchaser, must be received by the Depositary prior to the Expiration
Date; and (iii) the Share Certificates evidencing all physically delivered
Shares in proper form for transfer by delivery, or a confirmation of a
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer, in each case together
with a Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three New York Stock Exchange, Inc. trading days after the date of
execution of such Notice of Guaranteed Delivery, all as described in Section 2
of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY. PLEASE DO NOT ENDORSE YOUR SHARE CERTIFICATES.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), all tendering stockholders waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered." In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions," as soon as practicable after the expiration or termination of the
Offer. All Shares evidenced by Share Certificates
<PAGE> 8
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to the Purchaser of the payment of such taxes or exemption
therefrom is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE
NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES
EVIDENCING THE SHARES TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered," the appropriate boxes on the reverse
of this Letter of Transmittal must be completed.
8. WAIVER OF CONDITIONS. Except as described in the Offer to Purchase, the
conditions to the Offer may be waived by the Purchaser in whole or in part at
any time and from time to time in its sole discretion.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Dealer Manager or the
Information Agent at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information Agent
or from brokers, dealers, commercial banks or trust companies.
10. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below
and to certify, under penalties of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding,
<PAGE> 9
such stockholder must cross out item (2) of the Certification box of the
Substitute Form W-9, unless such stockholder has since been notified by the
Internal Revenue Service that such stockholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering stockholder to 31% federal income tax withholding on the
payment of the purchase price of all Shares purchased from such stockholder. If
the tendering stockholder has not been issued a TIN and has applied for one or
intends to apply for one in the near future, such stockholder should write
"Applied For" in the space provided for the TIN in Part I of the Substitute Form
W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in
Part I and the Depositary is not provided with a TIN within 60 days, the
Depositary will withhold 31% on all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEES, AND SHARE
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER, OR A PROPERLY COMPLETED AND
DULY EXECUTED NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS
MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN
THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax laws, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is generally such stockholder's social
security number. If the Depositary is not provided with the correct TIN, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder with respect to
Shares purchased pursuant to the Offer may be subject to backup withholding of
31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) generally are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 (the
"Guidelines") for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying (1) that the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (2) that
the stockholder is not subject to backup withholding because (a) such
stockholder is exempt from backup withholding, (b) such stockholder has not been
notified by the Internal Revenue Service that such stockholder is subject to
backup withholding as a result of a failure to report all interest or dividends,
or (c) the Internal Revenue Service has notified such stockholder that such
stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
<PAGE> 10
ALL TENDERING STOCKHOLDERS MUST COMPLETE THE FOLLOWING:
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
- ----------------------------------------------------------------------------------------------------------
SUBSTITUTE | PART I -- Taxpayer Identification | ------------------------------
FORM W-9 | Number -- For all accounts, enter taxpayer | Social Security Number(s)
DEPARTMENT OF THE TREASURY | identification number in the box at right. | OR
INTERNAL REVENUE SERVICE | (For most individuals, this is your social |
| security number. If you do not have a | ------------------------------
| number, see Obtaining a Number in the | Employer Identification Number
| enclosed Guidelines.) Certify by signing and | (if awaiting TIN write
| dating below. Note: If the account is in | "Applied For")
| more than one name, see the chart in the |
| enclosed Guidelines to determine which |
| number to give the payer. |
|----------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER | PART II -- For Payees Exempt From Backup Withholding, see the enclosed
IDENTIFICATION NUMBER | Guidelines and complete as instructed therein.
("TIN") | CERTIFICATION -- Under penalties of perjury, I certify that:
| (1) The number shown on this form is my correct Taxpayer Identification
| Number (or I am waiting for a number to be issued to me), and
| (2) I am not subject to backup withholding because: (a) I am exempt from
| backup withholding, or (b) I have not been notified by the Internal
| Revenue Service (the "IRS") that I am subject to backup withholding
| as a result of a failure to report all interest or dividends, or (c)
| the IRS has notified me that I am no longer subject to backup
| withholding.
| CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you
| have been notified by the IRS that you are subject to backup withholding
| because of underreporting interest or dividends on your tax return.
| However, if after being notified by the IRS that you were subject to
| backup withholding you received another notification from the IRS that
| you are no longer subject to backup withholding, do not cross out item
| (2). (Also see instructions in the enclosed Guidelines.)
- ------------------------------------------------------------------------------------------------------
</TABLE>
Signature ___________________________ Date ____________ 1998
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR ADDITIONAL DETAILS.
<PAGE> 11
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road - Carlstadt, New Jersey 07072-2586
Banks and Brokers call (800) 346-7885
All others call Toll Free (888) 203-7315
The Dealer Manager for the Offer is:
MCDONALD & COMPANY SECURITIES, INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
(216) 443-2300
February 6, 1998
<PAGE> 1
EXHIBIT (a)(4)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
TO
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FABRI-CENTERS OF AMERICA, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) if (i) certificates
("Share Certificates") evidencing shares of common stock, par value $.01 per
share (the "Shares"), of House of Fabrics, Inc., a Delaware corporation (the
"Company"), are not immediately available, (ii) time will not permit all
required documents to reach Harris Trust Company of New York, as Depositary (the
"Depositary"), prior to the Expiration Date (as defined in Section 1 of the
Offer to Purchase (as defined below)), or (iii) the procedure for book-entry
transfer cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by hand or transmitted by telegram, facsimile
transmission or mail to the Depositary. See Section 2 of the Offer to Purchase.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Delivery:
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
</TABLE>
By Facsimile Transmission:
(212) 701-7636
For Information Telephone:
(212) 701-7624
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to FCA Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Fabri-Centers of America, Inc., an
Ohio corporation, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated February 6, 1998 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer"), receipt of each of which is hereby acknowledged, the
number of Shares specified below pursuant to the guaranteed delivery procedures
described in Section 2 of the Offer to Purchase.
Number of Shares:
---------------------------------------------------------------
Certificate No(s). (if available):
--------------------------------------------
Check box if Shares will be tendered by book-entry transfer: [ ]
Account Number:
-----------------------------------------------------------------
Name(s) of Record Holder(s):
---------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Company Area Code and Tel. No.:
--------------------------------------------
Area Code and Tel. No.:
---------------------------------------------------------
Signature(s)
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ________________ , 1998
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a firm that is a commercial bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
hereby (a) represents that the tender of Shares effected hereby complies with
Rule 14e-4 of the Securities Exchange Act of 1934, as amended, and (b)
guarantees delivery to the Depositary, at one of its addresses set forth above,
of Share Certificates evidencing the Shares tendered hereby in proper form for
transfer, or confirmation of book-entry transfer of such Shares into the
Depositary's accounts at The Depository Trust Co., in each case with delivery of
a properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) with any required signature guarantees, or an Agent's Message (as
defined in Section 2 of the Offer to Purchase), and any other documents required
by the Letter of Transmittal, within three New York Stock Exchange, Inc. trading
days after the date of execution of this Notice of Guaranteed Delivery.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and Share
Certificates to the Depositary within the time period shown herein. Failure to
do so could result in financial loss to such Eligible Institution.
Name of Firm:
-------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
AUTHORIZED SIGNATURE:
---------------------------------------------------------
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Title:
--------------------------------------------------------------------------
Area Code and Tel. No.:
------------------------------------------------------
Dated: , 1998
-----------
NOTE: DO NOT SEND SHARE CERTIFICATE(S) WITH THIS NOTICE OF GUARANTEED
DELIVERY. SHARE CERTIFICATE(S) SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
3
<PAGE> 1
EXHIBIT (a)(5)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
BY
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FABRI-CENTERS OF AMERICA, INC.
AT
$4.25 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS EXTENDED.
February 6, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by FCA Acquisition Corporation, a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Fabri-Centers of
America, Inc., an Ohio corporation (the "Parent"), to act as Dealer Manager in
connection with the Purchaser's offer to purchase all outstanding shares of
common stock, par value $.01 per share (the "Shares"), of House of Fabrics,
Inc., a Delaware corporation (the "Company"), at a price of $4.25 per Share, net
to the seller in cash, without interest thereon (the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
February 6, 1998 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer") enclosed herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED A NUMBER OF SHARES WHICH, WHEN ADDED TO THE SHARES BENEFICIALLY OWNED
BY THE PARENT, WOULD REPRESENT AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON
A FULLY DILUTED BASIS ON THE DATE OF PURCHASE. THE OFFER IS NOT CONDITIONED ON
THE RECEIPT OF FINANCING.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares registered in your name or in the name of
your nominee.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following documents:
1. The Offer to Purchase, dated February 6, 1998;
2. The Letter of Transmittal to be used by holders of Shares in
accepting the Offer and tendering Shares;
3. The Notice of Guaranteed Delivery to be used to tender Shares
pursuant to the Offer if none of the procedures for tendering Shares set
forth in the Offer to Purchase can be completed on a timely basis;
4. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominees, with space provided for obtaining such clients' instructions
with regard to the Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. A return envelope addressed to Harris Trust Company of New York, as
the Depositary.
<PAGE> 2
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will purchase, by accepting for payment, and will
pay for the Shares validly tendered prior to the Expiration Date (as defined in
the Offer to Purchase) promptly after the Expiration Date. For purposes of the
Offer, the Purchaser will be deemed to have accepted for payment, and thereby
purchased, tendered Shares as, if and when the Purchaser gives oral or written
notice to the Depositary of the Purchaser's acceptance of such Shares for
payment pursuant to the Offer. In all cases, payment for Shares purchased
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) Share Certificates or timely confirmation of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Co. pursuant
to the procedures set forth in Section 2 of the Offer to Purchase, (ii) the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message (as
defined in Section 2 of the Offer to Purchase), and (iii) any other documents
required by the Letter of Transmittal.
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person (other than the Dealer Manager, the Information Agent and
the Depositary) in connection with the solicitation of tenders of Shares
pursuant to the Offer. The Purchaser will, however, upon request, reimburse you
for customary mailing and handling expenses incurred by you in forwarding the
enclosed materials to your clients.
The Purchaser will pay any stock transfer taxes incident to the transfer to
it of validly tendered Shares, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, EASTERN STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS
EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or a facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and certificates evidencing the tendered Shares should be delivered
or such Shares should be tendered by book-entry transfer, all in accordance with
the Instructions set forth in the Letter of Transmittal and the Offer to
Purchase.
If holders of Shares wish to tender Shares, but it is impracticable for
them to forward their Share Certificates or other required documents to the
Depositary prior to the Expiration Date or to comply with the procedures for
book-entry transfer on a timely basis, a tender may be effected by following the
guaranteed delivery procedures specified under Section 2 of the Offer to
Purchase.
Any inquiries you may have with respect to the Offer should be addressed to
Corporate Investor Communications, Inc., the Information Agent, or McDonald &
Company Securities Inc., the Dealer Manager, at their respective addresses and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed materials may be obtained by calling
Corporate Investor Communications, Inc., the Information Agent, at (800)
346-7885 or from brokers, dealers, commercial banks or trust companies.
Very truly yours,
MCDONALD & COMPANY SECURITIES, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF THE PARENT, THE PURCHASER, THE COMPANY, THE
DEPOSITARY, THE INFORMATION AGENT OR THE DEALER MANAGER, OR ANY AFFILIATE OF ANY
OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR
MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER
THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE> 1
EXHIBIT (a)(6)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
BY
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FABRI-CENTERS OF AMERICA, INC.
AT
$4.25 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS EXTENDED.
February 6, 1998
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated February 6,
1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer") in connection with
the Offer by FCA Acquisition Corporation, a Delaware corporation (the
"Purchaser") and a wholly owned subsidiary of Fabri-Centers of America, Inc., an
Ohio corporation (the "Parent"), to purchase all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of House of Fabrics, Inc., a
Delaware corporation (the "Company"), at a price of $4.25 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase.
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required by the Letter of Transmittal to the Depositary
prior to the Expiration Date (as defined in the Offer to Purchase) or who cannot
complete the procedure for delivery by book-entry transfer to the Depositary's
account at the Book-Entry Transfer Facility (as defined in Section 2 of the
Offer to Purchase) on a timely basis and who wish to tender their Shares must do
so pursuant to the guaranteed delivery procedure described in Section 2 of the
Offer to Purchase. See Instruction 2 of the Letter of Transmittal. Delivery of
documents to the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures does not constitute delivery to the Depositary.
THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD BY
US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD
OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY
BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer to Purchase.
<PAGE> 2
Your attention is invited to the following:
1. The tender price is $4.25 per Share, net to the seller in cash,
without interest thereon.
2. The Offer and withdrawal rights will expire at 12:00 midnight,
Eastern Standard Time, on Friday, March 6, 1998, unless the Offer is
extended.
3. The Offer is being made for all outstanding Shares.
4. The Offer is conditioned upon, among other things, there being
validly tendered a number of Shares which, when added to the Shares
beneficially owned by the Parent, would represent at least a majority of
the Shares outstanding on a fully diluted basis on the date of purchase.
See Section 14 of the Offer to Purchase.
5. The Offer is not conditioned on the receipt of financing.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal. The Offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of Shares in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. Neither the Purchaser
nor the Parent is aware of any jurisdiction in which the making of the Offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. To the extent the Purchaser or the Parent becomes aware of any
state law that would limit the class of offerees in the Offer, the Purchaser
will amend the Offer and, depending on the timing of such amendment, if any,
will extend the Offer to provide adequate dissemination of such information to
such holders of Shares prior to the expiration of the Offer. In any jurisdiction
the securities, blue sky or other laws of which require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf of the Purchaser
by the Dealer Manager or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified on the instruction form contained in this
letter. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf prior to the expiration of the Offer.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated February 6, 1998, and the related Letter of Transmittal
(which, as amended from time to time, together constitute the "Offer"), in
connection with the Offer by FCA Acquisition Corporation, a Delaware corporation
(the "Purchaser") and a wholly owned subsidiary of Fabri-Centers of America,
Inc., an Ohio corporation, to purchase all outstanding shares of common stock,
par value $.01 per share (the "Shares"), of House of Fabrics, Inc., a Delaware
corporation, at a price equal to $4.25 per Share, net to the seller in cash.
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or, if no number is indicated below, all Shares) held by you
for the account of the undersigned, upon the terms and subject to the conditions
set forth in the Offer to Purchase.
Number of Shares to be Tendered*:
-----------------------------------------------
Dated: , 1998
------------
SIGN HERE
Signature(s):
-------------------------------------------------------------------
Print or Type Name(s):
----------------------------------------------------------
Print or Type Address(es):
------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number(s):
----------------------------------------------
Taxpayer Identification or Social Security Number(s):
---------------------------
- -----------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
EXHIBIT (a)(7)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social security numbers and IRS individual taxpayer identification
numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer
identification numbers have nine digits separated by only one hyphen: i.e.
