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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
October 8, 1997 (September 25, 1997)
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Date of Report (Date of earliest event reported)
HECHINGER COMPANY
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(Exact name of registrant as specified in its charter)
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Delaware 0-7214 52-1001530
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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1801 McCormick Drive, Largo, Maryland 20774
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(301) 341-1000
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Changes in Control of Registrant.
On July 17, 1997, Hechinger Company (the "Registrant"), a
Delaware corporation, entered into the Agreement and Plan of Merger (the
"Original Merger Agreement"), dated as of July 17, 1997, among the Registrant,
Hechinger Acquisition, Inc., a Delaware corporation ("Acquisition"), and BSQ
Acquisition, Inc., a Delaware corporation ("BSQ Acquisition"), pursuant to
which Acquisition would merge with and into the Registrant (the "Merger"). On
August 27, 1997, the parties to the Original Merger Agreement entered into the
First Amendment, dated as of August 27, 1997, which amended the Original Merger
Agreement (as amended by such amendment, the "Merger Agreement"). The closing
of the transactions contemplated by the Merger Agreement was subject to the
satisfaction or waiver of several conditions including, without limitation,
approval of the Merger Agreement and the Merger by the requisite vote of the
holders of the Class A Common Stock, each par value $.10 per share, of the
Registrant (collectively, the "Common Stock") and the closing of the
transactions contemplated by a Purchase and Sale Agreement, dated as of July
17, 1997, among Kmart Corporation, Builders Square, Inc. and BSQ Acquisition.
On September 25, 1997, the conditions precedent to the Merger were satisifed
and a certificate of Merger was duly filed with the Secretary of State of
Delaware. Pursuant to the Merger Agreement, each share of the issued and
outstanding Common Stock immediately prior to the effective time of the Merger
was converted into the right to receive $2.375 in cash, without interest. As a
result of the Merger, the Registrant is the surviving corporation and has
become a wholly owned subsidiary of BSQ Acquisition.
To finance the consummation of the Merger and to continue the
operations of the Registrant, affiliates of BSQ Acquisition obtained
borrowings under certain senior secured credit facilities from a syndicate of
banks led by The Chase Manhattan Bank, Bank America Business Credit, Inc.
and Citicorp USA, Inc., as agents.
The Registrant's press release dated September 25, 1997 is
filed herewith as Exhibit 20 and is incorporated herein by reference.
Item 5. Other Events.
On September 25, 1997, the Registrant requested that the
Common Stock be delisted from the Nasdaq National Market, effective as of the
effective time of the Merger. The Registrant intends to file after the date
hereof a statement on Form 15 with the Securities and Exchange Commission to
terminate the Registrant's periodic reporting requirements under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the
Common Stock. The Registrant will continue to file reports under the Exchange
Act as required under certain indentures governing the Registrant's outstanding
public indebtedness.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
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2A. Agreement and Plan of Merger, dated as of
July 17, 1997, by and among Hechinger
Acquisition, Inc., a Delaware corporation,
BSQ Acquisition, Inc., a Delaware
corporation, and Hechinger Company, a
Delaware corporation..
2B. First Amendment, dated as of August 27, 1997,
to the Agreement and Plan of Merger, dated as
of July 17, 1997, by and among Hechinger
Acquisition, Inc., a Delaware corporation,
BSQ Acquisition, Inc., a Delaware
corporation, and Hechinger Company, a
Delaware corporation.
20. Press release of Registrant dated September
25, 1997 relating to the consummation of the
merger contemplated by the Agreement and Plan
of Merger, as amended.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Current Report to be
signed on its behalf by the undersigned thereunto duly authorized.
HECHINGER COMPANY
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(Registrant)
By: /s/ Mark R. Adams
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Mark R. Adams
Senior Vice President, General
Counsel and Treasurer
Date: October 8, 1997
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EXHIBIT INDEX
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Sequentially
Exhibit No. Description Numbered Page
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2A. Agreement and Plan of Merger, dated as of July 17, 1997,
by and among Hechinger Acquisition, Inc., a Delaware corporation, BSQ Acquisition, Inc., a
Delaware corporation, and Hechinger Company, a Delaware corporation..
2B. First Amendment, dated as of August 27, 1997,
to the Agreement and Plan of Merger, dated as of July 17, 1997, by and among Hechinger
Acquisition, Inc., a Delaware corporation, BSQ Acquisition, Inc., a Delaware corporation, and
Hechinger Company, a Delaware corporation.
20. Press release of Registrant, dated September 25, 1997,
relating to the consummation of the merger as contemplated by the Agreement and Plan of Merger, as
amended.
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EXHIBIT 2A
AGREEMENT AND PLAN OF MERGER BY AND AMONG HECHINGER ACQUISITION, INC., A
DELAWARE CORPORATION AND BSQ ACQUISITION, INC., A DELAWARE CORPORATION AND
HECHINGER COMPANY, A DELAWARE CORPORATION, DATED AS OF JULY 17, 1997
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is entered into as of July 17, 1997, by
and among Hechinger Acquisition, Inc., a Delaware corporation, BSQ Acquisition,
Inc., a Delaware corporation and the sole stockholder of Hechinger Acquisition,
Inc., and Hechinger Company, a Delaware corporation, with respect to the
following facts and circumstances:
A. The Boards of Directors of Hechinger Acquisition, Inc., BSQ
Acquisition, Inc. and Hechinger Company have each determined that it is in
the best interests of its respective stockholders for BSQ Acquisition, Inc.
to acquire Hechinger Company through a merger of Hechinger Acquisition,
Inc. with and into Hechinger Company upon the terms and subject to the
conditions set forth herein.
B. In order to induce Hechinger Acquisition, Inc. and BSQ Acquisition,
Inc. to enter into this Agreement and Plan of Merger, certain stockholders
of Hechinger Company will enter into a Stockholders Agreement with BSQ
Acquisition, Inc., the form of which is attached hereto as Exhibit A,
pursuant to which, among other things, such stockholders will agree to vote
their shares in favor of the merger contemplated hereby and will grant to
BSQ Acquisition, Inc. an option to purchase shares of Common Stock of
Hechinger Company held by such stockholders pursuant to the terms and
conditions set forth therein.
C. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the merger
contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Terms. For all purposes of this Agreement, except as otherwise
expressly provided:
1.1.1 the terms defined in this Article 1 have the meanings assigned
to them in this Article 1 and include the plural as well as the singular;
1.1.2 all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
1.1.3 all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections
and other subdivisions of the body of this Agreement;
1.1.4 pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
1.1.5 the words "include," "includes" and "including" shall be deemed
in each case to be followed by the words "without limitation";
1.1.6 the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
1.1.7 the term "party" or "parties" when used herein refer to
Acquisition and BSQ Acquisition, on the one hand, and the Company on the
other.
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1.2 Definitions. As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions shall apply:
1.2.1 "Acquisition" means Hechinger Acquisition, Inc., a Delaware
corporation, and, unless the context otherwise requires, its Subsidiaries.
1.2.2 "Acquisition Proposal" has the meaning set forth in Section 7.5
hereof.
1.2.3 "Action" means any action, complaint, petition, investigation,
suit, litigation or other proceeding, whether civil or criminal, in law or
in equity, or before any arbitrator or Governmental Entity.
1.2.4 "Agreement" means this Agreement, as amended or supplemented,
together with all Exhibits and Schedules attached or incorporated by
reference, in each case as amended or supplemented.
1.2.5 "Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing,
required to be obtained from or made with, or any notice, statement or
other communication required to be filed with or delivered to, any
Governmental Entity or any other Person.
1.2.6 "Balance Sheet" has the meaning set forth in Section 5.13
hereof.
1.2.7 "BSQ" means Builders Square, Inc., a Delaware corporation.
1.2.8 "BSQ Acquisition" means BSQ Acquisition, Inc., a Delaware
corporation and the sole stockholder of Acquisition, and, unless the
context otherwise requires, its Subsidiaries.
1.2.9 "BSQ Acquisition Agreement" means the Purchase and Sale
Agreement of even date herewith among Kmart, BSQ and BSQ Acquisition.
1.2.10 "Business Day" means any day that is not a Saturday, Sunday or
legal holiday in the State of California.
1.2.11 "CAA" has the meaning set forth in Section 5.9.3 hereof.
1.2.12 "CERCLA" has the meaning set forth in Section 5.9.3 hereof.
1.2.13 "Certificate" has the meaning set forth in Section 3.1 hereof.
1.2.14 "Class A Common Stock" means the Company's Class A common
stock, par value $.10 per share.
1.2.15 "Class B Common Stock" means the Company's Class B common
stock, par value $.10 per share.
1.2.16 "Closing" has the meaning set forth in Section 2.2 hereof.
1.2.17 "Closing Date" means the date and time of the Closing.
1.2.18 "Code" means the Internal Revenue Code of 1986, as amended.
1.2.19 "Company" means Hechinger Company, a Delaware corporation, and,
unless the context otherwise requires, its Subsidiaries.
1.2.20 "Company Board" has the meaning set forth in Section 5.23
hereof.
1.2.21 "Consents" has the meaning set forth in Section 7.13 hereof.
1.2.22 "CWA" has the meaning set forth in Section 5.9.3 hereof.
1.2.23 "Delaware Certificate of Merger" has the meaning set forth in
Section 2.3 hereof.
1.2.24 "DGCL" has the meaning set forth in Section 2.1 hereof.
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1.2.25 "Dissenting Stockholders" has the meaning set forth in Section
4.1(a) hereof.
1.2.26 "Encumbrance" means any charge, encumbrance, security interest,
lien, option, equity, adverse claim or restriction, except for any
restrictions on transfer generally arising under any applicable federal or
state securities law.
1.2.27 "Environmental Laws or Orders" has the meaning set forth in
Section 5.9.2(a) hereof.
1.2.28 "EPCRA" has the meaning set forth in Section 5.9.3 hereof.
1.2.29 "ERISA" has the meaning set forth in Section 5.16.1 hereof.
1.2.30 "ERISA Affiliate" has the meaning set forth in Section 5.16.1
hereof.
1.2.31 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.2.32 "Expenses" has the meaning set forth in Section 9.3 hereof.
1.2.33 "Fiscal 1996 Form 10-K" has the meaning set forth in Section
5.7 hereof.
1.2.34 "GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
1.2.35 "Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
1.2.36 "Hazardous Substances" has the meaning set forth in Section
5.9.3 hereof.
1.2.37 "H-S-R Act" has the meaning set forth in Section 7.6 hereof.
1.2.38 "In the Money Options" has the meaning set forth in Section 4.4
hereof.
1.2.39 "Income Tax" means (i) any income, alternative or add-on
minimum tax, gross income, gross receipts, franchise, profits, including
estimated taxes relating to any of the foregoing, or other similar tax or
other like assessment or charge of similar kind whatsoever, excluding any
Other Tax, together with any interest and any penalty, addition to tax or
additional amount imposed by any Taxing Authority responsible for the
imposition of any such Tax (domestic or foreign); or (ii) any liability of
a Person for the payment of any taxes, interest, penalty, addition to tax
or like additional amount resulting from the application of Treas. Reg.
sec.1.1502-6 or comparable provisions of any Taxing Authority in respect of
a Consolidated Return.
1.2.40 "Indebtedness" means all obligations for borrowed money and
accounts payable, however evidenced, including principal and interest.
1.2.41 "Kmart" means Kmart Corporation, a Michigan corporation.
1.2.42 "Knowledge" or any similar term or phrase (including the words
"known" and "aware" even though not capitalized) referring to "knowledge"
means, as to any entity, the knowledge, after due inquiry, of the officers
of such entity (and, in the case of the Company, means the knowledge, after
due inquiry, of John W. Hechinger, Jr., Kenneth J. Cort, S. Ross Hechinger,
W. Clark McClelland and Mark R. Adams, the Company's Chief Executive
Officer, President and Chief Operating Officer, Senior Vice
President -- Administration, Executive Vice President and Chief Financial
Officer and Senior Vice President, Treasurer and Secretary, respectively.).
For this purpose, "due inquiry" means inquiry of and consultation with the
entity's directors, officers and advisors, including legal counsel and
outside auditors, who in each case are the principal persons responsible
for such matters as of the date hereof.
1.2.43 "Law" means any statute, rule, regulation, administrative
requirement, code or ordinance of any Governmental Entity.
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1.2.44 "Leased Real Estate" has the meaning set forth in Section
5.12.2 hereof.
1.2.45 "Material Adverse Effect" means a material adverse effect on
(i) the ability of the subject Person to perform its obligations under, and
consummate the transactions contemplated by, this Agreement on a timely
basis or (ii) the condition (financial or otherwise), results of
operations, assets, liabilities, prospects (except insofar as they relate
generally to the industry of which the Company is a part) or business of
the subject Person and its Subsidiaries taken as a whole.