00-0000000. The table below will help determine the number to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE SOCIAL
SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner
account) of the account or,
if combined funds,
the first
individual on the
account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that The actual
is not a legal or valid trust owner(1)
under State law
5. Sole proprietorship account The owner(3)
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
6. A valid trust, estate, or The legal entity
pension trust (Do not furnish
the identifying
number of the
personal
representative or
trustee unless the
legal entity
itself is not
designated in the
account title.)(4)
7. Corporate account The corporation
8. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
9. Partnership account The partnership
10. A broker or registered nominee The broker or
nominee
11. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- ---------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Card, Form W-7,
Application for IRS Individual Taxpayer Identification Number, or Form SS-4,
Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on interest and dividend
payments and payments received in broker transactions include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends that generally are exempt from
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by an ESOP
Payments of interest that generally are exempt from backup withholding include
the following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to you.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonments.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
Exhibit (a)(8)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase, dated
February 6, 1998, and the related Letter of Transmittal and any amendments or
supplements thereto, and is being made to all holders of Shares. The Offer is
not being made to (nor will tenders be accepted from or on behalf of) holders of
Shares in any jurisdiction in which the making of the Offer or the acceptance
thereof would not be in compliance with the securities, blue sky or other laws
of such jurisdiction. Neither the Purchaser nor the Parent is aware of any
jurisdiction in which the making of the Offer or the acceptance thereof would
not be in compliance with the laws of such jurisdiction. To the extent the
Purchaser or the Parent becomes aware of any state law that would limit the
class of offerees in the Offer, the Purchaser will amend the Offer and,
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to such holders of Shares
prior to the expiration of the Offer. In any jurisdiction the securities, blue
sky or other laws of which require the Offer to be made by a licensed broker or
dealer, the Offer is being made on behalf of the Purchaser by the Dealer Manager
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
HOUSE OF FABRICS, INC.
BY
FCA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
FABRI-CENTERS OF AMERICA, INC.
AT
$4.25 NET PER SHARE
FCA Acquisition Corporation, a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of Fabri-Centers of America, Inc., an Ohio corporation
(the "Parent"), is offering to purchase all outstanding shares of common stock,
par value $.01 per share (the "Shares"), of House of Fabrics, Inc., a Delaware
corporation (the "Company"), at a price of $4.25 per Share, net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated February 6, 1998, and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 6, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
February 1, 1998 (the "Merger Agreement"), among the Purchaser, the Parent and
the Company. The Merger Agreement provides, among other things, for the merger
of the Purchaser with and into the Company (the "Merger") following the purchase
of Shares pursuant to the Offer. In the Merger, each outstanding Share (other
than Shares owned by the Parent or any subsidiary of the Parent, Shares held as
treasury shares by the Company, and Shares owned by stockholders who perfect
appraisal rights under Delaware law) will be converted into the right to receive
$4.25 per Share net in cash.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, HAS
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
The Offer is conditioned upon, among other things, (i) there being validly
tendered a number of Shares which, when added to the Shares beneficially owned
by the Parent, would represent at least a majority of the Shares outstanding on
a fully diluted basis on the date of purchase (the "Minimum Condition"), and
(ii) the expiration or termination of all waiting periods imposed by the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder. The Offer is not conditioned on the receipt of financing. If, by the
Expiration Date (including any extension required by the Merger Agreement), any
or all of the conditions to the Offer have not been satisfied or waived, the
Purchaser reserves the right (but will not be obligated), subject to the
<PAGE> 2
applicable rules and regulations of the Securities and Exchange Commission, to
(a) terminate the Offer and not accept for payment or pay for any Shares and
return all tendered Shares to tendering stockholders, (b) waive all the
unsatisfied conditions (except that the Purchaser may not waive the Minimum
Condition without the consent of the Company) and accept for payment and pay for
all Shares validly tendered prior to the Expiration Date, (c) extend the Offer
and, subject to the right of stockholders to withdraw Shares until the
Expiration Date, retain the Shares that have been tendered during the period or
periods for which the Offer is extended, or (d) amend the Offer. The Merger
Agreement provides that the Purchaser may not decrease the price payable in the
Offer, change the form of consideration payable in the Offer, change the
conditions to the Offer, impose additional conditions to the Offer, or change
any other terms of the Offer in a manner adverse to the holders of the Shares,
except that the Purchaser may extend the Expiration Date as set forth in the
next paragraph.
The Merger Agreement provides that, at the Company's request, the Purchaser
will extend the Expiration Date from time to time for up to an aggregate of ten
business days following the Expiration Date if the Minimum Condition is not
fulfilled prior to 12:00 p.m. on the Expiration Date. In addition, the Merger
Agreement provides that the Purchaser may, in its discretion, extend the
Expiration Date to the extent required by applicable law, if any of the
conditions to the Offer are not satisfied, or if less than 90% of the
outstanding Shares have been validly tendered and not withdrawn pursuant to the
Offer.
The term "Expiration Date" means 12:00 midnight, Eastern Standard Time, on
Friday, March 6, 1998, unless the Purchaser extends the period of time during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by the Purchaser,
will expire.
For purposes of this Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser as,
if and when the Purchaser gives oral or written notice to the Depositary of the
Purchaser's acceptance for payment of such Shares. Payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for validly tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT. In all cases, payment for Shares accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of (i)
certificates evidencing such Shares ("Share Certificates") or confirmation of
a book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (as defined in the Offer to Purchase); (ii) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), or in the case of a book-entry transfer, an Agent's Message (as
defined in the Offer to Purchase); and (iii) any other documents required by
the Letter of Transmittal. Accordingly, payment may be made to tendering
stockholders at different times if delivery of the Shares and other
required documents occur at different times.
Except as otherwise provided below, tenders of Shares pursuant to the Offer
are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant
to the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the Offer,
may also be withdrawn at any time after April 6, 1998. For a withdrawal to be
effective, a written, telegraphic or facsimile transmission notice of withdrawal
must be timely received by the Depositary at its address set forth on the back
cover of the Offer to Purchase and must specify the name of the person having
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder of the Shares to be withdrawn, if different
from the name of the person who tendered the Shares. If Share Certificates have
been delivered or otherwise identified to the Depositary, then, prior to the
physical release of such Share Certificates, the serial numbers shown on such
Share Certificates must be submitted to the Depositary and, unless such Shares
have been tendered by an Eligible Institution (as defined in the Offer to
Purchase), the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedure
for book-entry transfer as set forth in Section 2 of the Offer to Purchase, any
notice of withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with the Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of
the procedures described in Section 2 of the Offer to Purchase at any time
prior to the Expiration Date. All questions as to the form and validity
(including time of receipt) of notices of withdrawal will be determined by the
Purchaser, in its sole discretion, whose determination will be final and
binding on all parties.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of
the Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated herein by reference.
The Company has provided the Purchaser with the Company's stockholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
lists or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
THE OFFER TO PURCHASE AND LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO
THE OFFER.
<PAGE> 3
Questions and requests for assistance or for additional copies of the Offer
to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Dealer Manager or the Information Agent at
their respective addresses and telephone numbers as set forth below, and copies
will be furnished promptly at the Purchaser's expense. No fees or commissions
will be paid to brokers, dealers or other persons (other than the Dealer Manager
and the Information Agent) for soliciting tenders of Shares pursuant to the
Offer.
The Information Agent for the Offer is:
Corporate Investor Communications, Inc.
111 Commerce Road - Carlstadt, New Jersey 07072-2586
Banks and Brokers call (800) 346-7885
All others call Toll Free (888) 203-7315
The Dealer Manager for the Offer is:
MCDONALD & COMPANY SECURITIES, INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
(216) 443-2300
February 6, 1998
<PAGE> 1
Exhibit (c)
AGREEMENT AND PLAN OF MERGER
DATED AS OF
FEBRUARY 1, 1998
AMONG
FABRI-CENTERS OF AMERICA, INC.
FCA ACQUISITION CORPORATION,
AND
HOUSE OF FABRICS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE TENDER OFFER AND MERGER...................................................1
SECTION 1.01. Tender Offer..................................................................1
SECTION 1.02. The Merger....................................................................4
SECTION 1.03. Conversion of Shares..........................................................5
SECTION 1.04. Surrender and Payment.........................................................6
SECTION 1.05. Company Options; Series B Warrants............................................7
SECTION 1.06. Shares of Dissenting Stockholders.............................................8
ARTICLE II THE SURVIVING CORPORATION; THE PARENT
DIRECTORS.....................................................................8
SECTION 2.01. Certificate of Incorporation..................................................8
SECTION 2.02. Bylaws........................................................................8
SECTION 2.03. Directors and Officers........................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.......................................................................9
SECTION 3.01. Corporate Existence and Power.................................................9
SECTION 3.02. Corporate Authorization.......................................................9
SECTION 3.03. Governmental Authorization....................................................9
SECTION 3.04. Certificate of Incorporation and Bylaws......................................10
SECTION 3.05. Non-Contravention............................................................10
SECTION 3.06. Capitalization...............................................................10
SECTION 3.07. Subsidiaries.................................................................11
SECTION 3.08. Company SEC Reports..........................................................12
SECTION 3.09. Financial Statements; No Undisclosed Liabilities.............................12
SECTION 3.10. Inventory....................................................................12
SECTION 3.11. Contracts and Commitments....................................................13
SECTION 3.12. Absence of Certain Changes...................................................14
SECTION 3.13. Litigation...................................................................15
SECTION 3.14. Permits; Compliance..........................................................15
SECTION 3.15. ERISA........................................................................16
SECTION 3.16. Labor........................................................................18
SECTION 3.17. Taxes........................................................................19
SECTION 3.18. Real Estate..................................................................22
SECTION 3.19. Personal Property............................................................23
SECTION 3.20. Intellectual Property Rights.................................................23
SECTION 3.21. Environmental Protection.....................................................24
SECTION 3.22. Insurance....................................................................25
SECTION 3.23. Indemnification..............................................................25
SECTION 3.24. Board Approval and Recommendation............................................26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.25. Vote Required................................................................26
SECTION 3.26. Opinion of Financial Advisor.................................................26
SECTION 3.27. Finders and Investment Bankers...............................................26
SECTION 3.28. Takeover Statutes; No Shareholder Rights Plan................................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND MERGER SUB....................................................27
SECTION 4.01. Corporate Existence..........................................................27
SECTION 4.02. Corporate Authorization......................................................27
SECTION 4.03. Governmental Authorization...................................................27
SECTION 4.04. Non-Contravention............................................................28
SECTION 4.05. Parent SEC Reports...........................................................28
SECTION 4.06. Financial Statements; No Undisclosed Liabilities.............................29
SECTION 4.07. Litigation...................................................................29
SECTION 4.08. Vote Required................................................................29
SECTION 4.09. Availability of Funds........................................................30
SECTION 4.10. Fraudulent Conveyance........................................................30
SECTION 4.11. Finders and Investment Bankers...............................................30
ARTICLE V COVENANTS OF THE COMPANY.....................................................30
SECTION 5.01. Conduct of the Company.......................................................30
SECTION 5.02. Access to Information........................................................32
SECTION 5.03. Other Offers.................................................................32
SECTION 5.04. Notices of Certain Events....................................................34
SECTION 5.05. Merger Meeting; Proxy Statement..............................................34
ARTICLE VI COVENANTS OF THE PARENT AND MERGER SUB.......................................35
SECTION 6.01. Director and Officer Liability...............................................35
SECTION 6.02. Merger Meeting...............................................................37
SECTION 6.03. Employee Benefits............................................................37
ARTICLE VII COVENANTS OF THE PARENT, MERGER SUB, AND THE
COMPANY......................................................................38
SECTION 7.01. Reasonable Efforts...........................................................38
SECTION 7.02. Certain Filings and Consents.................................................38
SECTION 7.03. Public Announcements.........................................................39
ARTICLE VIII CONDITIONS TO THE MERGER.....................................................39
SECTION 8.01. Conditions to the Obligations of Each Party..................................39
SECTION 8.02. Conditions to the Obligations of the Parent and Merger Sub...................39
ARTICLE IX TERMINATION..................................................................40
SECTION 9.01. Termination..................................................................40
</TABLE>
ii
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<TABLE>
<S> <C> <C>
SECTION 9.02. Effect of Termination........................................................41
ARTICLE X MISCELLANEOUS................................................................41
SECTION 10.01. Notices......................................................................41
SECTION 10.02. Survival.....................................................................42
SECTION 10.03. Amendments; No Waivers.......................................................43
SECTION 10.04. Fees and Expenses............................................................43
SECTION 10.05. "Knowledge" of the Company...................................................44
SECTION 10.06. Successors and Assigns.......................................................44
SECTION 10.07. Governing Law................................................................44
SECTION 10.08. Counterparts; Effectiveness..................................................45
SECTION 10.09. Entire Agreement.............................................................45
SECTION 10.10. Headings.....................................................................45
SECTION 10.11. Severability.................................................................45
SECTION 10.12. Specific Performance.........................................................45
INDEX OF DEFINED TERMS .............................................................................47
LIST OF SCHEDULES .............................................................................49
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of
February 1, 1998 (this "Agreement"), is among FABRI-CENTERS OF AMERICA, INC., an
Ohio corporation (the "Parent"), FCA ACQUISITION CORPORATION, a Delaware
corporation and wholly owned subsidiary of the Parent ("Merger Sub"), and HOUSE
OF FABRICS, INC., a Delaware corporation (the "Company").
In consideration of the respective representations,
warranties, and agreements set forth herein and in the Stock Option Agreement,
the parties agree as follows:
ARTICLE I
THE TENDER OFFER AND MERGER
SECTION 1.01. Tender Offer
(a) As promptly as practicable, but in no event later
than five business days after the public announcement of the execution of this
Agreement, Merger Sub will, and the Parent will cause Merger Sub to, offer to
purchase ( the "Offer") each outstanding share of the Common Stock, $0.01 par
value (the "Common Stock"), of the Company tendered pursuant to the Offer at a
price of $4.25 per share, net to the seller in cash, and to cause the Offer to
remain open until the close of business on the twentieth business day after the
commencement of the Offer (the "Expiration Date"). The obligations of Merger Sub
and the Parent to consummate the Offer and to accept for payment and purchase
the Common Stock tendered in the Offer will be subject only to the conditions
set forth in Schedule 1.01(a) (Offer Conditions) (the "Offer Conditions"). At
the Company's request, Merger Sub will, and the Parent will cause Merger Sub to,
extend the expiration date of the Offer from time to time for up to an aggregate
of ten business days following the Expiration Date if the condition set forth in
clause (1) of the first paragraph of the Offer Conditions is not fulfilled prior
to 12:00 p.m. on the Expiration Date. Merger Sub will not, and the Parent will
cause Merger Sub not to, decrease the price payable in the Offer, change the
form of consideration payable in the Offer, reduce the number of shares of
Common Stock subject to the Offer, change the Offer Conditions, impose
additional conditions to its obligation to consummate the Offer and to accept
for payment and purchase shares of Common Stock tendered in the Offer, or change
any other terms of the Offer in a manner adverse to the holders of the Common
Stock, except that Merger Sub may extend the Expiration Date to the extent
required by applicable law, if any of the Offer Conditions are not satisfied, or
if less than 90% of the outstanding shares of Common Stock have been validly
tendered and not withdrawn pursuant to the Offer. Subject to the terms and
conditions of the Offer and this Agreement, Merger Sub will, and the Parent will
cause Merger Sub to, accept for payment, and pay for, all shares of
1
<PAGE> 6
Common Stock validly tendered and not withdrawn pursuant to the Offer that
Merger Sub becomes obligated to accept for payment, and pay for, pursuant to the
Offer promptly after the expiration of the Offer; except that, without the prior
written consent of the Company, Merger Sub will not, and the Parent will cause
Merger Sub not to, accept for payment, or pay for, any shares of Common Stock so
tendered unless the Minimum Condition (as defined in the Offer Conditions) will
have been satisfied.
(b) On the date of the commencement of the Offer,
Merger Sub and the Parent will file with the Securities and Exchange Commission
(the "SEC") their Tender Offer Statement on Schedule 14D-1 (together with all
supplements or amendments thereto, and including all exhibits, the "Offer
Documents"). Merger Sub and the Parent will give the Company and its counsel a
reasonable opportunity to review and comment upon the Offer Documents prior to
their being filed with the SEC or disseminated to the Company's stockholders.
The Parent and Merger Sub agree that the Offer Documents will comply as to form
in all material respects with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder, and
the Offer Documents, on the date first published, sent, or given to the
Company's stockholders, will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation or warranty is
made by the Parent or Merger Sub with respect to information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
the Offer Documents. The Company agrees that any such information supplied by
the Company that is included in the Offer Documents will not, at the time such
information is furnished to the Parent, contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the Parent, Merger Sub, and the
Company will promptly correct any information provided by it for use in the
Offer Documents if and to the extent that such information becomes false or
misleading in any material respect, and the Parent and Merger Sub will take all
steps necessary to cause the Offer Documents as so corrected to be filed with
the SEC and the other Offer Documents as so corrected to be disseminated to the
Company's stockholders, in each case as and to the extent required by the
Exchange Act. The Parent and Merger Sub will provide the Company and its counsel
any comments the Parent, Merger Sub, or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly after the receipt of
such comments.
(c) As promptly as practicable, but in no event later
than the date on which the Parent notifies the Company that the Offer Documents
initially are to be filed with the SEC, the Company will file its Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (together with all supplements or amendments thereto, and including all
exhibits, the "Schedule 14D-9"), which will include a recommendation by the
Company's Board of Directors that the Company's stockholders
2
<PAGE> 7
accept the Offer and tender their Common Stock pursuant to the Offer. The
Company agrees that the Schedule 14D-9 will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder and, on the date filed with the SEC and on the date first
published, sent, or given to the Company's stockholders, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation or warranty is made by the Company with respect to
information supplied by the Parent or Merger Sub in writing specifically for
inclusion in the Schedule 14D-9. The Parent and Merger Sub agree that any such
information supplied by the Parent and Merger Sub that is included in the
Schedule 14D-9 will not, at the time such information is furnished to the
Company, contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the Company, the Parent, and Merger Sub will promptly
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that such information becomes false or misleading in any material
respect, and the Company will take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by the Exchange Act. The Parent and its
counsel will be given reasonable opportunity to review and comment upon the
Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders
of the Company. The Company will provide the Parent and its counsel any comments
the Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments. The Company's
Board of Directors has resolved to recommend that the Company's stockholders
accept the Offer and tender their Common Stock pursuant to the Offer and has
received an opinion from Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") that, as of the date of such opinion, the cash consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view.
(d) If requested by the Parent or Merger Sub, the
Company will, promptly following the purchase by Merger Sub pursuant to the
Offer of that number of shares of Common Stock which, when aggregated with the
shares of Common Stock then owned by the Parent and any of its affiliates,
represents at least a majority of the shares of Common Stock then outstanding on
a fully diluted basis, take all actions necessary to cause persons designated by
Merger Sub to become directors of the Company so that the total number of
directors so designated equals the product, rounded up to the next whole number,
of (i) the total number of directors of the Company multiplied by (ii) the ratio
of the number of shares of Common Stock beneficially owned by Merger Sub or its
affiliates to the number of shares of Common Stock then outstanding. In
furtherance thereof, the Company will take whatever action is necessary,
including but not limited to amending the Company's bylaws, to increase the size
of its Board of Directors, or use reasonable efforts
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to secure the resignation of directors, or both, as is necessary to permit that
number of Merger Sub's designees to be elected to the Company's Board of
Directors; provided that, prior to the Effective Time, the Company's Board of
Directors will always have at least two members who are currently directors of
the Company, except to the extent that no such individuals wish to be directors
("Continuing Directors"). The Company's obligations to appoint designees to its
Board of Directors will be subject to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder. The Parent and Merger Sub will supply to the
Company and will be solely responsible for any information with respect to
either of them and their nominees, officers, directors, and affiliates required
by Section 14(f) and Rule 14f-1. The Company will promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 1.01 and (provided Merger Sub has furnished the
Company on a timely basis with all information required to be included in the
Information Statement with respect to Merger Sub's designees) will include in
the Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under Section 14(f) and Rule 14f-1.
(e) Following the election or appointment of Merger
Sub's designees pursuant to Section 1.01(d), any amendment to this Agreement,
any termination of this Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations of Merger Sub or the
Parent under this Agreement (except as expressly permitted hereunder), any
recommendation to stockholders or any modification or withdrawal of any such
recommendation, any retention of counsel and other advisors in connection with
the transactions contemplated hereby, or any waiver of any of the Company's
rights under this Agreement will require the concurrence of a majority of the
Continuing Directors, unless no individuals who are currently directors of the
Company wish to be directors. In addition, the Continuing Directors will have
the right to retain, at the expense of the Company, one separate firm of counsel
to represent them in connection with the transactions contemplated hereby.
(f) The parties will cooperate with each other,
including by furnishing any necessary information and making any filings
required by applicable law, to ensure that the matters contemplated by this
Section 1.01 are consummated as promptly as practicable.
SECTION 1.02. The Merger.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.02(b)),
Merger Sub will be merged with and into the Company in accordance with the
Delaware General Corporation Law ("Delaware Law"). As a result of this merger
(the "Merger"), the separate existence of Merger Sub will cease and the Company
will be the surviving corporation (the "Surviving Corporation").
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(b) As soon as practicable after satisfaction or, to
the extent permitted hereunder, waiver of all conditions to the Merger set forth
in Article VIII, the parties will cause a certificate of merger in such form as
is required by, and executed in accordance with, Delaware Law to be duly filed
with the Secretary of State of the State of Delaware. The Merger will become
effective when the certificate of merger is so filed (the "Effective Time").
(c) From and after the Effective Time, the Merger
will have the effects specified in Delaware Law.
(d) The closing of the Merger (the "Closing") will
take place (i) at the offices of Thompson Hine & Flory LLP, 3900 Key Center, 127
Public Square, Cleveland, Ohio 44114-1216, at 10:00 a.m. as soon as practicable
(and in no event later than the fifth business day) following the date on which
the last to be fulfilled or waived of the conditions set forth in Article VIII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions at the
Closing) have been satisfied or waived in accordance with this Agreement or (ii)
at such other place and time as the parties may agree.
SECTION 1.03. Conversion of Shares.
At the Effective Time:
(a) Each share of Common Stock of Merger Sub (a share
of "Merger Sub Common Stock") issued and outstanding immediately prior to the
Effective Time will be converted into one share of Common Stock of the Surviving
Corporation.
(b) Each share of Common Stock issued and outstanding
immediately prior to the Effective Time will, except as otherwise provided in
Section 1.03(c), be converted, by virtue of the Merger and without any action on
the part of the holder thereof, into the right to receive, without interest, an
amount in cash equal to the price per share paid in the Offer (the "Merger
Consideration"). Subject to Section 1.06, from and after the Effective Time, all
shares of Common Stock, by virtue of the Merger and without any action on the
part of the holders thereof, will be canceled, and each holder of a certificate
representing any shares of Common Stock immediately prior to the Effective Time
(a "Stock Certificate") will thereafter cease to have any rights with respect
thereto except the right to receive (i) the Merger Consideration therefor upon
the surrender of the Stock Certificate in accordance with Section 1.04 or (ii)
payment from the Surviving Corporation of the "fair value" of such shares of
Common Stock as determined under Section 262 of the Delaware Law, subject to the
conditions set forth therein and in accordance with Section 1.06 of this
Agreement.
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(c) Each outstanding share of Common Stock held by
the Company as a treasury share or owned by the Parent, Merger Sub, or any other
Subsidiary of the Parent immediately prior to the Effective Time will be
canceled, and no payment will be made with respect thereto.
SECTION 1.04. Surrender and Payment.
(a) Prior to the Effective Time, the Parent will
appoint a bank or trust company reasonably acceptable to the Company (the
"Exchange Agent") for the purpose of exchanging Stock Certificates. The Parent
will make available to the Exchange Agent funds in amounts and at the times
necessary for the payment of the Merger Consideration in accordance with this
Section 1.04 (such cash is referred to as the "Exchange Fund").
(b) Promptly, but in no event more than five business
days, after the Effective Time, the Parent will send, or will cause the Exchange
Agent to send, to each holder of a Stock Certificate a letter of transmittal and
instructions for use in surrendering the Stock Certificates for payment in
accordance with this Section 1.04. The agreement with the Exchange Agent will
provide that, upon surrender to the Exchange Agent of such Stock Certificates,
together with the letter of transmittal, duly executed and completed in
accordance with the instructions thereto and such other documents as may be
reasonably required by the Exchange Agent, the Exchange Agent will promptly pay
to the persons entitled thereto, out of the Exchange Fund, a check in the amount
to which such persons are entitled pursuant to Section 1.03(b), after giving
effect to any required tax withholdings, and such Stock Certificate will
forthwith be canceled.
(c) If any cash is to be paid to a Person other than
the registered holder of the Stock Certificates surrendered in exchange
therefor, it will be a condition to such payment that the Stock Certificates so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the Person requesting such payment pay to the Exchange Agent any transfer
or other taxes required as a result of such issuance or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. For purposes of this Agreement, "Person" means an individual, a
corporation, a partnership, a limited liability company, an association, a
trust, or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) At and after the Effective Time, the stock
transfer books of the Company will be closed, and there will be no further
registration of transfers of shares of Common Stock outstanding prior to the
Effective Time. If, at or after the Effective Time, Stock Certificates are
presented to the Surviving Corporation, they will be canceled and exchanged in
accordance with this Article I.
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(e) Any cash in the Exchange Fund that remains
unclaimed by the holders of shares of Common Stock six months after the
Effective Time will be returned to the Parent, upon demand, and any such holder
who has not surrendered his shares of Common Stock in accordance with this
Section 1.04 prior to that time will thereafter look only to the Parent, as a
general creditor thereof, to pay the Merger Consideration to which such holder
is entitled. Notwithstanding the foregoing, the Parent will not be liable to any
holder of shares of Common Stock for any amount paid to a public official
pursuant to applicable abandoned property, escheat, or similar laws.
(f) If any Stock Certificate is lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Stock Certificate to be lost, stolen, or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Parent may direct as indemnity against any claim that may be made
against it with respect to such Stock Certificate, the Exchange Agent will pay
the Merger Consideration payable in respect of such Stock Certificate pursuant
to this Agreement.
SECTION 1.05. Company Options; Series B Warrants.
(a) At the Effective Time, each outstanding option (a
"Company Option") to purchase shares of Common Stock granted to employees,
directors, or F.M. Roberts & Co. ("F.M. Roberts"), whether or not exercisable,
will be canceled, and in consideration of such cancellation, will be converted
into the right to receive, without interest, an amount in cash (the "Cash
Payment") equal to the product of (i) the number of shares of Company Stock
subject to the Company Option and (ii) the excess of (A) the Merger
Consideration over (B) the exercise price per share of the Company Option;
provided that, with respect to any Person subject to Section 16 of the Exchange
Act, any such amount will be paid, without interest, as soon as practicable
after the first date payment can be made without liability of such Person under
Section 16(b) of the Exchange Act. The Parent will be entitled to cause the
Surviving Corporation to withhold from amounts otherwise payable pursuant to
this Section 1.05 any amount required to be withheld under applicable tax laws.
(b) At the Effective Time, the Parent will cause the
Surviving Corporation to expressly assume the due and punctual performance and
observance of each and every covenant and condition of the Series B Warrant
Agreement (the "Series B Warrant Agreement") and the Series C Warrant Agreement
("Series C Warrant Agreement"), each executed by and between the Company and
American Stock Transfer & Trust Company, as the warrant agent (the "Warrant
Agent"), and dated as of July 31, 1996, that was to be performed by the Company
under each agreement, by supplemental agreement (the "Supplemental Warrant
Agreement") satisfactory in form to the Warrant Agent in the exercise of its
reasonable judgment and executed and delivered to the Warrant Agent. The
Supplemental Warrant Agreement shall further provide that each holder of a
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Series B Warrant shall have the right after the Effective Time (a) upon exercise
of each Series B Warrant and payment of the Exercise Price (as defined in the
Series B Warrant Agreement) in effect immediately prior to the Effective Time,
to receive the Merger Consideration and one Series C Warrant and (b) upon
exercise of each Series C Warrant and payment of the Exercise Price (as defined
in the Series C Warrant Agreement) in effect immediately prior to the Effective
Time, to receive the Merger Consideration.
SECTION 1.06. Shares of Dissenting Stockholders.
Notwithstanding anything in this Agreement to the
contrary, any outstanding shares of Common Stock held by a person (a "Dissenting
Stockholder") who objects to the Merger and complies with all the provisions of
Delaware Law concerning the right of holders of shares of Common Stock to
dissent from the Merger and require appraisal of their shares will not be
converted as described in Section 1.03(b), but will be converted into the right
to receive such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to Delaware Law. If, after the Effective Time, such
Dissenting Stockholder withdraws his demand for appraisal, or fails to perfect
or otherwise loses his right to appraisal, in accordance with Delaware Law, his
shares of Common Stock will be deemed to have been converted as of the Effective
Time into the right to receive the Merger Consideration. The Company will give
the Parent (i) prompt notice of any demands for appraisal of shares of Common
Stock received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demands. The Company will
not, without the prior written consent of the Parent, make any payment with
respect to, or settle, offer to settle, or otherwise negotiate, any such
demands.
ARTICLE II
THE SURVIVING CORPORATION; THE PARENT DIRECTORS
SECTION 2.01. Certificate of Incorporation.
Subject to Section 6.01(a), the certificate of
incorporation of Merger Sub in effect immediately prior to the Effective Time
will be the certificate of incorporation of the Surviving Corporation after the
consummation of the Merger until amended in accordance with applicable law.
SECTION 2.02. Bylaws.
Subject to Section 6.01(a), the bylaws of Merger Sub
in effect immediately prior to the Effective Time will be the bylaws of the
Surviving Corporation after the consummation of the Merger until amended in
accordance with applicable law.
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SECTION 2.03. Directors and Officers.
From and after the Effective Time, until successors
are duly elected or appointed and qualified in accordance with applicable law,
the directors and officers of Merger Sub immediately prior to the Effective Time
will be the directors and officers of the Surviving Corporation after the
consummation of the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent
that:
SECTION 3.01. Corporate Existence and Power.
The Company is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease, and operate
its properties and to carry on its business as now conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where it is required to be so qualified by reason of the
character of the property owned or leased by it or the nature of its activities,
except where the failure to be so qualified would not have a Company Material
Adverse Effect (as defined in the Offer Conditions).
SECTION 3.02. Corporate Authorization.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement are within the
Company's corporate power and authority and, except for any required approval by
the Company's stockholders in connection with the consummation of the Merger,
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution, and delivery of this Agreement by the
Parent and Merger Sub, constitutes a legal, valid, and binding agreement of the
Company.
SECTION 3.03. Governmental Authorization.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement do not require any
consent, approval, authorization, or permit of, other action by, or filing with,
any governmental body, agency, official, or authority by the Company other than
(i) as set forth on Section 3.03 of the Disclosure
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Schedule delivered by the Company to the Parent concurrently with the execution
and delivery of this Agreement (the "Company Disclosure Schedule"), (ii) the
filing of appropriate certificates of merger in accordance with Delaware Law,
(iii) the filing and delivery of the Schedule 14D-9, (iv) compliance with
applicable requirements of the Hart- Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (v) the filing of the proxy materials referred
to in Section 5.05(b), and (vi) any such other action or filing where the
failure to take the action or to make the filing is not reasonably likely (A) to
prevent or materially to delay the consummation of the Offer or the Merger or
(B) to have, individually or in the aggregate, a Company Material Adverse
Effect.
SECTION 3.04. Certificate of Incorporation and Bylaws.