1.2.46 "Merger" has the meaning set forth in Section 2.1 of this
Agreement.
1.2.47 "Merger Consideration" has the meaning set forth in Section
4.1(a) hereof.
1.2.48 "Monthly Financial Statements" has the meaning set forth in
Section 7.7 hereof.
1.2.49 "1982 Options" has the meaning set forth in Section 5.3 hereof.
1.2.50 "1982 Plan" has the meaning set forth in Section 5.3 hereof.
1.2.51 "1991 Options" has the meaning set forth in Section 5.3 hereof.
1.2.52 "1991 Plan" has the meaning set forth in Section 5.3 hereof.
1.2.53 "Options" has the meaning set forth in Section 5.3 hereof.
1.2.54 "Order" means any decree, injunction, judgment, order, ruling,
arbitration award, assessment or writ.
1.2.55 "Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance,
windfall profit or license tax, governmental fee or other similar
assessment or charge, together with any interest and any penalty, addition
to tax or additional amount imposed by any Taxing Authority responsible for
the imposition of any such tax (domestic or foreign).
1.2.56 "Owned Real Estate" has the meaning set forth in Section 5.12.1
hereof.
1.2.57 "Paying Agent" has the meaning set forth in Section 4.2 hereof.
1.2.58 "Permit" means any license, permit, franchise or authorization.
1.2.59 "Permitted Encumbrances" means (i) Encumbrances disclosed on
Schedule 1.2.59 hereto, (ii) liens for Taxes, assessments, governmental
charges or levies or mechanics' and other statutory liens which are not
material in amount relative to the property affected, and which are not yet
delinquent or can be paid without penalty or are being contested in good
faith and by appropriate proceedings in respect thereof, and (iii)
imperfections of title which are not substantial in amount relative to the
property affected and which do not materially interfere with the present
use of the property subject thereto or affected thereby.
1.2.60 "Person" means an association, a corporation, an individual, a
partnership, a limited liability company or limited liability partnership,
a trust or any other entity or organization, including a Governmental
Entity.
1.2.61 "Plans" has the meaning set forth in Section 5.16.1 hereof.
1.2.62 "Preferred Stock" has the meaning set forth in Section 5.3
hereof.
1.2.63 "RCRA" has the meaning set forth in Section 5.9.3 hereof.
1.2.64 "Record Date" means the date established by the Company Board
for purposes of determining the holders of the Class A Common Stock and
Class B Common Stock entitled to vote at the Special Meeting.
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1.2.65 "Reports" has the meaning set forth in Section 5.7 hereof.
1.2.66 "Representatives" means Persons acting on behalf of another
Person, including their respective officers, directors, employees,
representatives, agents, independent accountants, investment bankers and
counsel.
1.2.67 "SEC" means the United States Securities and Exchange
Commission.
1.2.68 "SEC Documents" means any reports, schedules, forms, statements
or other documents filed by the Company with the SEC.
1.2.69 "Securities Act" means the Securities Act of 1933, as amended.
1.2.70 "Service" means the Internal Revenue Service or any successor
entity.
1.2.71 "Shares" has the meaning set forth in Section 4.1(a) hereof.
1.2.72 "Special Meeting" has the meaning set forth in Section 7.10
hereof.
1.2.73 "Stock Plans" shall have the meaning set forth in Section 5.3
hereof.
1.2.74 "Stockholders Agreement" means the Stockholders Agreement to be
entered into by the stockholders of the Company listed on Schedule 1.2.74
hereto, in substantially the form attached hereto as Exhibit A.
1.2.75 "Subsidiary" of a company means any Person in which such
company has a direct or indirect equity or ownership interest by vote or
value of in excess of 50%.
1.2.76 "Superior Consideration" has the meaning set forth in Section
7.5 hereof.
1.2.77 "Surviving Corporation" has the meaning set forth in Section
2.1 hereof.
1.2.78 "Takeover Statute" has the meaning set forth in Section 7.17
hereof.
1.2.79 "Tax" means Income Taxes and Other Taxes as the context
requires.
1.2.80 "Tax Laws" means the Code, federal, state, county, local or
foreign laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
1.2.81 "Tax Return" means any return, report, information return,
schedule, certificate, statement or other document (including any related
or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or
other document issued by, a Taxing Authority in connection with any Tax.
1.2.82 "Taxing Authority" means any federal, state, local or foreign
governmental authority responsible for the imposition of any Tax.
1.2.83 "Termination Fee" shall have the meaning set forth in Section
9.3 hereof.
1.2.84 "TSCA" has the meaning set forth in Section 5.9.3 hereof.
ARTICLE 2
THE MERGER; CLOSING; EFFECTIVE TIME
2.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 2.3) Acquisition shall be merged with
and into the Company and the separate corporate existence of Acquisition shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Delaware, and the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Section 3.1. The Merger shall have the effects specified
in the Delaware General Corporation Law (the "DGCL").
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2.2 Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Irell & Manella LLP, 333 South Hope Street, Los Angeles,
California at 9:00 A.M. (Los Angeles time) on the first business day on which
the last to be fulfilled or waived of the conditions set forth in Article 8
hereof shall be fulfilled or waived in accordance with this Agreement or (ii) at
such other place and time and/or on such other date as the Company, Acquisition
and BSQ Acquisition may agree.
2.3 Effective Time. As soon as practicable following the Closing, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article 9 hereof, the Company, Acquisition and BSQ Acquisition will cause a
Certificate of Merger (the "Delaware Certificate of Merger") to be executed and
filed with the Secretary of State of Delaware as provided in Section 251 of the
DGCL. The Merger shall become effective at the time and on the date on which the
Delaware Certificate of Merger has been duly filed with the Secretary of State
of Delaware or such other time as is agreed to by the parties hereto and
specified in the Delaware Certificate of Merger, and such time is hereinafter
referred to as the "Effective Time."
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BY-LAWS;
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 The Certificate of Incorporation. The Certificate of Incorporation of
the Company (the "Certificate") in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL, except that Article Fourth of
the Company's Certificate shall be amended to read in its entirety as follows:
"The aggregate number of shares which the Corporation shall have the
authority to issue is 1,000 shares of Common Stock, par value $0.01 per
share."
3.2 The By-Laws. The by-laws of the Company in effect at the Effective
Time shall be the by-laws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
3.3 Officers and Directors. The directors of Acquisition and the officers
of Acquisition at the Effective Time shall, from and after the Effective Time,
be the directors and officers, respectively, of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
ARTICLE 4
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
4.1 Conversion or Cancellation of Shares. The manner of converting or
canceling shares of the stock of the Company and Acquisition in the Merger shall
be as follows:
(a) At the Effective Time, each share (collectively, the "Shares") of
the Class A Common Stock and the Class B Common Stock issued and
outstanding immediately prior to the Effective Time (other than Shares
owned by Acquisition or BSQ Acquisition and Shares which are held by
stockholders ("Dissenting Stockholders") exercising appraisal rights
pursuant to Section 262 of the DGCL) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive, without interest, an amount in cash (the "Merger
Consideration") equal to $3.00. All such Shares, by virtue of the Merger
and without any action on the part of the holders thereof, shall no longer
be outstanding and shall be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares shall
thereafter cease to have any rights with respect to such Shares, except the
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right to receive the Merger Consideration for such Shares upon the
surrender of such certificate in accordance with Section 4.2 or the right,
if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the
DGCL.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by Acquisition or BSQ Acquisition, and each Share
issued and held in the Company's treasury at the Effective Time, shall, by
virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, shall be canceled and retired without
payment of any consideration therefor and shall cease to exist.
(c) At the Effective Time, each share of Common Stock, par value $.01
per share, of Acquisition issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of Acquisition or BSQ Acquisition, be converted into one share of the
Surviving Corporation's Common Stock, par value $.01 per share.
4.2 Payment for Shares. At or prior to the Effective Time, BSQ Acquisition
shall make available or cause to be made available to the paying agent appointed
by BSQ Acquisition with the Company's prior approval (the "Paying Agent")
amounts sufficient in the aggregate to provide all funds necessary for the
Paying Agent to make payments (a) pursuant to Section 4.1(a) hereof to holders
of Shares issued and outstanding immediately prior to the Effective Time and (b)
pursuant to Section 4.4 hereof to holders of Options outstanding immediately
prior to the Effective Time. Not later than 15 days prior to the date fixed for
the Special Meeting pursuant to Section 7.10 hereof, the Company shall cause to
be mailed to each person who was, as of the Record Date, a holder of record
(other than Acquisition or BSQ Acquisition) of issued and outstanding Shares a
form (mutually agreed to by Acquisition and the Company) of letter of
transmittal and instructions for use in effecting the surrender of the
certificates which, immediately prior to the Effective Time, represent any of
such Shares in exchange for payment therefor. The Company and, following the
Effective Time, the Surviving Corporation shall each use its best efforts to
mail the letter of transmittal to all persons who become holders of Shares
during the period between the Record Date and the close of business on the
business day prior to the Effective Time. At any time after the Effective Time,
upon surrender to the Paying Agent of such certificates, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the Surviving Corporation shall promptly cause to be paid
to the persons entitled thereto a check in the amount to which such persons are
entitled, after giving effect to any required tax withholdings. No interest will
be paid or will accrue on the amount payable upon the surrender of any such
certificate. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such payment
that the certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to the
satisfaction of the Surviving Corporation or the Paying Agent that such tax has
been paid or is not applicable. One year following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to deliver to
it any funds (including any interest received with respect thereto) made
available to the Paying Agent which have not been disbursed to holders of
certificates formerly representing Shares outstanding on the Effective Time, and
thereafter such holders shall be entitled to look to the Surviving corporation
only as general creditors thereof with respect to the cash payable upon due
surrender of their certificates. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to any holder of certificates
formerly representing Shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. The Surviving
Corporation shall pay all charges and expenses, including those of the Paying
Agent, in connection with the exchange of cash for Shares and BSQ Acquisition
shall reimburse the Surviving Corporation for such charges and expenses.
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4.3 Dissenters' Rights. If any Dissenting Stockholder shall be entitled to
be paid the "fair value" of his or her Shares, as provided in Section 262 of the
DGCL, the Company shall give Acquisition and BSQ Acquisition notice thereof and
each shall have the right to participate in all negotiations and proceedings
with respect to any such demands. The Company shall not, except with the prior
written consent of BSQ Acquisition, voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for payment. If any Dissenting
Stockholder shall fail to perfect or shall have effectively withdrawn or lost
the right to dissent, the Shares held by such Dissenting Stockholder shall
thereupon be treated as though such Shares had been converted into the Merger
Consideration pursuant to Section 4.1.
4.4 Payment for Options. Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to pay to each holder of Options with
respect to which Consents were theretofore executed and delivered and which have
exercise prices of less than $3.00 per share ("In the Money Options") an amount
equal to the difference between (i) the product of (A) $3.00 multiplied by (B)
the aggregate number of Shares issuable upon exercise of all In the Money
Options held by such holder and (ii) the aggregate exercise price payable upon
such exercise. No payment shall be made with respect to any Option having a per
Share exercise price equal to or greater than $3.00. The specific procedures for
such payments shall be as agreed to by the parties hereto and specified in the
Consent.
4.5 Transfer of Shares After the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquisition and BSQ
Acquisition as follows:
5.1 Organization and Good Standing. Each of the Company and the Company's
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation and has the
corporate power and authority to carry on its business as the same is now being
conducted and to own all its properties and assets. Each of the Company and the
Company's Subsidiaries is duly qualified to transact business as a foreign
corporation in each of the jurisdictions in which the nature of its business as
the same is now being conducted or the ownership of its properties and assets
require it to be qualified, which jurisdictions are listed in Schedule 5.1
hereto, except for those jurisdictions in which failure to be so qualified would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
5.2 Corporate Records. The Company has made available to Acquisition a
complete and correct copy of the certificate of incorporation and by-laws, each
as amended to date, of each of the Company and the Company's Subsidiaries. Each
of the certificates of incorporation and by-laws so delivered are in full force
and effect. The corporate records and minute books of the Company and the
Company's Subsidiaries reflect all material action taken and authorizations made
at meetings of such companies' Boards of Directors or any committees thereof and
at any stockholders' meetings thereof.