The Company has heretofore furnished to the Parent
and Merger Sub complete and correct copies of the certificate of incorporation
and the bylaws, in each case as amended or restated as of the date hereof, of
the Company.
SECTION 3.05. Non-Contravention.
The execution and delivery by the Company of this
Agreement, the consummation by the Company of the Merger, and the performance by
the Company of its other obligations under this Agreement do not and will not
(i) contravene or conflict with the certificate of incorporation or bylaws of
the Company, (ii) assuming compliance with the matters referred to in Section
3.03, contravene, conflict with, or constitute a violation of any provision of
any law, rule, regulation, judgment, injunction, order, or decree binding upon
or applicable to the Company, (iii) constitute a default, give rise to a right
of termination, cancellation, or acceleration of any right or obligation of the
Company, or give rise to a loss of any benefit to which the Company is entitled,
under any provision of any agreement or other instrument binding upon the
Company or under any license, franchise, permit, or other similar authorization
held by the Company, or (iv) result in the creation or imposition of any Lien on
any asset of the Company, except as set forth in Section 3.05 of the Company
Disclosure Schedule and except for any occurrences or results referred to in
clauses (ii), (iii), and (iv) that would not be reasonably likely (A) to prevent
or delay consummation of the Offer or the Merger or (B) to have, individually or
in the aggregate, a Company Material Adverse Effect. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, encumbrance, or other right or interest of another to
or in, or adverse claim of any kind in respect of, such asset.
SECTION 3.06. Capitalization.
(a) The Company has 8,000,000 authorized shares,
consisting of 7,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock, $.01 par value, of the Company ("Company Preferred Stock"). As of
February 2, 1998, (i)
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5,331,830 shares of Common Stock were issued and outstanding, (ii) 907,758
shares of Common Stock were reserved for future issuance upon exercise of
outstanding Company Options, and (iii) 376,158 shares of Common Stock were
reserved for future issuance upon exercise of Series B Warrants. As of February
2, 1998, no shares of Company Preferred Stock were issued or outstanding. Except
as described in this Section 3.06 or in Section 3.06 of the Company Disclosure
Schedule, as of the date of this Agreement, no shares of capital stock of the
Company are reserved for issuance for any other purpose. Each of the issued and
outstanding shares of Common Stock is duly authorized, validly issued, and fully
paid and nonassessable and has not been issued in violation of (nor are any of
the authorized shares of Common Stock or Company Preferred Stock subject to) any
preemptive or similar rights created by statute, the certificate of
incorporation or the bylaws of the Company, or any agreement to which the
Company is a party or is bound. Each of the outstanding Company Options and
Series B Warrants is duly authorized and validly issued.
(b) Except for the Company Options and the Series B
Warrants as set forth in paragraph (a) of this Section 3.06 or as set forth on
Section 3.06 of the Company Disclosure Schedule, there are no options, warrants,
or other rights (including registration rights and conversion rights),
agreements, arrangements, or commitments to which the Company is a party or
bound relating to the issued or unissued capital stock of the Company or
obligating the Company to grant, issue, or sell any shares of the capital stock
of the Company or other security of the Company. Except as set forth in Section
3.06 of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company to purchase, redeem, or otherwise acquire any shares
of Common Stock or other capital stock of the Company.
(c) Section 3.06 of the Company Disclosure Schedule
lists, as of the date indicated, the (i) number of shares of Common Stock
subject to, and the exercise price of, each outstanding Company Option and (ii)
the number of shares of Common Stock subject to, and the exercise price of, each
outstanding Series B Warrant. The Company has made available to the Parent and
Merger Sub complete and correct copies of the Company Option Plans, all forms of
Company Options, and all instruments governing the terms of the Series B
Warrants.
SECTION 3.07. Subsidiaries.
The Company has no Subsidiaries. For purposes of this
Agreement, "Subsidiary" of any Person means (i) any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are, directly or indirectly, owned by such Person, and (ii) any
partnership of which such Person is a general partner.
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SECTION 3.08. Company SEC Reports.
Since July 31, 1996, the Company has filed all
material forms, reports, statements, and other documents required to be filed by
it with the SEC, including without limitation (a) all Annual Reports on Form
10-K, (b) all Quarterly Reports on Form 10-Q, (c) all proxy statements relating
to meetings of stockholders (whether annual or special), (d) all Current Reports
on Form 8-K, and (e) all other reports, schedules, registration statements, and
other documents required to be filed with the SEC. (All of the documents filed
by the Company with the SEC during such period, including all exhibits contained
or incorporated by reference in such documents, are collectively referred to as
the "Company SEC Reports"). The Company SEC Reports, as amended to date, (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and (ii) did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 3.09. Financial Statements; No Undisclosed Liabilities.
The audited financial statements and unaudited
interim financial statements (including the related notes and schedules) of the
Company included or incorporated by reference in the Company SEC Reports as of
dates and for periods after July 31, 1996 (the "Company Financial Statements")
were prepared in conformity with AICPA Statement of Position 90-7 and fairly
present the financial position of the Company as of the dates indicated and its
results of operations and cash flows for the periods then ended in conformity
with generally accepted accounting principles, subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments, none of
which, except as set forth on Section 3.09 of the Company Disclosure Schedule,
would be reasonably likely to be, individually or in the aggregate, material in
amount. The Company does not have any liabilities, whether accrued, contingent,
or otherwise, other than (a) liabilities disclosed in the Company Disclosure
Schedule or the Company SEC Reports, (b) liabilities reflected in the balance
sheet as of October 31, 1997 included in the Company Financial Statements (the
"October 1997 Balance Sheet"), (c) liabilities, ordinary in nature and amount,
incurred since October 31, 1997, and (d) liabilities in an aggregate amount that
is not material to the Company.
SECTION 3.10. Inventory.
The procedures used for establishing the count and
value of inventory in all physical inventories taken after January 31, 1997,
were substantially the same as the procedures used in establishing the count and
value of inventory shown in the audited balance sheet of the Company as of
January 31, 1997. Between the date of this
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Agreement and the Effective Time, the Company will permit the Parent to take any
reasonable steps that it deems to be appropriate in order to test and confirm
the valuation of the inventory.
SECTION 3.11. Contracts and Commitments.
Except as set forth in Section 3.11 of the Company
Disclosure Schedule, the Company is not a party to or bound by any oral or
written contracts that cannot be terminated by Company on notice of 30 days or
less and that:
(a) Provides for the purchase of supplies or services
that (i) entails the expenditure in any fiscal year of more than
$50,000 in the case of supplies other than merchandise or $250,000 in
the case of merchandise, (ii) purports to be exclusive as pertains to
any product, type of product, or region, or (iii) has a term of more
than one year.
(b) Limits the right of the Company to compete, to
open a store in any territory, or to use any trade names, trademarks,
copyrights, logos, or other proprietary rights.
(c) Provides for payments to anyone based on the
operating results of the Company or any one or more of the stores
(other than percentage rents payable to landlords).
(d) Warrants goods or services by the Company in a
manner that differs materially from the warranty provided by the
manufacturer of the goods or the provider of the services.
(e) Commits for capital expenditures in excess of
$50,000 for any one project or $250,000 for any group of projects.
(f) Provides for the borrowing of money by the
Company or for the creation of any Lien on any of the assets of the
Company.
(g) Provides for the expenditure by the Company of an
aggregate of more than $50,000, other than contracts for the purchase
of supplies or merchandise covered by paragraph (a) and contracts for
capital expenditures covered by paragraph (e).
To the extent requested by the Parent, the Company has delivered or prior to the
Effective Time will deliver to the Parent copies of all written contracts and
commitments listed in Section 3.11 of the Company Disclosure Schedule, summaries
of all oral contracts and commitments listed in Section 3.11 of the Company
Disclosure Schedule, and all
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modifications and supplements thereto (collectively, the "Contracts"). Except as
disclosed in Section 3.11 of the Company Disclosure Schedule (i) each of the
Contracts is in full force and effect, (ii) the Company and, to the knowledge of
the Company, all other parties to the Contracts have, in all material respects,
performed their obligations and are not in default under the Contracts, (iii)
the Company has not given or received any notice of default under any of the
Contracts, (v) no event has occurred or condition exists that, with the giving
of notice, the passage of time, or both, would constitute a default by the
Company or, to the best knowledge of the Company, any other party under any of
the Contracts, and (v) neither the Company nor, to the best knowledge of the
Company, any other party has waived, or extended the time for the performance
of, any obligations under the Contracts. To the best knowledge of the Company,
none of the Contracts is subject to any impending cancellation.
SECTION 3.12. Absence of Certain Changes.
Except as disclosed in Section 3.12 of the Company
Disclosure Schedule, since October 31, 1997, (a) the Company has conducted its
business in all material respects in the ordinary course consistent with past
practices, (b) there has not been any change or development, or combination of
changes or developments, in the business, operations, or financial condition of
the Company that are reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect, other than as a result of changes
in conditions, including economic or political developments, that are applicable
to the retail business and do not have a disproportionate effect on the
Company's business relative to the effect of any such change on other entities
in the retail business, (c) there has not been any declaration, setting aside,
or payment of any dividend or other distribution with respect to the Common
Stock or any other capital stock of the Company, or any repurchase, redemption,
or other acquisition by the Company of any shares of Common Stock or other
capital stock of the Company, (d) there has not been any amendment of any term
of any outstanding security of the Company, (e) there has not been any
incurrence, assumption, or guarantee by the Company of any indebtedness for
borrowed money other than (i) borrowings and letters of credit in the ordinary
course of business under the CITBC Financing Agreement not in excess of the
amount available under the CITBC Financing Agreement and (ii) indebtedness
representing capital lease and installment purchase obligations incurred in
connection with the lease or purchase of equipment in the ordinary course of
business and in amounts and on terms consistent with past practices, (f) there
has not been any creation or assumption by the Company of any Lien on a material
amount of assets (including the sale, pledge, or assignment of a material amount
of receivables) other than Liens securing the Company's obligations under the
CITBC Financing Agreement and Liens securing capital lease and installment
purchase obligations incurred in connection with the lease or purchase of
equipment in the ordinary course of business, and (g) there has not been any
change in any method of accounting or accounting practice by the Company, except
for any such change required by reason of a concurrent change in generally
accepted accounting principles. Furthermore, except as
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disclosed in Section 3.12 of the Company Disclosure Schedule, or pursuant to
agreements, plans, or arrangements disclosed in the Company SEC Reports, since
October 31, 1997, there has not been any (i) grant of any severance or
termination pay or stay-in-place bonus to any director or officer of the
Company, (ii) entering into of any employment, deferred compensation, or other
similar agreement (or any amendment to any such existing agreement) with any
director or officer of the Company or any of its Subsidiaries, (iii) increase in
benefits payable under any existing severance or termination pay or stay-in-
place bonus policies or agreements with any director or officer of the Company,
or (iv) increase in compensation, bonus, or other benefits payable to directors
or officers of the Company, except for normal annual adjustments that are not
unusual in nature or amount.
SECTION 3.13. Litigation.
Except as disclosed in Section 3.13 of the Company
Disclosure Schedule, (i) there is no material action, suit, or proceeding
pending before, and, to the knowledge of the Company, there is no material
pending investigation by, any court or arbitrator or any governmental body,
agency, official, or authority against the Company or involving any of their
properties, (ii) to the knowledge of the Company, there is no threat of any such
material action, suit, or proceeding, and (iii) no judgment, decree, injunction,
rule, order, or similar action of any court or arbitrator or any governmental
body, agency, official or authority, domestic or foreign, is outstanding against
the Company that materially limits the conduct of the business of the Company as
currently conducted. For purposes of Section 3.13, an action, suit, proceeding,
investigation, judgment, decree, injunction, rule, order, or similar action will
be deemed to be "material" if it involves (a) a claim or potential claim of
liability in excess of $50,000 that is not covered by insurance or (b) a
significant limitation or potential limitation on the conduct of the business of
the Company as currently conducted.
SECTION 3.14. Permits; Compliance.
Except as is disclosed in Section 3.14 of the Company
Disclosure Schedule, the Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals, and orders necessary to own, lease, and operate its
properties and to carry on its business as now being conducted, other than (i)
those issued by or otherwise obtained from governmental authorities pursuant to
or in connection with any Environmental Law (as hereinafter defined) and (ii)
those of which the failure of the Company to be in possession is not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect (collectively, the "Company Permits"). Except as set forth in
Section 3.14 of the Company Disclosure Schedule, the Company is not in conflict
with, or in default or violation of, (a) any federal, state, or foreign law
applicable to the Company or by which any of its properties are bound or subject
(other than any Environmental Law) or (b) any of the Company Permits, other than
conflicts, defaults, or violations that are not, individually
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or in the aggregate, reasonably likely to have a Company Material Adverse
Effect. Except as set forth in Section 3.14 of the Company Disclosure Schedule,
since July 31, 1996, the Company has not received any notification with respect
to possible material conflicts, defaults, or violations of any federal, state,
local, or foreign law applicable to the Company or by which any of its
properties are bound or subject (other than any Environmental Law) that have not
been cured without any further material liability or obligation.
SECTION 3.15. ERISA.
(a) As used in this Section 3.15, each of the
following terms has the indicated meaning:
(i) "Affiliate" of any Person means any other Person
that, together with such Person, would be treated as a single employer
under Section 414(b) or (c) of the Internal Revenue Code of 1986, as
amended (the "Code").
(ii) "Company Benefit Arrangement" means each
employment, severance, welfare, or other similar contract,
arrangement, or policy and each plan or arrangement (written or oral)
providing for compensation, benefit, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, that (A) is not a Company Employee Plan, (B) is
entered into, maintained, or contributed to, as the case may be, by
the Company or any of its Affiliates, and (C) covers any employee or
former employee or director or former director of the Company or any
such Affiliate.
(iii) "Company Employee Plans" means each "employee
benefit plan," as defined in Section 3(3) of ERISA that (A) is subject
to any provision of ERISA and (B) is maintained, administered, or
contributed to by the Company or any Affiliate, or under which the
Company or any Affiliate had an obligation to contribute during the
last five years, and covers any employee or former employee of the
Company or any such Affiliate or under which the Company or any such
Affiliate has any material liability.
(iv) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(b) The Company has heretofore made available to the
Parent, and agrees that it will as soon as practicable after the date of this
Agreement furnish the Parent with, copies of all Company Employee Plans (and, if
applicable, related trust agreements), all amendments thereto, the most recent
Forms 5500 required to be filed with
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respect thereto, Internal Revenue Service determination letters, summary plan
descriptions, actuarial reports, and contracts pursuant to which benefits are
provided, in each case to the extent applicable.
(c) Section 3.15 of the Company Disclosure Schedule
identifies each Company Employee Plan that constitutes a "defined benefit plan"
as defined in Section 3(35) of ERISA. Except as set forth on Section 3.15 of the
Company Disclosure Schedule, no Company Employee Plan constitutes a
"multiemployer plan," as defined in Section 3(37) of ERISA, and no Company
Employee Plan is maintained in connection with any trust described in Section
501(c)(9) of the Code. Except as set forth on Section 3.15 of the Company
Disclosure Schedule, no Company Employee Plan provides retiree medical or
retiree life insurance benefits or is subject to Title IV of ERISA. Neither the
Company nor any of its Affiliates has incurred any material liability under
Title IV of ERISA (excluding liability for premiums payable to the Pension
Benefit Guarantee Corporation), including, without limitation, arising in
connection with the termination of, or complete or partial withdrawal from, any
plan currently or previously covered by Title IV of ERISA, and the Pension
Benefit Guarantee Corporation has not instituted proceedings to terminate any
such plan nor, to the knowledge of the Company, do any conditions exist that
present a material risk of such occurrence. Nothing done or omitted to be done
by the Company or, to the knowledge of the Company, by any other Person, and no
transaction or holding of any asset under or in connection with any Company
Employee Plan by the Company or, to the knowledge of the Company, by any other
Person, has made or will make the Company or any officer or director of the
Company subject to any material liability under Section 406 of ERISA or for any
material tax pursuant to Section 4975 of the Code. With respect to each Company
Employee Plan subject to Title IV of ERISA, the Company has made available to
the Parent the most recent actuarial report showing the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes with respect to such plan. No Company Employee Plan or any trust
established thereunder that is subject to Section 412 of the Code has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each such plan ended prior to the date hereof; and all
contributions required to be made with respect thereto (whether pursuant to the
terms of any Company Employee Plan or otherwise) on or prior to the date hereof
have been timely made.