5.3 Authorized Capital; Subsidiaries. The authorized capital stock of the
Company consists of 50,000,000 shares of Class A Common Stock, of which
32,754,374 Shares (which includes 25,500 Restricted Shares and does not include
97,265 Shares of Class A Common Stock held in the treasury of the Company) were
outstanding and 260,000 additional shares were issued as Performance Restricted
Shares (all of which will be fully vested as of the Closing) on July 10, 1997,
30,000,000 shares of Class B Common Stock, of which 9,458,374 Shares were
outstanding (not including 14,497 Shares of Class B Common Stock held in the
treasury of the Company) on July 10, 1997, and 20,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), of which no shares
were outstanding on July 10, 1997. All of the outstanding shares have been duly
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authorized and are validly issued, fully paid and nonassessable. The Company has
no shares of its capital stock reserved for issuance, except that, as of July
10, 1997, there were no shares reserved for issuance pursuant to options (the
"1982 Options") issued under the Company's 1982 Stock Option Plan (the "1982
Plan") and 2,485,578 shares reserved for issuance pursuant to options (the "1991
Options", and collectively with the 1982 Options, the "Options") issued under
the Company's 1991 Stock Incentive Plan (the "1991 Plan" and collectively with
the 1982 Plan, the "Stock Plans"), which Options have exercise prices as set
forth in Schedule 5.3(a), and all of which Options will be terminated on or
before the Closing Date (subject to payment as provided in Section 4.4), and
4,419,899 shares subject to issuance pursuant to the Company's 5 1/2% Debentures
due 2012 (the "Debentures"). Except as set forth in Schedule 5.3(b), each of the
outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable and owned, either
directly or indirectly, by the Company free and clear of all Encumbrances.
Except as set forth in Schedule 5.3(a), there are no shares of capital stock of
the Company authorized, issued or outstanding, and except as set forth in
Schedule 5.3(a) and as provided in the Stockholders Agreement, there are no
preemptive rights or outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company or any of the Company's Subsidiaries. After the Effective Time, the
Surviving Corporation will have no obligation to issue, transfer or sell any
shares of the Company's capital stock or capital stock of the Surviving
Corporation pursuant to any Plan (as defined in Section 5.16.1) or otherwise. To
the Company's knowledge, there are no voting trust agreements, proxies or other
contracts or arrangements restricting or relating to voting or dividend rights
or the transferability of the Company's capital stock (other than as provided in
this Agreement or the Stockholders Agreement, and except as set forth in
Schedule 5.3(c)). The Company has no Subsidiaries or other equity interests
other than the Company's Subsidiaries set forth on Schedule 5.3(d).
5.4 Corporate Authority. The Company has the corporate power and authority
and has taken all corporate action necessary in order to execute and deliver
this Agreement and, subject only to approval of this Agreement by the holders of
a majority in vote of the outstanding Shares, voting together as a single class,
to consummate the transactions contemplated hereby. The Company has received the
written opinion of Donaldson, Lufkin & Jenrette Securities Corporation to the
effect that the Merger Consideration to be received by the holders of the Shares
is fair to such holders from a financial point of view, and the Company has
provided a true and complete copy of such opinion to Acquisition. This Agreement
has been duly executed and delivered by the Company and is a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms.
5.5 Absence of Conflict. Except as set forth in Schedule 5.5, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the provisions hereof do
not and will not (i) conflict with or result in any breach of the terms,
conditions, or provisions of the respective charter and bylaws of the Company
and each of the Company's Subsidiaries; (ii) violate, or conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or give rise to a right of termination, cancellation, modification or
acceleration of the performance required by or a loss of a material benefit
under, or result in the creation or imposition of (or the obligation to create
or impose) any Encumbrance (other than Permitted Encumbrances) upon any of the
properties or assets of the Company under, any of the terms, conditions or
provisions of any material agreement, indenture, note, bond, mortgage, deed of
trust, undertaking, permit, lease, franchise, license or other instrument to
which the Company is a party or by which it or any of its properties or assets
may be bound or affected; or (iii) violate any Law or Order applicable to the
Company, except for any such violations of Law or Order which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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5.6 Approvals.
5.6.1 Schedule 5.6.1 contains a list of all significant categories of
Approvals of Governmental Entities which, to the Knowledge of the Company,
are required to be given or obtained by the Company from any and all
Governmental Entities in connection with the consummation of the
transactions contemplated by this Agreement, except where the failure to be
given or obtain such Approvals, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
5.6.2 Schedule 5.6.2 contains a list of all non-governmental Approvals
which, to the Knowledge of the Company, are required to be given or
obtained by the Company from any and all third parties in connection with
the consummation of the transactions contemplated by this Agreement, except
where the failure to give or obtain such Approvals, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
5.7 SEC Filings; Financial Statements. The Company has heretofore
delivered or made available to Acquisition a complete and correct copy of each
registration statement, offering circular relating to the offering of
securities, report, proxy statement or information statement prepared by it
since January 28, 1995, including, without limitation, (A) its Annual Report on
Form 10-K (the "Fiscal 1996 Form 10-K") for the year ended February 1, 1997, and
(B) its Quarterly Report on Form 10-Q for the period ended May 3, 1997, each in
the form (including exhibits and any amendments thereto) filed with the SEC or
other available exemption from registration under the Securities Act
(collectively, the "Reports"). As of their respective dates or, if amended, as
of the date of the last such amendment prior to the date of this Agreement, the
Company's Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the Company's consolidated balance sheets
included in or incorporated by reference into its Reports (including the related
notes and schedules) fairly presents the consolidated financial position of the
Company as of its date and each of the consolidated statements of income, cash
flows and stockholders' equity included in or incorporated by reference into its
Reports (including any related notes and schedules) fairly presents the
consolidated results of operations, retained earnings and cash flows, as the
case may be, of the Company for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments), in each
case in accordance with GAAP consistently applied through the periods indicated.
5.8 Accounts Payable and Inventory; Conduct of Business.
5.8.1 Accounts Payable and Inventory. Except as disclosed in Schedule
5.8.1, since February 1, 1997 to the date hereof the Company has (i)
discharged its accounts payable and other current liabilities and
obligations in accordance with past practice, and (ii) purchased and
maintained inventory in an amount consistent with normal seasonal
requirements of the Company's business and intended to facilitate the sound
operation of the Company's business.
5.8.2 Conduct of Business. Except as disclosed in the SEC Documents,
in Schedule 5.8.2 or as contemplated by this Agreement, since February 1,
1997 to the date hereof, the Company's business has been conducted in the
ordinary course, and there has not been any:
(a) adverse and material change in the condition (financial or
otherwise), results of operations, assets, liabilities, prospects
(except insofar as they relate generally to the industry of which the
Company is a part) or business of the Company;
(b) amendment to the Company's or any of the Company's
Subsidiaries' charter or by-laws;
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(c) sale, assignment, disposition, transfer, pledge, mortgage or
lease of any asset primarily used or held for use in the Company's
business, other than sales of inventory in the ordinary course of
business consistent with past practice;
(d) incurrence of any Indebtedness, other than accounts payable
arising in the ordinary course of business, consistent with past
practice, and other than under the existing revolving credit facility in
the ordinary course of business;
(e) sale, assignment, disposition, transfer, pledge, mortgage or
lease of any Owned Real Estate or Leased Real Estate;
(f) increase in the compensation or fringe benefits payable or to
become payable to any officers or salaried employees of the Company,
other than routine increases made in the ordinary course of business and
consistent with past practice or as required by Law or under any
existing agreements;
(g) issuance, sale or disposition of any capital stock or other
equity interest in the Company or options, warrants or other rights to
purchase any such capital stock or equity interest or any securities
convertible into or exchangeable for such capital stock or equity
interest or any other change in the issued and outstanding
capitalization of the Company;
(h) any amendment, alteration or modification in the terms of any
currently outstanding options, warrants or other rights to purchase any
capital stock or equity interest in the Company or any securities
convertible into or exchangeable for such capital stock or equity
interest, including without limitation any reduction in the exercise or
conversion price of any such rights or securities;
(i) declaration or payment of any dividend or other distribution,
or the transfer of any assets, by the Company to any stockholders of the
Company, or any redemption, repurchase or other acquisition by the
Company of its capital stock, except in the ordinary course of business;
(j) change by the Company in any of its material accounting
principles, methods or practices, including any material change in its
policies with respect to reserves (whether for bad debts, contingent
liabilities or otherwise), any change in depreciation or amortization
policies or rates or any change in the policies pertaining to the
recognition of accounts receivable or the discharge of accounts payable
or accounting for inventories;
(k) material adverse changes in the business organization of the
Company, the Company's relationships with employees or the Company's
relationships with the suppliers listed on Schedule 5.20, (or any
material adverse changes in relationships with other customers and
suppliers that are material to the Company);
(l) except in the ordinary course of business, consistent with past
practice, or as necessary to consummate the transactions contemplated
hereby, entering into or amending of any Contract identified in
Schedules under Sections 5.11, 5.12, 5.16 or 5.19;
(m) closure, shut down or other elimination of any of the Company's
stores or any other material change in the character of its business,
properties or assets, except in the ordinary course of business,
consistent with past practice;
(n) damage, destruction or loss with respect to any of the
properties or assets of the Company which would have a Material Adverse
Effect; or
(o) agreement to do, cause or suffer any of the foregoing.
5.9 Compliance with Law.
5.9.1 Except as set forth in Schedule 5.9.1, the Company has conducted
its business in all material respects in compliance with and does not in
any material respect violate any applicable
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Laws or Orders (including any Laws or Orders relating to employment
discrimination, occupational safety, manufacture, warehousing, conservation
or corrupt practices, but excluding matters subject to the remainder of
this Section 5.9), and the Company has not received any notice alleging any
such violation that remains pending or unsatisfied.
5.9.2 Except as set forth in Schedule 5.9.2 and as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company:
(a) all of the Company's assets (including assets and properties
that are owned, leased or operated) and their existing and, to the
knowledge of the Company, prior uses complied and comply with, and the
Company is not in violation of and has not violated, in connection with
the ownership, use, maintenance or operation of any such assets or
properties or the conduct of the Company's business, any applicable Law
or Order of any Governmental Entity relating to the handling,
manufacturing, treatment, storage, disposal, discharge, use or
transportation of Hazardous Substances, environmental pollution,
pollution control or other environmental or non-occupational health and
safety matters (collectively, "Environmental Laws or Orders");
(b) there are no conditions or circumstances that may reasonably be
expected to trigger or result in an obligation by the Company pursuant
to any Environmental Laws or Orders to conduct or to make any
investigation, work, repairs, construction, remediation or capital
expenditures with respect to any parcel of Owned Real Estate, Leased
Real Estate or other property or asset (real or personal) of the Company
or used in the Company's business, nor has the Company received any
notice of any claim regarding any Environmental Law or Order with
respect to any such property or asset;
(c) there is no liability relating to the Company's business to
which the Company will or reasonably could be expected to be subject,
whether absolute, accrued, contingent or otherwise, arising out of or
related to, directly or indirectly, any Environmental Laws or Orders;
(d) there has been no release of Hazardous Substances on, under or
affecting (i) any parcel of Owned Real Estate or Leased Real Estate
(real or personal); (ii) any other current property or asset of the
Company or used in the Company's business (real or personal); or (iii)
any former property or asset of the Company or used in the Company's
business (real or personal) during the time that any such former
property or asset was owned, leased, subleased by the Company or used in
the Company's business, and the Company is not, nor could it reasonably
be expected to be, liable for any potential investigation or cleanup of
any property or facility as the result of disposing, transporting or
arranging for the disposal of Hazardous Substances from any Owned Real
Estate or Leased Real Estate occurring prior to the Closing Date.
5.9.3 For purposes of this Agreement, "Hazardous Substances" shall
mean all substances, materials, chemicals, compounds or wastes regulated
by, under or pursuant to any applicable Environmental Laws or Orders,
including the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Sections 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 et seq.,
the Clean Water Act ("CWA"), 33 U.S.C. Sections 1251 et seq., the Clean Air
Act ("CAA"), 42 U.S.C. Sections 7401 et seq., the Toxic Substances Control
Act ("TSCA"), 15 U.S.C. Sections 2601 et seq., the Emergency Planning and
Community Right-to-Know Act of 1986 ("EPCRA"), Title III of Public Law
99-499, the Safe Drinking Water and Toxic Enforcement Act, Cal. Health and
Safety Code Sections 25249.5 et seq., any and all state or local
counterparts thereto or other similar state or local Laws and Orders,
including any and all rules and regulations promulgated thereunder, or any
common law theory based on nuisance, negligence, product liability,
trespass, ultrahazardous activity or strict liability. The term "Release"
shall have the meaning accorded such term under CERCLA.
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5.10 Permits. Except as set forth in Schedule 5.10, the Company has and is
in material compliance with, or has a valid exemption from the requirement to
obtain, all Permits and Approvals from Governmental Entities necessary to
conduct its business and own its properties and assets in all material respects
in the manner it is currently being conducted.