(d) Each Company Employee Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, each trust forming a part
thereof is exempt from tax pursuant to Section 501(a) of the Code, as evidenced
by a determination letter issued by the Internal Revenue Service that has not
been revoked. Except as set forth in Section 3.15 of the Company Disclosure
Schedule, each Company Employee Plan has been maintained in compliance with its
terms and with the requirements of all applicable statutes, orders, rules,
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and regulations, except for matters of non-compliance that are not, in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
(e) Section 3.15 of the Company Disclosure Schedule
lists each material Company Benefit Arrangement currently in effect provided to
any director, officer, or employee of the Company or any former director,
officer, or employee of the Company and sets forth each Company Benefit
Arrangement with respect to which benefits will be accelerated or paid as a
result of the transactions contemplated by this Agreement. Copies of all written
Company Benefit Arrangements and all amendments thereto have heretofore been
made available to the Parent, and will promptly be furnished to the Parent upon
the Parent's request after the date of this Agreement. Each Company Benefit
Arrangement has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules, and regulations
that are applicable to such Company Benefit Arrangement, except for matters of
non-compliance that are not, in the aggregate, reasonably likely to have a
Company Material Adverse Effect.
(f) Section 3.15 of the Company Disclosure Schedule
sets forth the amount of incentive compensation, in the aggregate, that the
Company expects to be payable with respect to the fiscal year ended January 31,
1998 and with respect to the period from that date through the Effective Time
(assuming the Effective Time occurs six weeks after the date of this Agreement).
(g) Except as set forth in Section 3.15 of the
Company Disclosure Schedule, there are no pending, or, to the knowledge of the
Company, overtly threatened claims by or on behalf of any Company Employee Plan
or Company Benefit Arrangement, by any employee or beneficiary covered under any
such plan or arrangement, or otherwise involving any such plan or arrangement
(other than claims for benefits in the ordinary course), that are, in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
SECTION 3.16. Labor.
Except as set forth on Section 3.16 of the Company
Disclosure Schedule, the Company is not a party to or bound by any collective
bargaining agreement respecting its employees, nor is there existing, or to the
knowledge of the Company any material threat of, any strike, organized walkout,
or other organized work stoppage or labor organizational effort by any employees
of the Company.
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SECTION 3.17. Taxes.
(a) Except as set forth in Section 3.17 of the
Company Disclosure Schedule or in the Company SEC Reports:
(i) Each member of the Group has timely filed all
material Tax Returns required to be filed by them with any taxing
authority with respect to Taxes for all periods heretofore ended, taking
into account any extension of time to file granted to or obtained on
behalf of the members of the Group, all such Tax Returns, in all
material respects, correctly reflected the information required to be
shown therein, and each member of the Group has disclosed on its federal
income Tax return all positions taken therein that could give rise to a
substantial understatement penalty under Section 6662 of the Code;
(ii) all material Taxes required to be paid prior to
the Effective Time by each member of the Group have been duly and timely
paid or will be duly and timely paid by the Effective Time, subject to
good faith challenge;
(iii) no material deficiency for any amount of Tax is
being asserted by a taxing authority against any member of the Group,
except for amounts for which the Company has made an adequate reserve as
reflected in the Company Financial Statements;
(iv) all liability for Taxes of members of the Group
that are or will become due or payable with respect to periods covered
by the Company Financial Statements have, in all material respects, been
paid or adequately reserved for in the Company Financial Statements to
the extent required by generally accepted accounting principles
consistently applied, and all prepaid Taxes and other Tax assets
reflected in the Company Financial Statements have been determined in
accordance with generally accepted accounting principles consistently
applied;
(v) each member of the Group has withheld and paid
over all material Taxes required to have been withheld and paid over,
and complied, in all material respects, with all information reporting
and backup withholding requirements (including maintenance of required
records) in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party;
(vi) no member of the Group is liable for any
material amount of Taxes arising out of membership or participation in
any
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consolidated, affiliated, combined, or unitary group in which they were
at any time members, other than the group of which the Company is the
common parent;
(vii) there are no material Liens for Taxes upon the
assets of the Company other than Liens for Taxes not yet due and
payable;
(viii) there are no outstanding waivers or comparable
consents extending the statute of limitations with respect to any
material Taxes or Tax Returns of any members of the Group, other than
with respect to the Refund Claim referred to in Section 3.17(c);
(ix) with respect to any Taxes: (A) no material
audits, claims, actions, suits, or proceedings are pending or, to the
knowledge of the Company, threatened (other than the Refund Claim
referred to in Section 3.17(c)), and (B) to the knowledge of the
Company, no material investigations are pending;
(x) all federal income Tax returns of members of the
Group filed with respect to Tax years ended on or before December 31,
1991 have been examined and closed (except with respect to the Refund
Claim) or are income Tax returns with respect to which the applicable
period for assessment, after giving effect to extensions or waivers, has
expired;
(xi) no member of the Group is or has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and the Parent is not required to withhold
Tax on the purchase of the capital stock of the Company by reason of
Section 1445 of the Code (the Company will provide the Parent and Merger
Sub with a certificate, signed on the date of this Agreement and
satisfying the requirements of Treasury Regulations Section 1.897-2(h)
and 1.1445-2(c)(3), to the effect that each member of the Group was not
a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code at any time during the five-year period
preceding the date hereof);
(xii) no member of the Group has entered into any
compensatory agreements with respect to the performance of services the
payment under which would result in a nondeductible expense to the Group
pursuant to Section 280G of the Code or an excise tax to the recipient
of such payment pursuant to Section 4999 of the Code;
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(xiii) there are no requests for rulings or
determinations in respect of any Tax pending between any Group member
and any taxing authority;
(xiv) no member of the Group owns any interest in
real property in the State of New York or in any other jurisdiction in
which a Tax is imposed on the transfer of a controlling interest in an
entity that owns any interest in real property;
(xv) the Company is not a party to any material
agreement providing for the allocation or sharing of Taxes; and
(xvi) there has been no change in the method of
accounting utilized by the Company that would require a material
adjustment to taxable income under Section 481 of the Code.
For purposes of this Agreement, "Taxes" or "Tax" means all federal, state,
local, and foreign taxes, levies, and other assessments, including without
limitation, all income, excise, property, sales, use, value added, transfer,
franchise, profits, withholding, payroll, social security, medicare, or other
taxes, including any interest, additions to tax, and penalties applicable
thereto; "Tax Return" means any return, declaration, statement, report,
estimate, schedule, information return (including information returns or reports
with respect to backup withholding and other payments to third parties), and
other document (including any related or supporting information) with respect to
Taxes; and "Group" means (i) the Company and (ii) any individual, trust,
corporation, partnership, or any other entity as to which the Company is liable
for Taxes either as a transferee, pursuant to Treasury Regulations Section
1.1502-6, or pursuant to any other provision of federal, territorial, state,
local or foreign law or regulations.
(b) After the date of this Agreement, the Company
will furnish the Parent with copies of all federal and state income or franchise
Tax Returns of the Company requested by the Parent. No member of the Group does
business in or derives income from any state, local, territorial, or foreign
taxing jurisdiction other than those for which all Tax Returns have been
furnished to Parent.
(c) The Internal Revenue Service is currently
examining claims for refund filed by the Company with the Internal Revenue
Service as a result of carrybacks of certain net operating losses (the "Refund
Claim"). The Company received $22,502,000 in such refunds. The Company has
furnished the Parent with a chronology, prepared by Deloitte & Touche LLP,
identifying the principal events relating to the Refund Claim, including a
description of meetings and summaries of conversations with representatives of
the Internal Revenue Service. The Company has made available to the Parent all
notices and correspondence between the Internal Revenue Service and the Company
regarding the
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Refund Claim, and the Company will provide copies of any such notices and
correspondence received after the date hereof. The Company has not received any
comparable refund with respect to any state or local Taxes.
SECTION 3.18. Real Estate.
(a) Section 3.18 of the Company Disclosure Schedule
identifies each parcel of real property owned or leased by the Company (the
"Company Real Property"). The Company has good, marketable, and indefeasible fee
simple title to each property identified as owned by it free and clear of all
Liens other than (i) Liens that do not, individually or in the aggregate,
materially impair the conduct by the Company of its business thereon or
materially detract from the value thereof, (ii) Liens for taxes accrued but not
yet payable, and (iii) Liens that secure obligations of the Company under the
CITBC Financing Agreement and under the United States National Bank of Oregon
promissory note dated July 31, 1996 and related deed of trust ("Permitted
Encumbrances"). The Company holds a valid leasehold interest under a lease or
sublease covering each property identified as leased by it free and clear of all
Liens other than Permitted Encumbrances.
(b) Section 3.18 of the Company Disclosure Schedule
sets forth a tables that show, with respect to each of the store leases included
in the Company Real Property (the "Company Store Leases"), (i) base rent for
each fiscal year through 2002 and (ii) lease expiration, options, rent for the
current fiscal year, rent during the first option period, and percentage rent.
(c) After the execution and delivery of this
Agreement, the Company will make available to the Parent a complete, correct,
and current copy of each of the Company Store Leases, including any
modifications and supplements. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, (i) all of the Company Store Leases are in full
force and effect, (ii) the Company and, to the knowledge of Company, all other
parties to the Company Store Leases have, in all material respects, duly and
timely performed their obligations and are not in default under the Company
Store Leases, and the Company is not currently withholding any rent due under
any of the Company Store Leases, (iii) the Company has not given or received any
notice of a material default under any of the Company Store Leases, (iv) no
event has occurred or condition exists that, with the giving of notice, the
passage of time, or both, would constitute a material default by the Company or,
to the knowledge of the Company, any other party under any of the Company Store
Leases, (v) neither the Company nor, to the knowledge of the Company, any other
party has waived, or extended the time for the performance of, any material
obligations under the Company Store Leases, and (vi) to the knowledge of the
Company, none of the Company Store Leases is subject to any impending
cancellation.
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(d) Except as set forth in Section 3.18 of the
Company Disclosure Schedule, no third parties have any rights to use or occupy
any of the Company Real Property, whether as tenants, subtenants, holders of
easements or licenses, or otherwise.
(e) The use of the Company Real Property by the
Company in its business as presently and ordinarily conducted conforms with
applicable zoning laws, regulations, and permits, except where the failure to
conform would not have a Company Material Adverse Effect. In addition, (i) no
zoning changes are pending or, to the knowledge of the Company, threatened that
would prohibit or make nonconforming the use of any of the Company Real Property
as presently and ordinarily used, (ii) no condemnation or eminent domain
proceedings are pending or, to the knowledge of the Company, threatened with
respect to any of the Company Real Property, and (iii) no landlord or public
authority is installing, or, to the knowledge of the Company, planning to
install, any material improvements the cost of which might, in full or in part,
be assessed against the Company.
SECTION 3.19. Personal Property.
Except as set forth in 3.19 of the Company Disclosure
Schedule, the Company has good and marketable title to all of the material
personal property reflected in the October 1997 Balance Sheet (other than
personal property sold since that date in the ordinary course of business) free
and clear of all Liens other than Permitted Encumbrances.
SECTION 3.20. Intellectual Property Rights.
(a) Section 3.20 of the Company Disclosure Schedule
identifies all Intellectual Property Rights (as defined in Section 3.20(b)) that
are owned or licensed by the Company or used in its business.
(b) The Company has registered the names "House of
Fabrics" and "So-Fro Fabrics." The Company's right to continue to use the names
"House of Fabrics," "Fabricland," "Fabric King," and "So-Fro Fabrics" as now
used in the Company's business is not subject to any pending, or, to the
knowledge of the Company, threatened challenge. To the knowledge of the Company,
the Company owns or licenses all other Intellectual Property Rights required to
conduct their business as presently and ordinarily conducted. Except for the
matters identified in Section 3.20 of the Company Disclosure Schedule, (i) the
Company has not been sued, charged in writing with, or named a defendant in, any
claim, suit, action, or proceeding involving a material claim of infringement of
any Intellectual Property Rights of others that has not been resolved without
the imposition of any restrictions on the right of the Company to engage in any
activities relating to its business, (ii) to the knowledge of the Company, there
is no threatened material claim of infringement by the Company of any
Intellectual Property Rights of others, and (iii) to the knowledge of the
Company, there is no material continuing
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infringement by others of the Intellectual Property Rights of the Company.
Except as set forth in Section 3.20 of the Company Disclosure Schedule, no
Intellectual Property Rights of the Company are subject to any outstanding
order, judgment, decree, stipulation, or agreement restricting the use thereof
by the Company. Except as set forth in Section 3.20 of the Company Disclosure
Schedule, the Company has not entered into any agreement to indemnify any other
individual or entity against any charge of infringement of any Intellectual
Property Right.
(b) For purposes of this Agreement, "Intellectual
Property Rights" means trade names, trademarks, service marks, and copyrights,
registrations thereof or applications therefor, the preferred customer mailing
list or lists maintained by the Company, and any other relevant proprietary
intellectual property rights.
SECTION 3.21. Environmental Protection.
(a) Except as set forth in Section 3.21 of the
Company Disclosure Schedule, (i) the Company has no material liability arising
out of the generation, use, transportation, treatment, storage, release, or
disposal of any Hazardous Material (as defined in Section 3.21(b)) in violation
of any Environmental Requirement (as defined in Section 3.21(c)), (ii) the
Company is in compliance with all applicable Environmental Requirements, except
where non-compliance would not result in a material liability to the Company,
(iii) no notice, order, decree, notice of violation, or other notice has been
received by the Company alleging that the Company is, in any material respect,
in violation of any Environmental Requirement, (iv) no notice has been received
by the Company of the existence or pendency of any investigation, claim,
lawsuit, proceeding, or similar action arising under any Environmental
Requirement, and (v) the Company has all material permits, licenses, and other
authorization required by applicable Environmental Requirements, and the Company
is, in all material respects, in compliance with the terms of those permits.
(b) For the purposes of this Agreement, a "Hazardous
Material" is any material or substance that is defined or listed in, or
otherwise classified pursuant to, any applicable Environmental Requirement as a
hazardous substance, hazardous material, hazardous waste, toxic substance or any
other formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity, or "EP toxicity",
including, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum and drilling fluids, and produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal energy.
(c) For the purposes of this Agreement, an
"Environmental Requirement" is any law, statute, code, act, ordinance, order,
judgment, decree, injunction, rule, regulation, permit, license, authorization,
direction, or requirement of any
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government, department, commission, board, court, authority, agency, official,
or officer relating to (i) the generation, use, storage, transportation, or
disposal of any Hazardous Material or (ii) the protection of the environment,
land use, or the safety, health, and welfare of human, animal, or plant life,
including, without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act, each as amended or supplemented to
date, and any analogous local, state, or federal statute and any regulations
promulgated pursuant thereto.