5.11 Contracts.
5.11.1 Schedule 5.11.1 lists (a) all contracts and agreements (written
or oral) existing as of the date hereof of the Company that provide for
aggregate payments by any party in excess of $500,000 per contract and that
are not terminable upon 90 days (or less) notice by the Company without
penalty or obligation to make payments related to such termination, (b) all
agreements containing covenants that, as of the Closing, would limit in any
material respect the freedom of the Company to compete with any person in
any line of business or in any area or territory, (c) all documents
evidencing any Indebtedness of the Company, (d) all supplier agreements of
the Company pertaining to discounts, rebates or other allowances or other
non-ordinary course arrangements and (e) all license agreements pertaining
to intellectual or intangible property rights of the Company; provided that
Schedule 5.11.1 shall not include (i) contracts and agreements that are set
forth on a Schedule identified under Sections 5.12, 5.16 and 5.19 hereof,
(ii) purchase orders for inventory and merchandise held for sale to
customers entered into in the ordinary course of business in a manner
consistent with past practice and that accounted for less than 2% of total
inventory and merchandise purchases of the Company during the most recently
completed fiscal year or are expected to account for less than 2% of total
inventory and merchandise purchases of the Company during the current
fiscal year, and (iii) any leases for tangible personal property requiring
monthly payments of less than $25,000. Copies of all of the agreements,
contracts and arrangements referred to in this Section have been heretofore
made available to Acquisition.
5.11.2 Except as set forth in Schedule 5.11.1, (i) the Company is not,
and to the Knowledge of the Company no other party to any contract listed
on said Schedule is, in material violation thereof or in material default
with respect thereto; (ii) each contract listed on said Schedule is a
valid, binding and enforceable obligation of the Company and, to the
Knowledge of the Company, the other parties thereto and is in full force
and effect, except where the failure to be valid, binding, enforceable and
in full force and effect would not, individually or in the aggregate,
reasonably be expected to be material; and (iii) none of the contracts
listed on said schedule contains provisions adverse to the Company upon a
change in control thereof.
5.11.3 Except as set forth on Schedule 5.11.3, no officer or director
of the Company, no shareholder of the Company related to any such officer
or director, and no "associate" (as such term is defined in Rule 14a-1
under the Exchange Act) of any of them, has any interest in any material
contract or agreement (including all leases of real property) of, or other
business arrangement with, the Company, or in any material property
(including any real property and any material personal property, tangible
or intangible), used in or pertaining to the business of the Company.
5.12 Real Property and Leaseholds.
5.12.1 Schedule 5.12.1 lists and identifies all parcels of real
property currently owned in fee by the Company (the "Owned Real Estate").
The Company holds marketable and legal title to each of the real properties
constituting Owned Real Estate, free and clear of all Encumbrances, except
for Permitted Encumbrances.
5.12.2 Schedule 5.12.2(a) lists and identifies all parcels of real
property leased or subleased to the Company (collectively, the "Leased Real
Estate"). Except as set forth on Schedule 5.12.2(b), the Company holds
valid and subsisting leasehold interests to each of the leaseholds
constituting Leased Real Estate, free and clear of all Encumbrances, except
for Permitted Encumbrances.
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5.12.3 With respect to each lease, master lease or sublease of any
real estate described in Schedule 5.12.2, except as set forth in Schedule
5.12.3, the Company is not and, to the Knowledge of the Company no other
party thereto is, in default with respect to any material term or condition
thereof, nor has any event occurred which through the passage of time or
the giving of notice, or both, would constitute a material default
thereunder, except in each such case for such defaults as would not
reasonably be expected to result in (i) a material payment being made by
the Company to the landlord, (ii) termination of the lease, or (iii) any
other material adverse consequence, individually or in the aggregate, to
the Company.
5.12.4 Except as set forth on Schedule 5.12.4(a), all the real
property leases relating to the Leased Real Estate are in full force and
effect (including those that have expired original terms and are continuing
on a month-to-month or similar basis) and the Company is entitled to all
the rights of a tenant thereunder, taking into account the consummation of
the transactions contemplated by this Agreement. Except as set forth on
Schedule 5.12.4(b), none of such real property leases contains any
requirements for notice or consent with respect to, or otherwise provides
restrictions against, a change in control of the Company. Except as set
forth on Schedule 5.12.4(c), no Action against the Company is pending or,
to the Knowledge of the Company, threatened in connection with any such
real property leases, except for any Action (not involving the failure to
pay rent) which is not, individually or in the aggregate, reasonably
expected to have a Material Adverse Effect.
5.13 Absence of Undisclosed Liabilities. Except as accrued on the balance
sheet of the Company at February 1, 1997 included in the fiscal 1996 Form 10-K
(the "Balance Sheet") or set forth in the notes thereto, and except as set forth
in Schedule 5.13, the Company does not have any liability (whether absolute,
accrued, contingent, or otherwise, matured or unmatured, and whether due or to
become due), which liability is required (or would be required had such
liabilities existed at February 1, 1997) to be reflected on the Balance Sheet or
the notes thereto in accordance with GAAP, except for liabilities and
obligations incurred since February 1, 1997 in the ordinary course of business
and consistent with past practice or those which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
5.14 Litigation.
5.14.1 Except as set forth in Schedule 5.14, there are no Actions
pending or, to the Knowledge of the Company, claims threatened against the
Company, at law, in equity or in any arbitral proceeding, and there is no
investigation or proceeding pending or, to the Knowledge of the Company,
threatened before or by any Governmental Entity nor is there any currently
effective Order against the Company, except for any such Actions, claims,
investigations, proceedings or Orders which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
Schedule 5.14 accurately identifies those pending or, to the Knowledge of
the Company, threatened claims listed therein which are material and (i)
may not be covered by third party insurance or (ii) with respect to which
the insurance carrier has denied coverage or has advised the Company that
it is defending such claim under reservation of rights or (iii) for which
the Company is self-insured.
5.15 Tax Matters.
5.15.1 Except as set forth in Schedule 5.15.1, the Company (i) has (or
by the Closing Date will have) timely filed all material Tax Returns
required to be filed by it as of the Closing Date, (ii) has used its
commercially reasonable efforts to maintain all required records with
respect to any liability for Taxes for taxable years with respect to which
the statute of limitations has not yet expired, regardless of whether such
liability has been previously assessed in whole or in part or is assessed
in whole or in part after the date of this Agreement and (iii) has timely
paid, or has made appropriate provision on its balance sheet (in accordance
with GAAP) for, all Taxes shown to be due on or with respect to Tax Returns
referred to in clause (i) above or claimed to be due from it by any Taxing
Authority with respect to any liability for Taxes. Except
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as set forth in Schedule 5.15.1, all Tax Returns described in clause (i)
are true, correct and complete in all material respects. Except as set
forth in Schedule 5.15.1, with respect to periods commencing on or after
February 1, 1997, the Company has not incurred any material liability for
Taxes other than as reflected on the Balance Sheet. Except as set forth in
Schedule 5.15.1, there are no material Encumbrances with respect to Taxes
upon any of the Company's properties or assets, except for current Taxes
not yet due.
5.15.2 The appropriate Tax Returns of the Company have been examined
by the Service for all periods up to and including January 31, 1994. Except
to the extent reserved for in the Balance Sheet or as shown in Schedule
5.15.2, no material issue has been raised by a Taxing Authority in any such
examination which reasonably could be expected to result in a proposed
deficiency, penalty or interest for any other period.
5.15.3 Except as set forth in Schedule 5.15.3, there are no
outstanding agreements or waivers extending the statutory period of
limitation applicable to any U.S. federal Tax Returns required to be filed
by, or which include or are treated as including, the Company.
5.15.4 Except as set forth in Schedule 5.15.4, the Company is not
involved in or subject to any joint venture, partnership or other
arrangement or contract which is treated as a partnership for federal,
state, local or foreign income tax purposes.
5.15.5 All material elections with respect to Income Taxes affecting
the Company as of the date hereof are set forth in Schedule 5.15.5.
5.15.6 Except as set forth in Schedule 5.15.6, there are no tax
sharing agreements or similar arrangements with respect to or involving the
Company.
5.15.7 The Company was not included and is not includible in any
consolidated or unitary Tax Return with any corporation other than such a
return of which the Company is the common parent corporation.
5.15.8 Except as set forth on Schedule 5.15.8, the Company has not
agreed to and is not required to make any material adjustment under section
481(a) of the Internal Revenue Code (the "Code").
5.15.9 Except as set forth in Schedule 5.15.9, the Company has not
entered into any compensatory agreements with respect to the performance of
services which payment thereunder would result in a non-deductible expense
to such company pursuant to Section 280G of the Code or an excise tax to
the recipient of such payment pursuant to Section 4999 of the Code.
5.16 ERISA Matters.
5.16.1 For purposes of this Agreement, the term "Plans" shall mean (i)
all "employee benefit plans" (as such term is defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
of which the Company is or ever was a sponsor or participating employer or
as to which the Company makes contributions or is required to make
contributions and (ii) any similar employment, severance or other
arrangement or policy of the Company (whether written or oral) providing
for health, life, vision or dental insurance coverage (including
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits or retirement
benefits, fringe benefits, or for profit sharing, deferred compensation,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement health, life, vision or dental insurance,
compensation or benefits, in each case (other than in the case of a
deferred benefit pension plan within the meaning of Section 3(35) of ERISA)
for the benefit of employees or former employees of the Company. Schedule
5.16.1 lists and identifies each Plan of the Company and its ERISA
affiliates. For purposes of this Agreement, the term "ERISA Affiliate"
shall mean any member of the same controlled group of businesses as the
Company, within the last six years, within the meaning of Section
4001(a)(14) of ERISA.
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5.16.2 Each Plan has been operated in all material respects in
accordance with its terms and all applicable laws and the annual report for
each such Plan with respect to which such report is required has been
timely filed. Except as set forth on Schedule 5.16.2, no claim is pending
or, to the knowledge of the Company, threatened against any such Plan or
ERISA Affiliate except for benefits properly due.
5.16.3 All continuation coverage under any Plan or any plan maintained
by any ERISA Affiliate that is a medical benefit plan has been provided in
all material respects in conformity with the Code and ERISA.
5.16.4 The Company has made all contributions that are required of it
under any Plan for all plan years ending on or prior to the Closing Date
and that become due on or prior to the Closing Date.
5.16.5 A letter has been received by the Company from the Internal
Revenue Service determining that each funded employee pension plan as
defined in Section 3(2) of ERISA that is intended to meet the requirements
of Section 401(a) of the Code meets such requirements.
5.16.6 Except as set forth in Schedule 5.16.6, neither the Company nor
any ERISA Affiliate has incurred any unsatisfied liability under Title IV
of ERISA (other than liability for premiums due the Pension Benefit
Guaranty Corporation), whether by reason of the termination of any pension
plan or the withdrawal from any multi-employer plan, or assumed any
liability under Section 4204 of ERISA.
5.16.7 None of the Plans has an accumulated funding deficiency (as
defined in Section 412 of the Code), and no prohibited transaction (as
defined in Section 4975 of the Code) has occurred with respect to any Plan
unless the transaction has been corrected and all liability occasioned
thereby has been satisfied.
5.16.8 The Company has substantially complied with all material
reporting and disclosure requirements under ERISA and the Code to the
extent applicable to any Plan.
5.16.9 The Company has no reason to believe that any multi-employer
plan listed on Schedule 5.16.1 is or is expected imminently to be in
reorganization or has been or is expected imminently to be terminated.
5.16.10 The aggregate unfunded current liability (as defined in
Section 412(1)(8)(A) of the Code) of all single employer plans maintained
by the Company is only of such magnitude that all liability under Title IV
of ERISA created by the termination of all such plans on the date hereof
and as of the Closing Date would be unlikely to exceed $2,000,000.
5.16.11 The Company has, in any summary plan description of any
employee benefit plan (as defined in Section 3(3) of ERISA), or in any
summary of material modification thereof circulated to the employees,
reserved its rights to amend or terminate the plan to which the summary
related and, to the knowledge of the Company, has not represented otherwise
in any such description or material, nor, except as set forth in Schedule
5.16.11, has the Company represented that any health or medical insurance
benefit is available to any employee after such employee's separation from
service with the Company except as provided in any disability plan or as
required by law.
5.16.12 There are no liens against the property of the Company or any
of its ERISA Affiliates under Section 412(n) of the Code or Sections 302(f)
or 4068 of ERISA.