SECTION 3.22. Insurance.
Section 3.22 of the Company Disclosure Schedule
lists, and the Company has made available to the Parent or its representatives
for review current and complete copies of, all insurance policies, binders, and
surety and fidelity bonds relating to the Company (including, without
limitation, all policies or binders of casualty, general liability, and workers'
compensation), all of which are currently in effect. All premiums and other
amounts due and payable under each such policy, binder, and bond have been paid.
The Company is not in default with respect to any material provision contained
in any such policy, binder, or bond and has not failed to give any notice of or
present any material claim thereunder as required under the terms thereof.
Except as set forth on Section 3.22 of the Company Disclosure Schedule, the
Company has not received any written notice of cancellation or non-renewal of
any such policy, binder, or bond. Except as set forth on Section 3.22 of the
Company Disclosure Schedule, the Company has not received any written notice
from any of its insurance carriers that any insurance premiums paid by it will
be materially increased in the future as a result of the claims experience of
the Company. Except as set forth on Section 3.22 of the Company Disclosure
Schedule, adequate reserves have been established for all claims under any such
policy, binder, and bond as to which the insurer has denied coverage.
SECTION 3.23. Indemnification.
Except as set forth in the certificate of
incorporation and bylaws of the Company or as disclosed in Section 3.23 of the
Company Disclosure Schedule, (a) the Company is not a party to any
indemnification agreement with any of its present or former directors, officers,
employees, agents, or other persons who serve in any similar capacity with the
Company or any other enterprise at the request of the Company, and (b) to the
knowledge of the Company, there are no material pending claims or material overt
threats of claims for which any such person would be entitled to indemnification
under Section 6.01 if such provisions were deemed to be in effect.
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SECTION 3.24. Board Approval and Recommendation.
Prior to the execution of this Agreement, the Board
of Directors of the Company, at a meeting duly called and held, unanimously (a)
determined that this Agreement and the transactions contemplated hereby,
including the Merger and the Offer, are fair to the stockholders of the Company,
(b) approved this Agreement and the transactions contemplated hereby, and (c)
recommended that the Company's stockholders tender their shares of Common Stock
pursuant to the Offer and, if applicable, approve this Agreement and the
transactions contemplated herein, including the Merger.
SECTION 3.25. Vote Required.
The only vote of the holders of any class or series
of capital stock of the Company necessary to approve the Merger is the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. No provision of the Company's Certificate of Incorporation or
Bylaws, or of any other instrument binding on the Company, would required the
vote of the holders of any class or series of capital stock of the Company to
approve the Merger if, at the Effective Time, Merger Sub owns at least 90% of
the shares of Common Stock outstanding at the Effective Time. There is no vote
of the holders of any class or series of capital stock of the Company necessary
in order for Merger Sub to commence and consummate the Offer.
SECTION 3.26. Opinion of Financial Advisor.
The Company has received the opinion of DLJ to the
effect that, as of the date of such opinion, the consideration to be received by
the stockholders of the Company pursuant to the Offer and the Merger is fair to
such stockholders from a financial point of view.
SECTION 3.27. Finders and Investment Bankers.
Except for F.M. Roberts and DLJ, no investment
banker, broker, finder, or other similar intermediary has been retained by or is
authorized to act on behalf of the Company who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
The Company has provided the Company with a copy of the engagement letters, as
amended to date, with each such intermediary. The fees of these intermediaries
will be paid by the Company.
SECTION 3.28. Takeover Statutes; No Shareholder Rights Plan.
The Board of Directors of the Company has expressly
approved the acquisition of shares of Common Stock by Merger Sub pursuant to the
Offer and the
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Merger for purposes of Section 203 of the Delaware Law. The Company does not
have a shareholder rights plan (or "poison pill").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND MERGER SUB
The Parent and Merger Sub jointly and severally
represent and warrant to the Company that:
SECTION 4.01. Corporate Existence.
The Parent and Merger Sub are corporations duly
incorporated, validly existing, and in good standing under the laws of the State
of Ohio and Delaware, respectively.
SECTION 4.02. Corporate Authorization.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase by Merger Sub of shares of Common Stock
pursuant to the Offer, the consummation of the Merger by the Parent and Merger
Sub, and the performance by the Parent and Merger Sub of their other obligations
under this Agreement are within their respective corporate powers and authority
and have been duly authorized by all necessary corporate action on the part of
the Parent and Merger Sub, respectively. This Agreement has been duly executed
and delivered by the Parent and Merger Sub and, assuming the due authorization,
execution, and delivery hereof by the Company, constitutes a legal, valid, and
binding agreement of the Parent and Merger Sub.
SECTION 4.03. Governmental Authorization.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase of shares of Common Stock by Merger Sub
pursuant to the Offer, and the consummation of the Merger, and the performance
by the Parent and Merger Sub of their other obligations under this Agreement do
not require any consent, approval, authorization, or permit of, other action by,
or filing with, any governmental body, agency, official, or authority other than
(i) as set forth on Section 4.03 of the Disclosure Schedule delivered by the
Parent to the Company concurrently with the execution and delivery of this
Agreement (the "Parent Disclosure Schedule"), (ii) the filing of appropriate
certificates of merger in accordance with Delaware Law, (iii) the filing and
delivery of the Offer Documents, (iv) compliance with applicable requirements of
the HSR Act, and (v) the filing of the proxy materials referred to in Section
5.05(b), except where the failure of any
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such action to be taken or filing to be made is not reasonably likely to prevent
or delay consummation of the Offer or the Merger.
SECTION 4.04. Non-Contravention.
The execution and delivery by the Parent and Merger
Sub of this Agreement, the purchase by Merger Sub of the shares of Common Stock
pursuant to the Offer, the consummation of the Merger, and the performance by
the Parent and Merger Sub of their other obligations under this Agreement do not
and will not (i) contravene or conflict with the articles of incorporation or
code of regulations of the Parent or the certificate of incorporation or bylaws
of Merger Sub, (ii) assuming compliance with the matters referred to in Section
4.03, contravene, conflict with, or constitute a violation of any provision of
any material law, rule, regulation, judgment, injunction, order, or decree
binding upon or applicable to the Parent, Merger Sub, or any of their
Subsidiaries, (iii) constitute a material default, give rise to a right of
termination, cancellation, or acceleration of any material right or obligation
of the Parent, Merger Sub, or any of their Subsidiaries, or give rise to a loss
of any material benefit to which the Parent, Merger Sub, or any of their
Subsidiaries is entitled, or is reasonably likely to prevent or delay
consummation of the Offer or the Merger, under any provision of any agreement or
other instrument binding upon the Parent, Merger Sub, or any of their
Subsidiaries or any license, franchise, permit, or other similar authorization
held by the Parent, Merger Sub, or any of their Subsidiaries, or (iv) result in
the creation or imposition of any material Lien on any asset of the Parent,
Merger Sub, or any of their Subsidiaries.
SECTION 4.05. Parent SEC Reports.
Since July 31, 1996, the Parent has, in all material
respects, filed all forms, reports, statements, and other documents required to
be filed by it with the SEC, including without limitation (a) all Annual Reports
on Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all proxy statements
relating to meetings of stockholders (whether annual or special), (d) all
Current Reports on Form 8-K, and (e) all other reports, schedules, registration
statements, or other documents required to be filed with the SEC. (All of the
documents filed by the Parent with the SEC during such period, including all
exhibits contained or incorporated by reference in such documents, are
collectively referred to as the "Parent SEC Reports"). The Parent SEC Reports
(i) were prepared in all material respects in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and (ii) did not
at the time they were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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SECTION 4.06. Financial Statements; No Undisclosed Liabilities.
The audited consolidated financial statements and
unaudited consolidated interim financial statements (including the related notes
and schedules) of the Parent and its consolidated Subsidiaries included or
incorporated by reference in the Parent SEC Reports (the "Parent Financial
Statements") were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods reflected therein
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Parent and its consolidated Subsidiaries
as of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended, subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments, none of which would be
reasonably likely to be, individually or in the aggregate, material in amount.
Neither the Parent, Merger Sub, nor any of their Subsidiaries has any
liabilities, whether accrued, contingent, or otherwise, other than (a)
liabilities disclosed in Section 4.06 of the Parent Disclosure Schedule or the
Parent SEC Reports, (b) liabilities for which the Parent has made adequate
reserves as reflected in the balance sheet as of November 1, 1997 included in
the Parent Financial Statements, (c) liabilities, ordinary in nature and amount,
incurred since November 1, 1997, and (d) liabilities in an aggregate amount that
is not material to the Parent, Merger Sub, and their Subsidiaries, taken as a
whole.
SECTION 4.07. Litigation.
There are no material actions, suits, or proceedings
pending before, or, to the knowledge of the Parent, any pending investigation
by, any court or arbitrator or any governmental body, agency, official, or
authority against the Parent or any of its Subsidiaries, or involving any of
their properties, that seek to restrain or prohibit the consummation of the
Offer or the Merger or is reasonably likely to result in a Parent Material
Adverse Effect. To the knowledge of the Parent, there is no material threat of
any such action, suit, or proceeding.
SECTION 4.08. Vote Required.
No vote of the holders of any class or series of
capital stock of the Parent is necessary to approve the purchase of shares of
Common Stock pursuant to the Offer or the consummation of the Merger. The Merger
has been approved by the affirmative vote of the holder of all of the
outstanding shares of Merger Sub Common Stock, and no other vote of the holders
of any class or series of capital stock of Merger Sub is necessary in order for
Merger Sub to commence and consummate the Offer and to consummate the Merger.
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SECTION 4.09. Availability of Funds.
The Parent and Merger Sub have available to them, and
will maintain the availability of, sufficient funds to enable them to consummate
the transactions contemplated by this Agreement.
SECTION 4.10. Fraudulent Conveyance.
Assuming the accuracy of the representations and
warranties of the Company in this Agreement, the Parent has no reason to believe
that the financing to be provided to the Parent to effect the Offer and the
Merger will cause (i) the fair salable value of the Surviving Corporation's
assets to be less than the total amount of its existing liabilities, (ii) the
fair salable value of the assets of the Surviving Corporation to be less than
the amount that will be required to pay its probable liabilities on its existing
debts as they mature, (iii) the Surviving Corporation not to be able to pay its
existing debts as they mature, or (iv) the Surviving Corporation to have an
unreasonably small capital with which to engage in its business.
SECTION 4.11. Finders and Investment Bankers.
Except for McDonald & Company Securities, Inc., no
investment banker, broker, finder, or other similar intermediary has been
retained by or is authorized to act on behalf of the Parent or Merger Sub who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement. The fees of McDonald & Company Securities, Inc.
will be paid by the Parent.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. Conduct of the Company.
Except as expressly contemplated or permitted by this
Agreement or approved in writing by the Parent, from the date of this Agreement
until the time that the designees of Merger Sub have been appointed to the Board
of Directors of the Company in accordance with Section 1.01(d), the Company will
conduct its business in the ordinary course consistent with past practice.
Subject to the foregoing exceptions, from the date hereof until the time that
the designees of Merger Sub have been appointed to the Board of Directors of the
Company:
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(a) the Company will not adopt or approve any
amendment to its certificate of incorporation or bylaws;
(b) the Company will not merge, consolidate, or enter
into a share exchange with any other Person, acquire a material amount of
capital stock or assets of any other Person, or sell, lease, license, mortgage,
pledge, or otherwise dispose of a material amount of assets to any other Person,
except for the purchase or sale of merchandise inventory in the ordinary course
of business consistent with past practice;
(c) the Company will not declare, set aside, or pay
any dividends, make any distributions in respect of shares of Common Stock or
other capital stock of the Company, or redeem, repurchase, or otherwise acquire
any shares of Common Stock or other capital stock of the Company;
(d) the Company will not (i) issue, deliver, or sell,
or authorize the issuance, delivery, or sale of, any Common Stock or other
capital stock of the Company, other than the issuance of shares of Common Stock
upon the exercise of Company Options or Series B Warrants granted prior to the
date hereof, (ii) split, combine, or reclassify any shares of Common Stock, or
(iii) amend the terms of any outstanding voting securities;
(e) the Company will not, without the prior written
consent of the Parent, which consent will not be unreasonably withheld or
delayed, enter into any new store lease, extend the term of any existing store
lease, or make any commitment or enter into any contract or agreement that, if
it were in existence on the date hereof, would be required to be disclosed in
Section 3.11 of the Company Disclosure Schedule;
(f) except to the extent required by law or by
existing written agreements or plans disclosed in the Company SEC Reports or in
the Company Disclosure Schedule, the Company will not increase in any manner the
compensation or fringe benefits of any of its directors or officers (other than
annual increases, in the ordinary course of business consistent with past
practices, in the compensation or fringe benefits of any officers who are not
executive officers), pay any pension or retirement allowance to any such
directors or officers, become a party to, amend, or commit itself to any
pension, retirement, profit-sharing, welfare benefit plan, or employment
agreement with or for the benefit of any such director or officer, grant any
severance or termination pay or stay-in- place bonus to any such director or
officer, or increase the benefits payable under any existing severance or
termination pay or stay-in-place bonus policies;
(g) the Company will not make any material Tax
election or settle or compromise any material federal, state, local, or foreign
Tax liability (including the Refund Claim);
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(h) the Company will not change its accounting
procedures and practices in any material respects, including but not limited to
those relating to inventory valuation and reserves, except to the extent
required by changes in generally accepted accounting principles; and
(i) the Company will not agree to do any of the
foregoing.
SECTION 5.02. Access to Information.
From the date hereof until the Effective Time or
earlier termination of this Agreement, the Company will, upon reasonable notice,
give the Parent, its counsel, financial advisors, auditors, and other authorized
representatives reasonable access during regular business hours to the offices,
properties, books, and records of the Company, and will furnish to the Parent,
its counsel, financial advisors, auditors, and other authorized representatives
such financial and operating data and other information as they may reasonably
request, for the purpose of evaluating the financial condition, results of
operations, business, and properties of the Company, and will instruct the
Company's employees, counsel, and financial advisors to cooperate with the
Parent in its evaluation. All information provided to, or obtained by, the
Parent or Merger Sub in connection with the transactions contemplated hereby
will be "Evaluation Material" for purposes of the confidentiality agreement,
dated October 30, 1997, between the Parent and the Company (the "Confidentiality
Agreement").
SECTION 5.03. Other Offers.
(a) From the date hereof until the Effective Time or
the earlier termination of this Agreement, the Company will not, and will direct
and use all reasonable efforts to cause the directors, officers, employees, and
agents of the Company not to, directly or indirectly, (i) take any action to
solicit, to initiate, or knowingly to encourage any Company Acquisition Proposal
(as defined below), (ii) engage or participate in discussions or negotiations,
or enter into agreements, with any Person with respect to a Company Acquisition
Proposal, or (iii) in connection with a Company Acquisition Proposal, disclose
any nonpublic information relating to the Company or afford access to the
properties, books, or records of the Company to any Person, except that the
Company may take action described in clause (ii) or (iii) if (A) such action is
taken in connection with an unsolicited Company Acquisition Proposal, (B) in the
good faith judgment of the Board of Directors of the Company, after consultation
with outside counsel, the failure to take such action would not be consistent
with the fiduciary duties of the Board of Directors under applicable law, and
(C) in the case of the disclosure of nonpublic information relating to the
Company in connection with a Company Acquisition Proposal, such information is
covered by a confidentiality agreement that provides substantially the same
protection to the Company as is afforded by the Confidentiality Agreement. The
Company will promptly notify the Parent orally and in writing of any Company
Acquisition Proposal
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or any inquiries with respect thereto. Any such written notification will
include the identity of the Person making such inquiry or Company Acquisition
Proposal and a description of the material terms of such Company Acquisition
Proposal (or the nature of the inquiry) and will indicate whether the Company is
providing or intends to provide the person making the Company Acquisition
Proposal with access to nonpublic information relating to the Company or any of
its Subsidiaries. For purposes of this Agreement, "Company Acquisition Proposal"
means any good faith offer or proposal for (x) a merger or other business
combination involving the Company and any Person (other than the Parent, Merger
Sub, or any other Subsidiary of either the Parent or Merger Sub), (y) an
acquisition by any Person (other than the Parent, Merger Sub, or any other
Subsidiary of either the Parent or Merger Sub) of assets or earning power of the
Company, in one or more transactions, representing 15% or more of the
consolidated assets or earning power of the Company, or (z) an acquisition by
any Person (other than the Parent, Merger Sub, or any other Subsidiary of either
the Parent or Merger Sub) of securities representing 15% or more of the voting
power of the Company.