5.17 Assets.
5.17.1 Except as indicated in Schedule 5.17, the Company holds title
to or a leasehold, consignment or license in each item of material tangible
personal property owned by or in the possession of the Company. Except as
indicated in Schedule 5.17 or on the Balance Sheet or the notes thereto:
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(a) each item of tangible personal property listed in the fixed
asset ledger of the Company as being owned is owned free and clear of
all Encumbrances except for Permitted Encumbrances; and
(b) The Company is not in default with respect to any term or
condition of any lease of personal property, nor has any event occurred
which through the passage of time or the giving of notice, or both,
would result in such a default, in each case except as would not
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect; and
(c) except for such items of equipment as are undergoing repair or
refurbishment or are being held for replacement, in each case in the
ordinary course of business and consistent with past practice, and
except to the extent that no material liability will be incurred in
restoring equipment to reasonable operating condition, all of the
equipment (including machinery, spare parts, automobiles, trucks, other
vehicles, tools, operating and office supplies, and computer hardware
and softwares) owned or leased or otherwise used by the Company is in
reasonable operating condition and, subject to normal maintenance, is
available for use.
5.17.2 All accounts receivable, unbilled invoices and other
receivables of the Company due or recorded in the records and books of
account of the Company as being due to the Company (less the amount of any
provision or reserve therefor made in the records and books of account of
the Company) (a) arose in the ordinary course of business, and (b) are
reasonably expected to be collectible.
5.17.3 Except as set forth in Schedule 5.17.3, the values at which
inventories of the Company are carried on the Balance Sheet reflect the
inventory valuation policy of the Company consistent with its past practice
and in accordance with GAAP.
5.18 Intellectual Property. Schedule 5.18(a) sets forth a list of all
registered trade names, patents, trademarks, service marks and copyrights and
applications for any of the foregoing which are used or held for use by the
Company. Except as set forth in Schedule 5.18(b), the Company owns the trade
name (and related trademark) "Hechinger," "Home Quarters" and "Better Spaces" in
all jurisdictions in which such trade name and related trademark are in use, and
there is not any conflict in any jurisdiction in which such trade name and
related trademark are in use by any Person with the rights of the Company
therein or any conflict by the Company with the rights of any other Person
therein nor has any license to use such name been granted to any Person. Except
as set forth in Schedule 5.18(c), the Company has all patents, trademarks, trade
names, service marks, trade secrets, copyrights and other proprietary
intellectual property rights, or licenses in respect of any such rights owned by
others, as are necessary to continue the Company's business substantially as
currently conducted, and there is not any conflict in any jurisdiction in which
any such proprietary intellectual property is in use by any Person with the
rights of the Company therein or any conflict by the Company with the rights of
any other Person therein, except where in any case or in the aggregate such
failure to have such rights or such conflict would not be likely to result in a
Material Adverse Effect.
5.19 Labor and Employment Matters.
5.19.1 Schedule 5.19(a) is a complete copy of all current employee
handbooks utilized by the Company. Schedule 5.19(b) is an accurate list of
each employment contract of the Company which provides for aggregate annual
payments of more than $75,000 for personal services or employment which is
not terminable on 30 days (or less) notice by the Company without penalty
or obligation to make payments related to such termination. Except as
provided in Schedule 7.15 and except in accordance with the contracts,
agreements, plans or programs identified in Schedule 5.16 or Schedule 5.19,
no individual will accrue or receive material additional benefits, service
or accelerated rights to payment of benefits as a result of the
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transactions contemplated by this Agreement (either alone or combined with
any other event or transaction). There are no collective bargaining
agreements or other material labor agreements to which the Company is a
party.
5.19.2 The Company is in compliance in all material respects with all
applicable Laws relating to the employment of labor, including those
related to wages, hours, occupational safety and health, plant closings and
mass layoffs, collective bargaining and the payment and withholding of
taxes and other sums as required by appropriate Governmental Entities, and
there has been withheld and paid to the appropriate Governmental Entities,
or there is being held for payment not yet due to such Governmental
Entities, all amounts required to be withheld from the employees of the
Company, and the Company is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing
except for such failures which would not, individually or in the aggregate,
be expected to have a Material Adverse Effect.
5.19.3 As of the date hereof, and except as set forth in Schedule
5.19.3, there is no (i) unfair labor practice complaint against the Company
pending before the National Labor Relations Board or any other federal,
state, local or foreign agency; (ii) pending labor strike, work stoppage,
work slow down or lockout affecting the Company; (iii) pending material
grievance or unfair dismissal proceeding relating to the Company; (iv)
material claim by employees of the Company alleging discrimination under
any federal, state or local law or constitution, including claims of
discrimination or retaliation based on race, color, creed, age, sex, sexual
orientation, national origin, religion or disability; (v) other material
claims affecting the Company relating to employment, including those based
on statute, contract or tort; (vi) pending representation question or union
organizing activities respecting a significant number of the employees of
the Company; or (vii) to the Knowledge of the Company, threat,
investigation, charge or complaint with regard to any of the foregoing
relating to the Company.
5.20 Suppliers. Set forth on Schedule 5.20 hereto is a list of the ten
largest suppliers based on the dollar value of materials or products sold
or purchased, respectively, of the Company for the year ended February 1,
1997.
5.21 Personnel, etc. Set forth on Schedule 5.21 is a list setting
forth:
(a) the name of each officer of each of the Company and the Company
Subsidiaries, specifying the title and job classification of each such
Person; and
(b) the name of each director of each of the Company and the
Company Subsidiaries.
The Company has heretofore provided Acquisition with a complete and
accurate schedule of compensation which each of the officers referred to in
clause (a) above is currently entitled to receive, and all payroll records
relating to non-officer employees heretofore provided to Acquisition are
accurate and complete.
5.22 Insurance. The Company is currently insured for reasonable amounts
with financially sound and reputable insurance companies, against such risks as
the Company reasonably believes is customary in the business in which it is
engaged. All of the insurance policies and bonds maintained by the Company are
in full force and effect, the Company is not in default in any material respect
thereunder and all material claims thereunder have been filed in due and timely
fashion or as required by any such insurance policies. Since February 3, 1996,
no material claim by the Company on or in respect of an insurance policy or bond
has been declined or refused by the relevant insurer or insurers. Between the
date hereof and the Closing Date, the Company will maintain the levels of
insurance coverage in effect on the date hereof and will submit all claims
existing prior to the Closing Date to its insurance carrier on or before the
Closing Date. Schedule 5.22 lists all insurance policies maintained by or for
the benefit of the Company or its directors, officers, employees or agents,
specifying (i) the type of policy, (ii) policy limits and (iii) self insurance
amounts.
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5.23 Company Action. The Board of Directors of the Company (the "Company
Board") has adopted resolutions recommending that this Agreement and the Merger
be approved by its stockholders and directing that this Agreement and the Merger
be submitted for consideration by its stockholders at a Special Meeting thereof.
5.24 Takeover Statutes. No Takeover Statute applicable to it is applicable
to the Merger, the Stockholders Agreement or the other transactions contemplated
hereby.
5.25 Brokers. Except as set forth in Schedule 5.25, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
conducted by the Company in such manner as not to give rise to, and the
consummation of the transactions contemplated hereby will not give rise to, any
valid claim against Acquisition, BSQ Acquisition or the Company or any of their
respective directors, officers, stockholders or affiliates for a brokerage
commission, finder's fee or other like payment to any person or entity.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION AND BSQ ACQUISITION
BSQ Acquisition and, as to itself, Acquisition hereby each represents and
warrants to the Company as follows:
6.1 Organization and Good Standing; Authority. Each of Acquisition and BSQ
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver this Agreement and consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of Acquisition and BSQ
Acquisition and is a valid and legally binding obligation of each of them,
enforceable against Acquisition and BSQ Acquisition in accordance with its
terms.
6.2 Absence of Conflict. Except as set forth in Schedule 6.2, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the provisions hereof do
not and will not (i) violate, or conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with the notice or
lapse of time or both, would constitute a default) under, or give rise to a
right of termination, cancellation, modification or acceleration of the
performance required by or a loss of a material benefit under, or result in the
creation or imposition of (or the obligation to create or impose) any
Encumbrance upon any of the properties or assets of Acquisition or BSQ
Acquisition under any of the terms, conditions or provisions of the respective
charter and bylaws of Acquisition and BSQ Acquisition or any material agreement,
indenture, note, bond, mortgage, deed of trust, undertaking, permit, lease,
franchise, license or other instrument to which Acquisition or BSQ Acquisition
is a party or by which either of them or any of its respective properties or
assets may be bound or affected; or (ii) violate any Law or Order applicable to
Acquisition and BSQ Acquisition, except for any such violations of Law or Order
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
6.3 Approvals. Schedule 6.3 contains a list of all Approvals of
Governmental Entities which, to the knowledge of Acquisition or BSQ Acquisition,
are required to be given or obtained by Acquisition or BSQ Acquisition from any
and all Governmental Entities in connection with the consummation of the
transactions contemplated by this Agreement, except where the failure to be
given or obtain such Approvals, individually or in the aggregate, would not
reasonable be expected to have a Material Adverse Effect.
6.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been conducted by Acquisition and BSQ
Acquisition in such manner as not to give rise
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to, and the consummation of the transactions contemplated hereby will not give
rise to, any valid claim against the Company or any of its directors, officers,
stockholders or affiliates for a brokerage commission, finder's fee or other
like payment to any person or entity.
6.5 Financing. Acquisition has delivered to the Company a copy of a
commitment letter from Chase Manhattan Bank relating to such financing as, in
Acquisition's judgment, is reasonably expected to be necessary to consummate the
transactions contemplated hereby and by the BSQ Acquisition Agreement.
6.6 Transaction Agreements. Set forth on Schedule 6.6 is a list of all
agreements, contracts and other binding written commitments that relate to the
transactions contemplated by the BSQ Acquisition Agreement and the transactions
contemplated hereby. A copy of all items listed on such schedule has been
delivered by Acquisition, BSQ Acquisition or their respective Representatives to
the Company or its Representatives.
ARTICLE 7
COVENANTS
7.1 Conduct of Business Pending Closing. The Company agrees that on and
after the date hereof and prior to the Closing Date, except as otherwise
consented to by Acquisition in writing (which consent shall not be unreasonably
withheld so long as such consent is not adverse to the interests of Acquisition
or BSQ Acquisition, in their sole discretion), as set forth in Schedule 7.1, or
as otherwise contemplated by this Agreement:
7.1.1 The Company shall conduct its business in the ordinary course in
all material respects;
7.1.2 The Company shall (i) discharge accounts payable and other
current liabilities and obligations of the Company in accordance with past
practice, (ii) purchase and maintain inventory in an amount consistent with
normal seasonal requirements of the Company and intended to facilitate the
sound operation of the Company's business, and (iii) discharge on a timely
basis any and all liabilities as and to the extent such liabilities or any
portion thereof become due prior to the Closing; provided, however, that
the Company shall not prepay, redeem or repurchase any Indebtedness or
other obligations that are not due and payable prior to the Closing other
than pursuant to its existing revolving credit facility in the ordinary
course of business;
7.1.3 The Company shall use commercially reasonable efforts to
preserve the business organization of the Company intact, and to preserve
the goodwill of suppliers, customers, employees and others with whom
business relationships exist;
7.1.4 The Company shall not borrow any money, incur any Indebtedness
or guarantee any Indebtedness or obligation of any Person, other than
accounts payable arising in the ordinary course of business, consistent
with past practice, and other than pursuant to its existing revolving
credit facility in the ordinary course of business;
7.1.5 The Company shall not issue, sell or dispose of any capital
stock or other equity interest in the Company or options, warrants or other
rights to purchase any such capital stock or equity interest or any
securities convertible into or exchangeable for such capital stock or
equity interests or otherwise make or effect any change in the issued and
outstanding capitalization of the Company;
7.1.6 The Company shall not cause or permit any amendment, alteration
or modification in the terms of any currently outstanding options, warrants
or other rights to purchase any capital stock or equity interest in the
Company or any securities convertible into or exchangeable for
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such capital stock or equity interest, including without limitation any
reduction in the exercise or conversion price of any such rights or
securities;
7.1.7 Except as set forth on Schedule 7.1.7, the Company shall not
declare or pay any dividend or make any other distribution, or transfer any
assets, to any stockholders of the Company, or redeem, repurchase or
otherwise reacquire any of its capital stock, except in the ordinary course
of business;
7.1.8 The Company shall not enter into any contracts or agreements
(written or oral) that provide for aggregate payments by any party in
excess of $500,000 per contract and that are not terminable upon 90 days
(or less) notice by the Company without penalty or obligation to make
payments related to such termination and, to the extent the Company is a
party to any such contract or agreement as of the date hereof, the Company
shall not amend or waive any rights under any such contract (other than
contracts of the type referred to in clauses (ii) and (iii) of the proviso
set forth in Section 5.11.1);
7.1.9 The Company shall not purchase all or any substantial part of
the properties or assets of, or otherwise acquire any Person (or division
thereof);
7.1.10 The Company shall not sell, lease, transfer, assign or
otherwise dispose of any properties or assets, except for (i) sales of
inventory in the ordinary course of business consistent with past practice,
and (ii) sales in connection with any transaction to which the Company is
contractually obligated prior to the date hereof described on Schedule
7.1.10;
7.1.11 Except as set forth on Schedule 7.1.11, the Company shall not
sell, lease, transfer, assign or otherwise dispose of any Owned Real Estate
or Leased Real Estate, and the Company shall not permit any lease or
sublease of Leased Real Estate to terminate or expire, in each case except
as otherwise provided in this Agreement;
7.1.12 Except as set forth on Schedule 7.1.12, the Company shall not
purchase, lease or otherwise acquire any material properties or assets
except for (i) purchases of inventory in the ordinary course of business,
and (ii) purchases other than in the ordinary course of business not
exceeding $100,000 individually and $500,000 in the aggregate;
7.1.13 Except as may be required by law or under any existing
agreements, the Company shall not increase the compensation or fringe
benefits payable or to become payable by the Company to any of the officers
or salaried employees of the Company, other than routine or customary
increases made in the ordinary course of business and consistent with past
practice;
7.1.14 Except as set forth on Schedule 7.1.14, the Company shall not
close, shut down or otherwise eliminate any of its stores or make any other
material change in the character of its business, properties or assets
other than in the ordinary course of business consistent with past
practice;
7.1.15 The Company shall maintain in all material respects its
existing advertising programs and policies without material modification
except for any changes made in the ordinary course of business;
7.1.16 The Company shall not intentionally materially reduce the
personnel headcount of the Company and shall use commercially reasonable
efforts (but not requiring the expenditure of funds) to keep available the
services of the present employees of the Company;
7.1.17 Except as required by GAAP, the Company shall not change its
material accounting principles, methods or practices, including any
material change in its policies with respect to reserves (whether for bad
debts, contingent liabilities or otherwise), any change in depreciation or
amortization policies or rates or any change in the policies pertaining to
the recognition of accounts receivable or the discharge of accounts payable
or accounting for inventories;
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7.1.18 Other than in the ordinary course, the Company shall not make
any representation or proposal to, or engage in substantive discussions
with, any of the holders (or their representatives) of any Indebtedness, or
to or with any party which has issued a letter of credit which benefits the
Company, without prior consultation with and approval of Acquisition (which
shall not be unreasonably withheld);
7.1.19 The Company shall (i) use commercially reasonable efforts to
maintain its existing Permits and Approvals in all material respects, and
(ii) not violate any Law;
7.1.20 The Company shall use commercially reasonable efforts to
maintain in full force and effect all policies of insurance now in effect
and give all notices and present all claims under all such policies in a
timely fashion; and
7.1.21 The Company shall not enter into any agreement or take or
commit to take any action which would, if taken on or before the Closing,
result in a breach of any of the foregoing covenants contained in this
Section 7.1 or of any representation or warranty of the Company contained
in this Agreement.