(b) Except as set forth in this Section 5.03(b),
neither the Board of Directors of the Company nor any committee thereof will (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to the
Parent or Merger Sub, the approval or recommendation by such Board of Directors
or such committee of the Offer, the Merger, or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Company Acquisition
Proposal, or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement, or other similar agreement (in
each case, an "Acquisition Agreement") related to any Company Acquisition
Proposal, except that, in any case set forth in clause (i), (ii), or (iii)
above, prior to the acceptance for payment of shares of Common Stock pursuant to
the Offer, the Board of Directors of the Company may, in response to an
unsolicited Company Acquisition Proposal, (A) withdraw or modify its approval or
recommendation of the Offer, the Merger, or this Agreement or (B) approve or
recommend any such Company Acquisition Proposal if, in the case of any action
described in clause (A) or (B), in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, the failure
to take such action would not be consistent with the fiduciary duties of the
Board of Directors under applicable law and, in the case of the actions
described in clause (B), concurrently with such approval or recommendation the
Company terminates this Agreement and promptly thereafter enters into an
Acquisition Agreement with respect to a Company Acquisition Proposal.
(c) Nothing contained in this Agreement will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act
or from making any disclosure to the Company's stockholders if, in the good
faith judgment of the Board of Directors of the Company, after consultation with
outside counsel, failure so to disclose would be inconsistent with applicable
law; provided that, neither the Company nor its
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Board of Directors nor any committee thereof will, except as permitted by
Section 5.03(b), withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer, the Merger, or this Agreement or approve or
recommend, or propose to approve or recommend, a Company Acquisition Proposal.
SECTION 5.04. Notices of Certain Events.
The Company will promptly notify the Parent of:
(i) any notice or other communication from any Person
alleging that the consent of any third party (other than consents listed in
Section 3.03, 3.05, or 3.18 of the Company Disclosure Schedule) is or may be
required in connection with the transactions contemplated by this Agreement;
(ii) any material notice or other communication from
any governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;
(iii) any action, suit, claim, or proceeding
commenced against, or, to the knowledge of the Company, any material threat of
an action, suit, claim, or proceeding made against, or any pending investigation
of, the Company that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.13 or that relate to the
transactions contemplated by this Agreement; and
(iv) the receipt by the Company subsequent to the
date of this Agreement of any notice of, or other communication relating to, a
material default, or an event that, with the giving of notice, the lapse of
time, or both would become a material default, under any Contract.
SECTION 5.05. Merger Meeting; Proxy Statement.
(a) If required by Delaware Law in order to
consummate the Merger, as soon as practicable following the purchase of shares
of Common Stock pursuant to the Offer, the Company will take all action
necessary in accordance with Delaware Law and with the Company's certificate of
incorporation and bylaws to convene a meeting of its stockholders to approve the
Merger and adopt this Agreement (the "Merger Meeting"). The Company's Board of
Directors will recommend that the Company's stockholders approve the Merger and
adopt this Agreement, and will cause the Company to use all reasonable efforts
to solicit from the stockholders proxies to vote therefor, unless (i) in the
good faith judgment of the Board of Directors of the Company, after consultation
with outside counsel, such recommendation would not be consistent with the
fiduciary duties of
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the Board of Directors under applicable law or (ii) this Agreement is terminated
in accordance with Article IX.
(b) The Company will, if required by law for the
consummation of the Merger, prepare and file with the SEC preliminary proxy
materials relating to the approval of the Merger and the adoption of this
Agreement by the Company's stockholders, and will file with the SEC revised
preliminary proxy materials, if appropriate, and definitive proxy materials in a
timely manner as required by the rules and regulations of the SEC. Subject to
the last sentence of Section 5.05(a), the proxy materials relating to the Merger
Meeting will include the recommendation of the Company's Board of Directors.
SECTION 5.06. Information Systems.
From the date hereof until the Effective Time, the
Company will provide the Parent with all information regarding the Company's
information systems (including hardware, operating systems, applications,
database layouts, and related source code and documentation) requested by the
Parent that is reasonably available to the Company. To the extent practicable,
without disrupting the operation of the Company's business, the Company will
permit the Parent to test the Company's information systems, including tests
relating to the conversion of the Company's operating systems, applications, and
databases to the Parent's information systems.
ARTICLE VI
COVENANTS OF THE PARENT AND MERGER SUB
The Parent and Merger Sub agree that:
SECTION 6.01. Director and Officer Liability.
(a) The certificate of incorporation and the bylaws
of the Surviving Corporation will contain the provisions with respect to
exculpation from liability and indemnification set forth in the certificate of
incorporation and bylaws of the Company as of the date hereof, which provisions
(together with all provisions regarding indemnification or exculpation from
liability contained in any agreements or commitments of the Company) will not be
amended, repealed, or otherwise modified in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
present or former directors, officers, employees, or agents of the Company,
unless such modification is required by law.
(b) From and after the Effective Time, the Parent and
the Surviving Corporation will, jointly and severally, indemnify, defend, and
hold harmless the present and former directors and officers of the Company
against all losses, claims,
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damages, and liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding, or investigation, whether civil, criminal,
administrative, or investigative, to which any of them was or is a party or is
threatened to be made a party by reason of the fact that he or she was or is a
director or officer of the Company in respect of acts or omissions occurring at
or prior to the Effective Time to the fullest extent that the Company would have
been permitted to indemnify such Person under applicable law and the certificate
of incorporation and bylaws of the Company or any other agreements or
commitments in effect on the date hereof. The Parent will use all reasonable
efforts to, without any lapse in coverage, either (i) for at least six years
after the Effective Time, provide officers' and directors' liability insurance
("D&O Insurance") in respect of acts or omissions occurring at or prior to the
Effective Time covering each such Person currently covered by the Company's D&O
Insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof; provided that, in no
event will the Parent be required to pay per annum more than 150% of the last
premium (annualized) paid by the Company for such policy prior to the date
hereof, (ii) purchase tail insurance in respect of the Company's existing D&O
Insurance for six years for a premium not to exceed the present value
(discounted at the rate of 10% per annum) of the maximum annual premiums payable
under clause (i) above, or (iii) if such D&O Insurance or tail insurance is only
available at premiums in excess of the maximum premiums set forth in clauses (i)
or (ii), as applicable, then purchase the highest level of D&O Insurance or tail
insurance available for such maximum premium.
(c) Any Person who is entitled to indemnification
under Section 6.01(b) (an "Indemnified Party") wishing to claim such
indemnification, upon learning of any such claim, action, suit, proceeding, or
investigation, will promptly notify the Parent thereof, but failure to notify
the Parent will not relieve the Parent of liability except to the extent the
Parent is materially and adversely affected thereby. In the event of any such
claim, action, suit, proceeding, or investigation (whether arising before or
after the Effective Time), (i) the Parent or the Surviving Corporation will have
the right to assume the defense, and the Parent will not be liable to any of the
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by them in connection with the defense, except
that, if the Parent or the Surviving Corporation elects not to assume the
defense or counsel for the Indemnified Parties advises that, in such counsel's
reasonable judgment, there are issues that constitute conflicts of interest
between the Parent or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the Parent or
the Surviving Corporation will pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided that, the Parent will be obligated pursuant to this paragraph
(c) to pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of any
such matter, and (iii) the Parent will not be liable for any settlement effected
without its prior written consent; and provided further that, the Parent will
not have any obligation hereunder to any Indemnified Party when and if a court
of competent jurisdiction ultimately
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determines, and such determination becomes final and nonappealable, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(d) If the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
is not the continuing or surviving Person in the consolidation or merger or (ii)
transfers all or substantially all of its assets to any Person, then and in each
such case, proper provisions will be made so that the successors and assigns of
the Surviving Corporation will assume all of the obligations of the Surviving
Corporation under this Article VI.
(e) The provisions of this Article VI are intended to
be for the benefit of, and will be enforceable by, each of the present and
former directors, officers, employees, and agents, their heirs and their
representatives.
SECTION 6.02. Merger Meeting.
The Merger will be consummated as soon as practicable
(and in no event later than six months) after the purchase of shares of Common
Stock pursuant to the Offer. If Merger Sub is able to do so under Delaware Law,
it will consummate the Merger pursuant to the "short form" merger provisions of
Delaware Law. The Parent will vote, or cause to be voted, all shares of Common
Stock beneficially owned by it in favor of the Merger.
SECTION 6.03. Employee Benefits.
The Parent expects that it will provide the employees
of the Company with benefits which, in the aggregate, are substantially
comparable to the benefits provided from time to time by the Parent to other
employees of the Parent or its Subsidiaries in similar positions. The Parent
agrees that, during the period commencing at the Effective Time and ending on
the second anniversary thereof, the benefits provided to such employees will be
not less favorable, in the aggregate, than the benefits provided by the Company
on the date of this Agreement. The Parent will cause each employee benefit plan
of the Parent in which employees of the Company are eligible to participate to
take into account, for purposes of eligibility and vesting, the service of such
employees with the Company as if such service were with the Parent, to the same
extent that such service was credited under a comparable plan of the Company.
The Parent will, and will cause the Surviving Corporation to, honor in
accordance with their terms, (i) all employee benefit obligations to current and
former employees of the Company accrued and vested as of the Effective Time and
(ii) to the extent set forth in Section 3.15 of the Company Disclosure Schedule,
all employee severance plans in existence on the date hereof and all employment
or severance agreements entered into prior to the date hereof.
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ARTICLE VII
COVENANTS OF THE PARENT, MERGER SUB, AND THE COMPANY
The Parent, Merger Sub, and the Company agree that:
SECTION 7.01. Reasonable Efforts.
Subject to the terms and conditions of this
Agreement, each party will use its all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
advisable under applicable laws and regulations to satisfy the conditions to
closing and consummate the transactions contemplated by this Agreement as
promptly as practicable.
SECTION 7.02. Certain Filings and Consents.
The Company and the Parent will cooperate with one
another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official, or authority is required, or any
actions, consents, approvals, or waivers are required to be obtained from
parties to any Contracts ("Third Party Consents"), in connection with the
transactions contemplated by this Agreement and (b) in attempting to take all
such actions, to make all such filings, and to obtain all such consents,
approvals, and waivers. The Company and the Parent will each promptly file
Notification and Report Forms under the HSR Act and respond as promptly as
practicable to all requests for additional information or documentation received
from the Antitrust Division of the United States Department of Justice or the
Federal Trade Commission. Notwithstanding the foregoing, nothing contained in
this Agreement will require the Company, the Parent, or and of the Parent's
Subsidiaries (i) to initiate or defend any material pending or threatened
litigation to which any governmental or regulatory authority (including the
Antitrust Division of the Justice Department and the Federal Trade Commission)
is a party, (ii) to agree or otherwise become subject to any material
limitations on (A) the right of the Parent or the Company, as the Surviving
Corporation, effectively to control or operate the business, assets, or
operations of the Company following the Offer or the Merger, (B) the right of
the Parent or the Company, as the Surviving Corporation, to acquire or hold the
business, assets, or operations of the Company as a result of the Merger, (C)
the right of Merger Sub to exercise its rights of ownership of the Common Stock
purchased by it in the Offer, or the right of the Parent to exercise its rights
of ownership of the Common Stock of the Company, as the Surviving Corporation,
after consummation of the Merger, including but not limited to the right to vote
the Common Stock on all matters properly presented to the Company's
stockholders, or (iii) to agree or otherwise be required to sell or dispose of,
hold separate (through the establishment of a trust or otherwise), or divest
itself of twenty-five (25) stores or more (whether stores of the Company, the
Parent, or any of the Parent's Subsidiaries).
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SECTION 7.03. Public Announcements.
The Parent and the Company will consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated by it and, except as
may be required by applicable law or any listing agreement with the New York
Stock Exchange, Inc. or The NASDAQ Stock Market, Inc., will not issue any such
press release or make any such public statement prior to such consultation. The
Company will not issue any press release or make any public statement that might
constitute the commencement of the Offer without the prior written consent of
the Parent.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party.
The obligations of the Company, the Parent, and
Merger Sub to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) if required by applicable law, the Merger has
been approved, and this Agreement has been adopted, by the requisite vote of the
Company's stockholders;
(b) Merger Sub has purchased all shares of Common
Stock that are validly tendered and not properly withdrawn in accordance with
the Offer; and
(c) no provision of any applicable domestic law or
regulation, and no judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction, that has the effect
of making the Offer or the Merger illegal or otherwise restrains or prohibits
the purchase of shares of Common Stock pursuant to the Offer or the consummation
of the Merger is in effect.
SECTION 8.02. Conditions to the Obligations of the Parent and
Merger Sub.
The obligations of the Parent and Merger Sub to
consummate the Merger are subject to the compliance by the Company with its
obligations under Section 1.01(d).
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination.
This Agreement may be terminated, and the Offer and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of the Merger and adoption of this Agreement by
the Company's stockholders):
(a) by mutual written consent of the Company, the
Parent, and Merger Sub;
(b) by the Company if Merger Sub has not purchased
shares of Common Stock pursuant to the Offer by May 31, 1998, or by either the
Company or the Parent if the Merger has not been consummated by October 31,
1998, provided that the right to terminate this Agreement under this clause (b)
will not be available to any party that, at the time of termination, is in
material breach of its obligations under this Agreement;
(c) by either the Company or the Parent if any
applicable domestic law, rule, or regulation makes consummation of the Offer or
the Merger illegal or if any judgment, injunction, order, or decree of a court
or governmental agency or authority of competent jurisdiction restrains or
prohibits the consummation of the Offer or the Merger, and such judgment,
injunction, order, or decree has become final and nonappealable;
(d) by either the Company or the Parent if the
stockholder approval referred to in Section 8.01(a) has not been obtained at the
Merger Meeting; provided that, the right to terminate this Agreement pursuant to
this Section 9.01(d) will not be available (i) to the Company if it has not
performed its obligations under Section 5.05 or (ii) to the Parent if it has not
performed its obligations under the last sentence of Section 6.02;
(e) by either the Company or the Parent if the Offer
terminates without the purchase of shares of Common Stock thereunder; provided
that, the right to terminate this Agreement pursuant to this Section 9.01(e)
will not be available (i) to the Parent, if Merger Sub has breached its
obligations under Section 1.01(a), or (ii) to any party whose willful failure to
perform any of its obligations under this Agreement results in the failure of
any of the Offer Conditions or if the failure of any such Offer Conditions
results from facts or circumstances that constitute a material breach of the
representations or warranties of such party under this Agreement;
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(f) prior to the purchase of shares of Common Stock
by Merger Sub pursuant to the Offer, by the Parent if (i) the Company violates
its obligations under Section 5.03 in any material respects and thereafter any
Person publicly makes a Company Acquisition Proposal or (ii) the Board of
Directors of the Company does not publicly recommend in the Schedule 14D-9 that
the Company's stockholders accept the Offer and tender their shares of Common
Stock pursuant to the Offer and approve the Merger and adopt the Agreement, or
if the Board of Directors of the Company withdraws, modifies, or changes such
recommendation in any manner materially adverse to the Parent; or
(g) by the Company if the Company receives an
unsolicited Company Acquisition Proposal that the Board of Directors of the
Company determines in good faith, after consultation with its legal and
financial advisors, is likely to lead to a merger, acquisition, consolidation,
or similar transaction that is more favorable to the stockholders of the Company
than the transactions contemplated by this Agreement; provided that the Company
has given the Parent at least five days notice of the material terms of such
Company Acquisition Proposal and such termination will not be effective until
the Company has paid the Termination Fee, if and to the extent required under
Section 10.04(b), to the Parent either by delivery of a certified or bank check
payable to the Parent or by wire transfer to an account designated in writing by
the Parent, at the Company's option.
SECTION 9.02. Effect of Termination.
If this Agreement is terminated and the Offer and the
Merger are abandoned pursuant to Section 9.01, no party to this Agreement (or
any of its directors, officers, employees, agents, or advisors) will have any
liability or further obligation to any other party except (a) that the
agreements contained in Section 10.04, in the last sentence of Section 5.02, and
in the Confidentiality Agreement will survive the termination hereof and (b)
that nothing herein will relieve any party from liability for any breach of the
covenants, representations, or warranties made by it in this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices.
All notices, requests, and other communications to
any party hereunder will be in writing (including telecopy) and will be given,
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if to the Parent or Merger Sub, to:
Fabri-Centers of America, Inc.
5555 Darrow Road
Hudson, OH 44236
Attention: Mr. Brian P. Carney
Executive Vice President and Chief
Financial Officer
Fax: (330) 463-6675
with a copy to:
Thompson Hine & Flory LLP
3900 Key Tower
127 Public Square
Cleveland, OH 44114-1216
Attention: James R. Carlson
Fax: (216) 566-5800
if to the Company, to:
House of Fabrics, Inc.
13400 Riverside Drive
Sherman Oaks, CA 91423-2598
Attention: Mr. Donald L. Richey
President and Chief Executive Officer
Fax: (818) 385-2390
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
Attention: Richard A Boehmer, Esq.
Fax: (213) 669-6407
or to such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties. Each such notice, request, or
other communication will be effective upon receipt.
SECTION 10.02. Survival.
None of the representations and warranties,
agreements, and other provisions contained in this Agreement or in any
certificate or other writing delivered
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pursuant to this Agreement, other than Article I and Sections 6.01, 6.03, and
10.04, will survive the Effective Time.
SECTION 10.03. Amendments; No Waivers.
(a) Subject to the applicable provisions of Delaware
Law and Section 1.01(e) of this Agreement, any provision of this Agreement may
be amended or waived prior to the Effective Time if, and only if, such amendment
or waiver is in writing and duly executed and delivered, in the case of an
amendment, by the Company, the Parent, and Merger Sub or, in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising
any right, power, or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege.
SECTION 10.04. Fees and Expenses.
(a) Subject to paragraph (b) of this Section, all
costs and expenses incurred in connection with this Agreement will be paid by
the party incurring the costs and expenses.
(b) If (i) any Person publicly makes a Company
Acquisition Proposal and thereafter this Agreement is terminated pursuant to
Section 9.01(d), (ii) any Person publicly makes a Company Acquisition Proposal
and thereafter this Agreement is terminated pursuant to Section 9.01(e) because
an insufficient number of shares of Common Stock are tendered in the Offer,
(iii) this Agreement is terminated by the Parent pursuant to Section 9.01(f), or
(iv) this Agreement is terminated by the Company pursuant to Section 9.01(g),
then the Company will reimburse the Parent and Merger Sub for all of their
reasonable documented out-of-pocket expenses and fees actually incurred by the
Parent in connection with the transactions contemplated by this Agreement prior
to the termination of this Agreement, including, without limitation, all
reasonable fees and expenses of counsel, financial advisors, accountants, and
environmental and other experts and consultants to the Parent and Merger Sub
("Transaction Costs"); except that, the Company will not be required to
reimburse the Parent or Merger Sub for Transaction Costs in excess of $750,000
in the aggregate.
Notwithstanding the preceding paragraph, if (i) any
Person publicly makes a Company Acquisition Proposal and thereafter this
Agreement is terminated pursuant to Section 9.01(d) and within 12 months after
termination the Company agrees to or consummates any Company Acquisition
Proposal, (ii) any Person publicly makes a Company Acquisition Proposal and
thereafter this Agreement is terminated pursuant to
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Section 9.01(e) because an insufficient number of shares of Common Stock are
tendered in the Offer and within 12 months after termination the Company agrees
to or consummates any Company Acquisition Proposal, (iii) this Agreement is
terminated by the Parent pursuant to Section 9.01(f), or (iv) this Agreement is
terminated by the Company pursuant to Section 9.01(g), then, in addition to
reimbursing the Parent and Merger Sub for their Transaction Costs, the Company
will pay to the Parent a fee of $750,000 ("Termination Fee"). The Termination
Fee will be payable by delivery of immediately available funds at the time of
termination, in the case of termination under clause (iii) or (iv) of the
preceding sentence, or immediately prior to the earlier of the agreement with
respect to, or the consummation of, the Company Acquisition Proposal, in the
case of termination under clause (i) or (ii). If the Parent is required to file
suit to seek the Termination Fee, and it ultimately succeeds on the merits, it
will be entitled to all expenses, including reasonable attorneys' fees, that it
has incurred in enforcing its rights under this Section 10.04.
(c) If the Parent receives a Termination Fee under
circumstances in which a Termination Fee is payable, neither the Parent, Merger
Sub, nor any of their affiliates will assert or pursue in any manner, directly
or indirectly, any claim or cause of action against the Company or any of its
directors, officers, employees, agents, or representatives based in whole or in
part upon its or their receipt, consideration, recommendation, or approval of a
Company Acquisition Proposal, including the Company's exercise of its right of
termination of this Agreement under Section 9.01(g).
SECTION 10.05. "Knowledge" of the Company.
For purposes of this Agreement, unless otherwise
expressly provided where the term is used, "knowledge" of the Company will be
deemed to mean the actual knowledge of any director or executive officer of the
Company.
SECTION 10.06. Successors and Assigns.
The provisions of this Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that no party may assign, delegate, or otherwise transfer
any of its rights or obligations under this Agreement without the written
consent of the other parties.
SECTION 10.07. Governing Law.
The interpretation, validity, and enforceability of
this Agreement will be governed by the law of the State of Ohio without regard
to principles of conflict of laws that would apply the laws of any other
jurisdiction.
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SECTION 10.08. Counterparts; Effectiveness.
This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement will
become effective when each party has received counterparts hereof signed by all
of the other parties.
SECTION 10.09. Entire Agreement.
This Agreement, the Company Disclosure Schedule, the
Parent Disclosure Schedule, and the Confidentiality Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, both written and oral, among the parties with
respect to the subject matter of this Agreement. No representation, warranty, or
inducement not set forth herein has been made or relied upon by any party.
Neither this Agreement nor any provision hereof is intended to confer upon any
Person other than the parties any rights or remedies, except that the provisions
of Article I are intended for the benefit of the Company's stockholders and
holders of Company Options and Series B Warrants, and the provisions of Section
6.01 and 6.03 are intended for the benefit of present and former directors,
officers, employees, and agents of the Company.
SECTION 10.10. Headings.
The headings contained in this Agreement are for
reference purposes only and will not in any way affect the meaning or
interpretation of this Agreement.
SECTION 10.11. Severability.
If any term or other provision of this Agreement is
invalid, illegal, or unenforceable, all other provisions of this Agreement will
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby is not affected.
SECTION 10.12. Specific Performance.
Except as set forth in Section 10.04(c), the parties
agree that irreparable damage would occur if any of the provisions of this
Agreement is not performed in accordance with the terms hereof and that the
parties will be entitled to specific performance of the terms hereof in addition
to any other remedies at law or in equity.
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<PAGE> 50
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
FABRI-CENTERS OF AMERICA, INC.
By: /s/ Brian P. Carney
--------------------------------------------
Name: Brian P. Carney
Title: Executive Vice President and
Chief Financial Officer
FCA ACQUISITION CORPORATION
By: /s/ Brian P. Carney
--------------------------------------------
Name: Brian P. Carney
Title: Executive Vice President and
Chief Financial Officer
HOUSE OF FABRICS, INC.
By: /s/ Donald L. Richey
-------------------------------------------
Name: Donald L. Richey
Title: President and Chief Executive Officer
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<PAGE> 51
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Acquisition Agreement......................................................33
Affiliate..................................................................16
Agreement...................................................................1
Cash Payment................................................................7
Closing.....................................................................5
Code.......................................................................16
Common Stock................................................................1
Company.....................................................................1
Company Acquisition Proposal...............................................33
Company Benefit Arrangement................................................16
Company Disclosure Schedule................................................10
Company Employee Plans.....................................................16
Company Financial Statements...............................................12
Company Material Adverse Effect............................................50
Company Option..............................................................7
Company Permits............................................................15
Company Preferred Stock....................................................10
Company Real Property......................................................22
Company SEC Reports........................................................12
Company Store Leases.......................................................22
Confidentiality Agreement..................................................32
Continuing Directors........................................................4
Contracts..................................................................14
D&O Insurance..............................................................36
Delaware Law................................................................4
Dissenting Stockholder......................................................8
DLJ.........................................................................3
Effective Time..............................................................5
Environmental Requirement..................................................24
ERISA......................................................................16
Exchange Act................................................................2
Exchange Agent..............................................................6
Exchange Fund...............................................................6
Expiration Date.............................................................1
F.M. Roberts................................................................7
Hazardous Material.........................................................24
HSR Act....................................................................10
Indemnified Party..........................................................36
Intellectual Property Rights...............................................24
knowledge..................................................................44
</TABLE>
47
<PAGE> 52
<TABLE>
<S> <C>
Lien.......................................................................10
Merger......................................................................4
Merger Consideration........................................................5
Merger Meeting.............................................................34
Merger Sub..................................................................1
Merger Sub Common Stock.....................................................5
Minimum Condition..........................................................50
October 1997 Balance Sheet.................................................12
Offer.......................................................................1
Offer Conditions............................................................1
Offer Documents.............................................................2
Parent......................................................................1
Parent Disclosure Schedule.................................................27
Parent Financial Statements................................................29
Parent Material Adverse Effect.............................................50
Parent SEC Reports.........................................................28
Permitted Encumbrances.....................................................22
Person......................................................................6
Refund Claim...............................................................21
Schedule 14D-9..............................................................2
SEC.........................................................................2
Securities Act.............................................................12
Series B Warrant Agreement..................................................7
Series C Warrant Agreement..................................................7
Stock Certificate...........................................................5
Subsidiary.................................................................11
Supplemental Warrant Agreement..............................................7
Surviving Corporation.......................................................4
Tax........................................................................21
Tax Return.................................................................21
Termination Fee............................................................44
Third Party Consents.......................................................38
Transaction Costs..........................................................43
Warrant Agent...............................................................7
</TABLE>
48
<PAGE> 53
LIST OF SCHEDULES
Schedule Designation
- -------- -----------
1.01(a) Offer Conditions
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<PAGE> 54
SCHEDULE 1.01(a)
OFFER CONDITIONS
Merger Sub will not be required to accept for payment
or, subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act (relating to Merger Sub's obligation to pay for
or return tendered shares after the termination or withdrawal of the Offer), to
pay for any shares of Common Stock not theretofore accepted for payment or paid
for pursuant to the Offer, if (1) there are not validly tendered and not
properly withdrawn prior to the expiration of the Offer that number of shares of
Common Stock which, when aggregated with the shares of Common Stock then owned
by the Parent and any of its affiliates, represents at least a majority of the
shares of Common Stock then outstanding on a fully diluted basis (the "Minimum
Condition") or (2) at any time on or after the date of the Agreement and at or
before the time that any shares of Common Stock are accepted for payment any of
the following conditions exist:
(a) Any provision of any applicable domestic law or
regulation, or any judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction, is in effect that
makes the Offer or the Merger illegal or otherwise, directly or indirectly,
prohibits or materially restrains the making of the Offer, the acceptance for
payment of, payment for, or ownership, directly or indirectly, of some or all of
the shares of Common Stock by Merger Sub or the Parent, makes the foregoing
substantially more costly, or materially delays the Merger.
(b) Any consents, authorizations, orders, and
approvals of, or filings or registrations with, any governmental commission,
board, or other regulatory body required in connection with the execution,
delivery, and performance of the Agreement has not been obtained or made, except
(i) the filing of appropriate certificates of merger in accordance with Delaware
Law, and (ii) where the failure to obtain or make any such consent,
authorization, order, approval, filing, or registration is not reasonably likely
to have, individually or in the aggregate, a material adverse effect on the
financial condition, results of operations, or business of the Company (a
"Company Material Adverse Effect"), or on the financial condition, results of
operations, or business of the Parent and Merger Sub, taken as a whole (a
"Parent Material Adverse Effect"), and would not render the Offer or the Merger
illegal or provide a reasonable basis to conclude that the parties or their
affiliates or any of their respective directors or officers will be subject to
the risk of criminal liability.
(c) Any requirement that the Parent, Merger Sub, or
the Company (i) initiate or defend against any material pending or threatened
litigation to which any governmental or regulatory authority (including the
Antitrust Division of the Justice Department and the Federal Trade Commission)
is a party, (ii) agree or otherwise become
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subject to any prohibition or material limitations on (A) the right of the
Parent or the Company, as the Surviving Corporation, effectively to control or
operate the business, assets, or operations of the Company following the Offer
or the Merger, (B) the right of the Parent or the Company, as the Surviving
Corporation, to acquire or hold the business, assets, or operations of the
Company as a result of the Merger, (C) the right of Merger Sub to exercise its
rights of ownership of the Common Stock purchased by it in the Offer, or the
right of the Parent to exercise its rights of ownership of the Common Stock of
the Company, as the Surviving Corporation, after consummation of the Merger,
including but not limited to the right to vote the Common Stock on all matters
properly presented to the Company's stockholders, or (iii) agree or otherwise be
required requires the sale or disposition, the holding separate (through the
establishment of a trust or otherwise), or the divestiture of twenty-five (25)
stores or more (whether stores of the Company, the Parent, or any of the
Parent's Subsidiaries).
(d) Any Third Party Consents required for the
consummation of the Offer have not been obtained except where the failure to
obtain any such Third Party Consents is not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect or a Parent
Material Adverse Effect.
(e) The Company has failed to perform the obligations
to be performed by it under the Agreement at or prior to such time or any
representations and warranties of the Company contained in the Agreement are not
true at such time as if made at and as of such time (unless the representation
or warranty is made as of a specified date, in which case such representation or
warranty will be true as of such date), except to the extent that the failure to
perform such obligations and the untruth of such representations and warranties
is not reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect and the Parent has received a certificate signed by an
executive officer and by the chief financial officer of the Company to the
foregoing effect. For purposes of determining whether this condition has been
satisfied, all qualifications in the representations and warranties as to
materiality will be disregarded, and all qualifications as to the knowledge of
the Company will be deemed to mean the knowledge of the Company at the time such
certificate is signed.
(f) The Agreement has been terminated in accordance
with its terms.
51