7.2 Access. Except to the extent that the Company determines in good faith
that so doing would constitute a breach of contract or a violation of law, the
Company shall permit Acquisition, BSQ Acquisition and their Representatives to
have reasonable access during normal business hours, upon reasonable notice and
in such manner as will not unreasonably interfere with the conduct of the
Company's business, to all of the directors, officers, employees, agents and
Representatives of the Company and all properties, books, records, operating
instructions, procedures and Tax Returns of the Company and all other
information with respect to the Company, its business and operations and its
assets and properties as Acquisition, BSQ Acquisition or their Representatives
may from time to time reasonably request, and to make copies of such books,
records and other documents.
7.3 Permits and Approvals. The Company, Acquisition and BSQ Acquisition
shall use commercially reasonable efforts to obtain all Permits and Approvals
reasonably necessary for the consummation of the transactions contemplated
hereby and to permit the Company, following the Closing, to continue to conduct
its business in substantially the manner it is being conducted as of the date
hereof (taking into account the transactions contemplated by the BSQ Acquisition
Agreement).
7.4 Litigation. Until the Closing, each of the Company, Acquisition and BSQ
Acquisition shall promptly notify the other of any action, suit, proceeding,
claim or investigation which is threatened or commenced that materially relates
to or materially affects the Company, its business, its properties or assets,
this Agreement or the transactions contemplated hereby.
7.5 Acquisition Proposals. The Company agrees that neither it nor any of
its officers and directors shall, and the Company shall direct and use its best
efforts to cause its employees and Representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to stockholders of the Company) with respect to a merger, consolidation or
similar transaction, other than pursuant to this Agreement, involving, or any
purchase of all or any significant portion of the properties and assets or any
equity securities of, the Company (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and shall make all reasonable efforts to
enforce any confidentiality agreements to which it is a party. The Company will
take the necessary steps to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 7.5. The Company will notify
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Acquisition and BSQ Acquisition immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company. Notwithstanding the foregoing, in the event the Company receives an
Acquisition Proposal which was not solicited by it and which did not result from
a breach of this Section 7.5 (an "Unsolicited Proposal"), the Company may in
response provide confidential information or data (subject to the execution of a
customary confidentiality agreement) to, or engage in discussions or
negotiations with, a Person duly authorized by a proposed acquiror in connection
with the transaction(s) contemplated by the Unsolicited Proposal but only if (i)
the Unsolicited Proposal includes sufficient information from which the Company
Board can reasonably conclude that (A) all shareholders of Class A Common Stock
and Class B Common Stock will receive Superior Consideration (as defined below),
(B) the proposed acquiror has the financial and other resources and has the
legal ability (including, without limitation, under antitrust laws) to complete
such transaction(s) on a timely basis, and (C) such transaction(s) will not be
subject to a financing contingency and will otherwise be subject to no more
contingencies than those contained in this Agreement, and (ii) the Company
receives a written opinion of counsel that the Company Board is legally
required, in the discharge of its fiduciary duties, to provide such information
or data or engage in such discussions or negotiations concerning the
transactions contemplated by the Unsolicited Proposal. For purposes of this
Agreement, "Superior Consideration" means consideration consisting of cash
and/or securities for all the shares of Class A Common Stock and Class B Common
Stock then outstanding or for all or substantially all the assets of the Company
in any case having a dollar value in excess of the aggregate Merger
Consideration and which the Company Board determines in its good faith judgment
(having received the advice of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger
Consideration and for which financing, to the extent required, is then
committed.
7.6 H-S-R Notification.
7.6.1 Filings. As soon as practicable (but no later than five (5)
Business Days) after the execution of this Agreement, each of the Company,
Acquisition and BSQ Acquisition shall file, or cause to be filed, with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "H-S-R Act"), the notification
and documentary material required in connection with the transactions
contemplated hereby.
7.6.2 Cooperation. Acquisition, BSQ Acquisition and the Company shall
promptly file any additional information requested as soon as practicable
after receipt of a request for additional information. Acquisition, BSQ
Acquisition and the Company shall use their commercially reasonable efforts
to obtain early termination of the applicable waiting period under the
H-S-R Act. The parties hereto will coordinate and cooperate with one
another in exchanging such information and providing such reasonable
assistance as may be requested in connection with such filings.
7.6.3 Other Actions. The Company agrees that, in order to comply with
the H-S-R Act in connection with the transactions contemplated hereby,
Acquisition and BSQ Acquisition shall be entitled, in its sole discretion,
to acquiesce to any divestitures, operating restrictions or other
constraints imposed or required by any Governmental Entity, provided that
such divestitures, operating restrictions or other constraints shall not
have any material effect on the terms of the Merger.
7.7 Financial Statement Deliveries. As soon as is reasonably practicable
and in no event later than twenty-five (25) days from the last day of each
fiscal month between the date of this Agreement and the Closing Date, the
Company shall prepare and provide to Acquisition monthly historical financial
statements (the "Monthly Financial Statements") for the Company, utilizing the
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same methodology currently used in preparing the financial statements included
in the Fiscal 1996 Form 10-K.
7.8 Covenant to Satisfy Conditions. Each of the Company, Acquisition and
BSQ Acquisition will use reasonable best efforts to ensure that the conditions
set forth in Article 8 hereof are satisfied, insofar as such matters are within
the control of such party. Each such party shall promptly consult with the other
with respect to, and provide to the other any legally permitted information and
copies of all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity (other than
confidential personnel information) in connection with this Agreement and the
transactions contemplated hereby. Acquisition, BSQ Acquisition and the Company
further covenant and agree, with respect to any pending or threatened Action,
preliminary or permanent injunction or other Order, decree or ruling or statute,
rule, regulation or executive order that would adversely affect the ability of
the parties hereto to consummate the transactions contemplated hereby, to use
reasonable best efforts to prevent or lift the entry, enactment or promulgation
thereof, as the case may be. Upon the request of Acquisition or BSQ Acquisition,
the Company agrees that it shall use reasonable best efforts to secure waivers
and/or consents from such third parties as may be necessary or desirable in
Acquisition's or BSQ Acquisition's reasonable judgment in order to consummate
the transactions contemplated hereby.
7.9 Proxy Statement. As soon as reasonably practicable after the date
hereof, the Company shall prepare a proxy statement in respect of the Special
Meeting of its stockholders to vote upon the Merger, file such proxy statement
with the SEC, respond to comments of the staff of the SEC, if any, file the
definitive proxy statement as soon as practicable and promptly thereafter mail
such proxy statement to all holders of record (as of the applicable record date)
of shares of Class A Common Stock and Class B Common Stock. The Company, BSQ
Acquisition and Acquisition shall cooperate reasonably with each other in the
preparation of the proxy statement. The Company agrees that Acquisition shall be
given reasonable opportunity to review and comment on the proxy statement and to
approve the proxy statement prior to its filing (which approval will not be
unreasonably withheld) and thereafter to participate in discussions concerning
the comments of the SEC staff and to approve all responses thereto (which
approval will not be unreasonably withheld).
7.10 Shareholders' Meeting. The Company shall take all action necessary, in
accordance with applicable law and its certificate of incorporation and by-laws,
to convene a Special Meeting of the holders of the Class A Common Stock and
Class B Common Stock (the "Special Meeting") as promptly as practicable, but in
no event more than 45 days after a definitive proxy statement has been filed
with the SEC, for the purpose of approving the Merger. The Company's board of
directors shall recommend at such Special Meeting that the Merger be approved by
its stockholders. Notwithstanding the foregoing, if, as a result of actions
taken in compliance with Section 7.5 hereof, the Company receives a formal
Unsolicited Proposal concerning a transaction in which all the holders of Class
A Common Stock and Class B Common Stock will receive Superior Consideration, the
Company Board may withdraw or modify such recommendation prior to the Special
Meeting; provided, however, that the Company shall have received the written
opinion of counsel that the Company Board is legally required to do so in the
discharge of its fiduciary duties; and provided further, that the Company shall
give BSQ Acquisition five (5) Business Days' prior notice of such withdrawal or
modification, specifying the material terms of such Unsolicited Proposal.
7.11 Environmental Matters. The Company has delivered to Acquisition all
material existing environmental reports that are in the Company's possession and
that have been prepared within the last ten (10) years with respect to any of
the Owned Real Estate or the Leased Real Estate. The Company agrees that,
following the date hereof, it shall permit Acquisition to continue to conduct,
at Acquisition's expense, such additional environmental investigations of such
properties as it may reasonably request; provided, however, that Acquisition
shall not be permitted to conduct any Phase II environmental site assessments or
audits (including any sampling of any media or material) without the Company's
prior consent, which consent shall not be unreasonably withheld, and subject to
the conditions that (i) Acquisition shall disclose to the Company the results of
any
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<PAGE> 26
environmental investigation which led to Acquisition's decision to request such
additional assessment or sampling, (ii) the Company shall have the right to
conduct, at the Company's sole discretion and at the Company's expense, split
sampling in conjunction with any additional sampling Acquisition may request,
and (iii) Acquisition and the Company shall provide each other with the results
of any such additional sampling conducted by such party.
7.12 Financing. BSQ Acquisition agrees to use its commercially reasonable
efforts to obtain, on terms satisfactory to BSQ Acquisition in its sole
discretion, all of the financing necessary in connection with the consummation
of the transactions contemplated by this Agreement and the BSQ Acquisition
Agreement. BSQ Acquisition agrees to notify the Company promptly in the event
the Commitment Letter described in Section 6.6 is withdrawn.
7.13 Options. The Company shall use its reasonable best efforts to obtain,
prior to the Closing, agreements and consents (the "Consents") of the holders of
all Options then outstanding providing for the consent of each such holder to
the termination, without payment other than as provided in Section 4.4 hereof,
of all Options held by such holder and the agreement of such holder not to
exercise any such Options.
7.14 Disclosure Prior to Closing. In the event that, at any time prior to
the Closing, the Company, Acquisition or BSQ Acquisition becomes aware of any
matter which, if existing or known as of the date of this Agreement, would have
been required to be set forth or described in the Schedules hereto or would
otherwise have rendered any representation or warranty false, such party shall
promptly provide written notice of such matters to the other party. However, no
such notice provided under this Section 7.14 shall be deemed to cure any breach
of any representation or warranty made in this Agreement whether for purposes of
determining whether or not the conditions set forth in Article 5 hereof have
been satisfied or otherwise. In addition, the Company shall promptly provide
written notice of any events occurring after the date hereof which individually
or in the aggregate has had or are reasonably expected to have a Material
Adverse Effect on the Company.
7.15 Employee Benefits. Effective from and after the Effective Time, the
Surviving Corporation and its Subsidiaries will provide to the persons listed on
Schedule 7.15 the severance and other benefits set forth in Schedule 7.15. Such
schedule will provide for the amount and timing of all such payments.
7.16 Directors' and Officers' Insurance And Indemnification. The Surviving
Corporation will indemnify each person who is now, or has been at any time prior
to the date hereof, a director or officer of the Company or its successors and
assigns (individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent required or permitted under the Certificate or
by-laws of the Company, or any agreement with the Company in each case as in
effect immediately prior to the execution of this Agreement, with respect to any
claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel (whenever asserted or claimed) ("Indemnified
Liability"), based in whole or in part on, or arising in whole or in part out
of, any matter, state of affairs or occurrence existing or occurring at or prior
to the Effective Time whether commenced, asserted or claimed before or after the
Effective Time, including, without limitation, liability arising under the
Securities Act, the Exchange Act, or state law. The Surviving Corporation will
maintain in effect for not less than six years after the Effective Time the
current policies of directors' and officers' liability insurance maintained by
the Company on the date hereof (provided that BSQ Acquisition may substitute
therefor policies having at least the same coverage, a comparably rated issuer
and containing terms and conditions which are no less advantageous to the
persons currently covered by such policies as insured) with respect to matters
existing or occurring at or prior to the Effective Time; provided, however, that
if the aggregate annual premiums for such insurance during such period exceed
200% of the per annum rate of the aggregate premium currently paid by the
Company for such insurance on the date of this Agreement, then the Surviving
Corporation will
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<PAGE> 27
provide the maximum coverage that will then be available at an annual premium
equal to 200% of such rate. The rights under this Section 7.16 are in addition
to rights that an Indemnified Party may have under the Certificate, by-laws,
other similar organizational documents of the Company or the DGCL. The rights
under this Section 7.16 are contingent upon the occurrence of, and will survive
consummation of, the Merger and are expressly intended to benefit each
Indemnified Party.
7.17 Antitakeover Statutes. If any Takeover Statute (as defined below) is
or may become applicable to the transactions contemplated hereby or by the
Stockholder Agreement, the Company Board will grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby and
thereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate the effects of any Takeover
Statute on any of the transactions contemplated hereby or thereby. For purposes
of this Agreement, a "Takeover Statute" means a "fair price", "moratorium",
"control share acquisition" or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States, including without
limitation Section 203 of the DGCL.
ARTICLE 8
CONDITIONS OF PURCHASE
8.1 General Conditions. The obligations of the parties to effect the
Closing shall be subject to the following conditions unless waived in writing by
both parties:
8.1.1 No Law or Orders. No Law or Order shall have been enacted,
entered, issued or promulgated by any Governmental Entity (and be in
effect) which prohibits or materially restricts the consummation of the
transactions contemplated hereby.
8.1.2 H-S-R. Any applicable waiting period under the H-S-R Act shall
have expired or have been terminated with respect to the transactions
contemplated hereby.
8.1.3 Legal Proceedings. No Governmental Entity shall have notified
either party to this Agreement that it intends to commence proceedings to
restrain or prohibit the transactions contemplated hereby or force
rescission, unless such Governmental Entity shall have withdrawn such
notice and abandoned any such proceedings prior to the time which otherwise
would have been the Closing Date.
8.1.4 Stockholder Approval. The Merger and the other transactions
contemplated hereby shall have been approved by the requisite vote of the
stockholders of the Class A Common Stock and Class B Common Stock.
8.2 Conditions Precedent to the Obligations of the Company. The
obligations of the Company to close the transactions contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions precedent, any of which may be waived by the
Company:
8.2.1 Accuracy of Acquisition's and BSQ Acquisition's Representations
and Performance of Obligations.
(a) All representations and warranties made by Acquisition or BSQ
Acquisition in this Agreement, any Schedule or any agreement,
certificate or instrument to be executed by Acquisition or BSQ
Acquisition pursuant hereto shall be true and correct in all respects on
the date when made and on and as of the Closing Date (unless the
representations and warranties address matters as of a particular date,
in which case they shall remain true and correct in all respects as of
such date) with the same effect as if made on and as of the Closing Date
(without regard to any amendment or supplement of any such Schedule,
agreement or instrument after the date hereof), except where such
failures, in each case or in the aggregate, have not had and are not
reasonably expected to have a Material Adverse
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<PAGE> 28
Effect, provided that, whenever any such representation or warranty is
conditioned by reference to materiality or a Material Adverse Effect,
for the purposes of this Section 8.2.1(a), such representation or
warranty shall be treated as if such representation or warranty did not
contain any limitation as to materiality or Material Adverse Effect as
stated therein.
(b) Acquisition and BSQ Acquisition shall have performed or
complied in all material respects with all covenants and conditions
contained in this Agreement, any Schedule or any agreement, certificate
or instrument to be executed by Acquisition or BSQ Acquisition pursuant
hereto required to be performed or complied with by Acquisition or BSQ
Acquisition either at or prior to the Closing.
(c) At the Closing, BSQ Acquisition shall deliver to the Company a
certificate of the president or any vice president and secretary or any
assistant secretary of Acquisition certifying to the matters set forth
in (a) and (b) above.
8.2.2 Acquisition Deliveries. BSQ Acquisition shall have delivered,
or shall have caused to be delivered, to the Company at or prior to the
Closing the following:
(a) a certified copy of the resolutions duly adopted by the Board
of Directors of Acquisition and BSQ Acquisition authorizing this
Agreement and the transactions contemplated hereby and thereby; and
(b) such other documents, instruments or certificates as shall be
reasonably requested by the Company or its counsel.
8.3 Conditions Precedent to Obligations of Acquisition and BSQ
Acquisition. The obligations of Acquisition and BSQ Acquisition to close the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or prior to the Closing Date of each of the following conditions precedent,
any of which may be waived by Acquisition:
8.3.1 Accuracy of the Company's Representations and Performance of
Obligations.
(a) All representations and warranties made by the Company in this
Agreement, any Schedule or any agreement, certificate or instrument to
be executed by the Company pursuant hereto shall be true and correct in
all respects on the date when made and on and as of the Closing Date
(unless the representations and warranties address matters as of a
particular date, in which case they shall remain true and correct in all
respects as of such date) with the same effect as if made on and as of
the Closing Date (without regard to any amendment or supplement of any
such Schedule, agreement or instrument after the date hereof), except
where such failures, in each case or in the aggregate, have not had and
are not reasonably expected to have a Material Adverse Effect, provided
that, whenever any such representation or warranty is conditioned by
reference to materiality or a Material Adverse Effect, for the purposes
of this Section 8.3.1(a), such representation or warranty shall be
treated as if such representation or warranty did not contain any
limitation as to materiality or Material Adverse Effect as stated
therein.
(b) Except for any action requested or required to be taken by the
Company pursuant to Section 7.6.3 hereof, the Company shall have
performed or complied in all material respects with all covenants and
conditions contained in this Agreement, any Schedule or any agreement,
certificate or instrument to be executed by the Company pursuant hereto
required to be performed or complied with by the Company either at or
prior to the Closing.
(c) At the Closing, the Company shall deliver to BSQ Acquisition a
certificate of the president or any vice president and secretary or any
assistant secretary of the Company certifying to the matters set forth
in (a) and (b) above.
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<PAGE> 29
(d) At the Closing, John W. Hechinger, Jr., Kenneth J. Cort and W.
Clark McClelland shall have delivered agreements containing the
covenants set forth in Exhibit B hereto.
8.3.2 Permits and Approvals. The Company shall have made or obtained,
on terms reasonably satisfactory to BSQ Acquisition, all Permits and
Approvals required from any Governmental Entity or any third party in order
to consummate the transactions contemplated hereby and permit the Surviving
Corporation to continue the Company's business in substantially the manner
as it is being conducted as of the date hereof (after giving effect to the
transactions contemplated by the BSQ Acquisition Agreement), except where
the failure to obtain such Permits or Approvals, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
8.3.3 Company Adverse Changes. There shall not have occurred after
the date hereof any events which individually or in the aggregate have had
or are reasonably expected to have a Material Adverse Effect on the
Company.
8.3.4 Deliveries. The Company shall have delivered, or shall have
caused to be delivered, to BSQ Acquisition at or prior to the Closing the
following:
(a) to the extent requested by BSQ Acquisition, resignations of the
directors and officers of the Company and each of the Company's
Subsidiaries effective as of the Closing;
(b) certified copies of the resolutions duly adopted by the Company
Board and by the holders of the Class A Common Stock and Class B Common
Stock, authorizing this Agreement and the transactions contemplated
hereby;
(c) the corporate seal, minute books and stock transfer books of
the Company; and
(d) such other documents, instruments or certificates as shall be
reasonably requested by BSQ Acquisition or its counsel.
8.3.5 Financing. BSQ Acquisition shall have made or obtained, on
terms satisfactory to BSQ Acquisition in its sole discretion, all financing
necessary in connection with the consummation of the transactions
contemplated by this Agreement and the BSQ Acquisition Agreement and which
are necessary to continue after the Closing the businesses of BSQ
Acquisition and the Surviving Corporation in substantially the manner they
are currently being conducted or are planned to be conducted.
8.3.6 Related Transaction. The transactions contemplated by the BSQ
Acquisition Agreement and its related agreements shall have been
consummated or shall be consummated substantially concurrently with the
transactions contemplated hereby.
ARTICLE 9
TERMINATION
9.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time on or prior to the Closing Date:
9.1.1 Mutual Consent. By mutual written consent of the parties
hereto;
9.1.2 By Acquisition or BSQ Acquisition. By Acquisition or BSQ
Acquisition, if any of the conditions set forth in Section 8.1 or 8.3 shall
have become incapable of fulfillment, or if the Company Board withdraws or
modifies its recommendation of the Merger, whether or not in compliance
with Section 7.10 hereof;
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<PAGE> 30
9.1.3 By the Company. By the Company, if any of the conditions set
forth in Section 8.1 or 8.2 shall have become incapable of fulfillment;
9.1.4 Failure of Conditions. By Acquisition, BSQ Acquisition or the
Company, if the transactions contemplated hereby are not consummated on or
before the date which is the business day after the fiscal month end
closest to October 31, 1997 or such later date as may be reasonably
necessary in order to consummate such transactions as promptly as
practicable upon obtaining Approvals of Governmental Entities (but in any
event not later than December 31, 1997), and if the failure to consummate
such transactions on or before such date did not result from the breach of
any representation, warranty or agreement herein of the party seeking such
termination;
9.1.5 Breach of Covenant. By Acquisition, BSQ Acquisition or the
Company, if the other party shall be in material breach of any of its
covenants contained in this Agreement and such breach either is incapable
of cure or is not cured within 15 days after notice from the party wishing
to terminate; provided that the party seeking such termination shall not
also then be in material breach of this Agreement; provided further that
any breach of the provisions of Section 7.5 hereof shall entitle
Acquisition and BSQ Acquisition to an immediate right of termination
without any notice or cure requirement.
9.1.6 Breach of Representations and Warranties. By Acquisition, BSQ
Acquisition or the Company, if the other party shall be in breach of any of
its representations or warranties contained in this Agreement, which
breach, individually or together with all other breaches, is reasonably
expected to have a Material Adverse Effect, and such breach either is
incapable of cure or is not cured within 15 days after notice from the
party wishing to terminate, provided that the party seeking such
termination shall not also then be in material breach of this Agreement.
9.2 Manner and Effect of Termination. Termination shall be effected by the
giving of written notice to that effect by the party seeking termination. If
this Agreement is validly terminated and the transactions contemplated hereby
are not consummated, this Agreement shall become null and void and of no further
force and effect and no party shall be obligated to the others hereunder;
provided, however, that termination shall not affect (i) the rights and remedies
available to a party as a result of the breach by the other party hereunder
(provided that, subject to clause (iv) below, the provisions of Section 9.3
shall constitute the exclusive legal remedy of Acquisition and BSQ Acquisition
with respect to breach by the Company described therein), (ii) the provisions of
Sections 5.25 and 6.4 hereof, (iii) the obligations of the Company pursuant to
Section 9.3 below or (iv) the rights available to the parties under Section 11.9
hereof.
9.3 Certain Payments Upon Termination. In the event that either party
terminates this Agreement under Section 9.1.2, 9.1.3 or 9.1.4 due to the failure
of the condition specified in Section 8.1.4 to be satisfied or to the withdrawal
or modification of the Company Board's recommendation of the Merger (and at such
time the Company does not have the right to terminate this Agreement under
Section 9.1.5 or 9.1.6 hereof), or Acquisition or BSQ Acquisition terminates
this Agreement under Section 9.1.5 or 9.1.6 as a result of an intentional breach
of this Agreement by the Company, the Company shall pay to BSQ Acquisition a
termination fee in the amount of $5,000,000 (the "Termination Fee") plus all
Expenses (as defined below). In the event that Acquisition or BSQ Acquisition
terminates this Agreement under Section 9.1.5 or 9.1.6 as a result of an
unintentional breach of this Agreement by the Company, the Company shall pay to
BSQ Acquisition all Expenses. For purposes of this Section 9.3, "Expenses" shall
mean all fees and expenses (including those of counsel, accountants and other
advisors and in connection with financing commitments) incurred by any of
Acquisition, BSQ Acquisition and their respective affiliates (without any
deduction on account of or other allocation of such expenses to the transactions
contemplated by the proposed transactions involving BSQ) in connection with the
transactions contemplated by this Agreement or with respect to the proposed
transactions involving BSQ, up to an aggregate maximum of $6,000,000 (the
"Expenses"). All payments required to be made hereunder shall be made by wire
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<PAGE> 31
transfer of immediately available funds within two (2) Business Days of the
event giving rise to the payment of such expenses. The Company acknowledges that
the agreements contained in this Section 9.3 are an integral part of the
transactions contemplated by this Agreement and that, without said agreements,
Acquisition and BSQ Acquisition would not enter into this Agreement;
accordingly, if the Company fails promptly to pay the Termination Fee and
Expenses due pursuant to this Section 9.3, and, in order to obtain such payment,
BSQ Acquisition commences a suit which results in a judgment against the Company
for the fees and expenses set forth herein, the Company will pay to BSQ
Acquisition BSQ Acquisition's reasonable expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
due hereunder at the legal rate determined by the court rendering such judgment.
ARTICLE 10
OTHER AGREEMENTS
10.1 Confidentiality. The Company agrees that from the date hereof until
the Closing Date or earlier termination of this Agreement it will not, and will
use reasonable best efforts to ensure that none of its directors, officers,
Representatives, agents or employees will, without the prior written consent of
Acquisition, submit or disclose to or file with any other Person, or use, any
confidential or non-public information relating to the Company, Acquisition, BSQ
Acquisition, Kmart or BSQ, except for such disclosure as may be required by Law
or applicable accounting regulations. Each of Acquisition and BSQ Acquisition
agrees that from the date hereof until the Closing Date or earlier termination
of this Agreement it will not, and will use reasonable best efforts to ensure
that none of its directors, officers, Representatives, agents or employees will,
without the prior written consent of the Company, submit or disclose to or file
with any other Person, or use, any confidential or non-public information
relating to the Company, except for such disclosure as may be required by Law or
applicable accounting regulations.
ARTICLE 11
MISCELLANEOUS
11.1 Expenses. Except as otherwise specifically provided for herein, each
of the Company, on the one hand, and Acquisition and BSQ Acquisition, on the
other, shall pay all of its costs and expenses (including attorneys',
accountants' and investment bankers' fees) incurred in connection with this
Agreement and the transactions contemplated hereby.
11. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt if delivered personally or sent by facsimile
transmission (receipt of which is confirmed) or by courier service promising
overnight delivery (with delivery confirmed the next day) or three (3) Business
Days after sent by registered or certified mail (postage prepaid, return receipt
requested). Notices shall be addressed as follows:
<TABLE>
<S> <C>
To the Company:.............................. Hechinger Company
1801 McCormick Drive
Largo, Maryland 20774
Attention: John W. Hechinger, Jr.
Facsimile: (301) 925-3115
With a copy to:.............................. Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Barbara L. Becker, Esq.
Facsimile: (212) 541-5369
</TABLE>
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<PAGE> 32
<TABLE>
<S> <C>
To Acquisition
or BSQ Acquisition:.......................... Hechinger Acquisition, Inc.
or BSQ Acquisition, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: Jonathan D. Sokoloff
Facsimile: (310) 954-0404
With a copy to:.............................. Irell & Manella LLP
333 South Hope Street, 33rd Floor
Los Angeles, California 90071
Attention: Edmund M. Kaufman, Esq.
Facsimile: (213) 229-0515
</TABLE>
Either party may from time to time change its address for the purpose of notices
by a similar notice specifying the new address but no such change shall be
effective as against any Person until such Person shall have actually received
it.
11.3 Entire Agreement. This Agreement contains the final and entire
agreement between the parties with respect to the transactions contemplated
hereby and supersedes all written or verbal representations, warranties,
commitments and other understandings prior to the date hereof. No reference
shall be made to any draft of this Agreement for purposes of interpretation or
resolution of ambiguity or otherwise. All Exhibits annexed hereto, and all
Schedules referred to herein, are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
11.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.5 Severability. If any provision hereof shall be held to be
unenforceable or invalid by any court of competent jurisdiction or as a result
of future legislative action, such holding or action shall be strictly construed
and shall not alter the enforceability, validity or effect of any other
provision hereof.
11.6 Assignability. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns; provided, however, that neither this Agreement
nor any right or obligation hereunder may be assigned by either party without
the prior written consent of the other to be given in the other party's sole
discretion.
11.7 Captions. The descriptive headings herein are inserted for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
11.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
11.9 Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof (without requirement to post bond), in addition to any and all other
remedies at law or in equity.
11.10 Amendment and Waiver. This Agreement may be amended, modified or
supplemented only by an instrument in writing signed by all parties hereto. No
waiver by any party of any of the provisions hereof shall be effective unless
set forth in writing and executed by the party so waiving.
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<PAGE> 33
Any waiver or failure to insist upon strict compliance with any obligation,
covenant, agreement, provision, term or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure to comply.
11.11 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable, whether under applicable laws
and regulations or otherwise, to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement.
11.12 Publicity. Except as hereinafter provided, the Company, Acquisition
and BSQ Acquisition shall not, and each of them shall use commercially
reasonable efforts to cause their respective directors, officers, employees,
Representatives and agents not to, discuss publicly or make any public statement
with respect to this Agreement or the transactions contemplated hereby without
the other party's approval. Before making any such public announcements, the
parties hereto shall use good faith efforts to agree upon the text of a joint
announcement to be made by the parties hereto or use good faith efforts to
obtain the other party's approval of the text of any public announcement to be
made solely on behalf of such party. If the parties hereto are unable to agree
on or approve such a public statement or announcement and legal counsel for a
party is of the opinion that such statement or announcement is required by law
or the rules of any stock exchange on which the parties' securities are traded,
then such party may make or issue the legally required statement or
announcement.
11.13 Force Majeure. Anything to the contrary in this Agreement
notwithstanding, no party hereto shall be liable to the other parties hereto for
any loss, injury, delay, damages or other casualty suffered or incurred by such
other party hereto due to strikes, riots, storms, fires, explosions, acts of
God, war, governmental action, or any other cause similar thereto which is
beyond the reasonable control of such parties, and any failure or delay by any
party hereto in performance of any of its obligations under this Agreement due
to one or more of the foregoing causes shall not be considered as a breach of
this Agreement. In the event that performance of any of the material obligations
under this Agreement shall be suspended due to one or more of the foregoing
causes and such suspension shall have a material adverse impact on consummation
of the transactions as contemplated in this Agreement or on the operations or
financial conditions or prospects of the Company, then the aggrieved party which
shall be materially and adversely affected thereby may terminate this Agreement.
11.14 Attorney's Fees. In any suit or proceeding arising out of this
Agreement or to interpret or enforce any provision of this Agreement, the
prevailing party shall be entitled to all reasonable out-of-pocket expenses and
reasonable attorneys' fees incurred by such party in connection with such suit
or proceeding.
11.15 Confidentiality. Acquisition, BSQ Acquisition and the Company agree
and acknowledge that, until the Closing, they will continue to be bound by the
Confidentiality Agreement dated April 15, 1997 between Leonard Green & Partners,
L.P. and the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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11.16 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the agreements contained in Article 4, and Sections
6.4, 7.15 and 7.16 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
HECHINGER COMPANY,
a Delaware corporation
By: /s/ JOHN W. HECHINGER, JR.
------------------------------------
Name: John W. Hechinger, Jr.
Title: Chairman and CEO
HECHINGER ACQUISITION, INC.,
a Delaware corporation
By: /s/ GREGORY J. ANNICK
------------------------------------
Name: Gregory J. Annick
Title: Vice President, Secretary
and Treasurer
BSQ ACQUISITION, INC.,
a Delaware corporation
By: /s/ JONATHAN D. SOKOLOFF
------------------------------------
Name: Jonathan D. Sokoloff
Title: Chairman
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<PAGE> 35
EXHIBITS
<TABLE>
<S> <C>
Exhibit A................... Stockholders Agreement
Exhibit B................... Non-Competition Covenant
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.2.59............. Permitted Encumbrances
Schedule 1.2.74............. Stockholders to Enter Into Stockholders Agreement
Schedule 5.1................ Jurisdictions
Schedule 5.3................ Encumbrances on Outstanding Shares of Company Stock; Voting
Trust, Proxy and Similar Agreements; Subsidiaries
Schedule 5.5................ Conflicts (Hechinger)
Schedule 5.6.1 ............. Significant Categories of Governmental Approvals
Schedule 5.6.2 ............. Non-Governmental Approvals
Schedule 5.8.1 ............. Accounts Payable and Inventory
Schedule 5.8.2 ............. Conduct of Business
Schedule 5.9.1 ............. Compliance With Law
Schedule 5.9.2 ............. Environmental Compliance
Schedule 5.10............... Permits
Schedule 5.11.1............. Certain Contracts
Schedule 5.11.3............. Interests of Certain Persons
Schedule 5.12.1............. Owned Real Estate
Schedule 5.12.2............. Leased Real Estate
Schedule 5.12.3............. Real Estate Defaults
Schedule 5.12.4............. Certain Real Estate Disclosures
Schedule 5.13............... Liabilities
Schedule 5.14............... Litigation
Schedule 5.15.1............. Certain Tax Disclosures
Schedule 5.15.2............. Certain Tax Examination Disclosures
Schedule 5.15.3............. Period of Limitations Agreements
Schedule 5.15.4............. Partnerships for Tax Purposes
Schedule 5.15.5............. Tax Elections
Schedule 5.15.6............. Tax Sharing Arrangements
Schedule 5.15.8............. Tax Adjustments
Schedule 5.15.9............. Compensatory Agreements
Schedule 5.16.1............. Plans
Schedule 5.16.2............. Certain Claims
Schedule 5.16.6............. Unsatisfied Liabilities
Schedule 5.16.11............ Benefit Related Representations
Schedule 5.17............... Certain Tangible Personal Property
Schedule 5.17.3............. Deviations from Inventory Valuation Policy
Schedule 5.18............... Intellectual Property
Schedule 5.19............... Employee Handbooks; Employment Contracts
Schedule 5.19.3............. Certain Labor Disclosures
Schedule 5.20............... Suppliers
Schedule 5.21............... Personnel
Schedule 5.22............... Insurance Policies
Schedule 5.25............... Brokers
Schedule 6.2................ Conflicts (Acquisition & BSQ Acquisition)
Schedule 6.3................ Approvals of Governmental Entities
Schedule 6.6................ Certain Agreements
Schedule 7.1................ Conduct of Business
Schedule 7.1.7 ............. Certain Distributions
Schedule 7.1.10............. Certain Sales
Schedule 7.1.11............. Certain Real Estate Transactions
Schedule 7.1.12............. Certain Purchases, Leases or Acquisitions
Schedule 7.1.14............. Closures and Other Termination of Stores
Schedule 7.15............... Persons Eligible for Benefits; Severance and Other Benefits
</TABLE>
A-34
<PAGE> 36
EXHIBIT A
ANNEX C
STOCKHOLDERS AGREEMENT, DATED AS OF JULY 16, 1997, BETWEEN BSQ ACQUISITION,
INC., HECHINGER ACQUISITION INC. AND CERTAIN STOCKHOLDERS OF HECHINGER COMPANY
LISTED ON THE SIGNATURE PAGE THERETO.
<PAGE> 37
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT, dated as of July 16, 1997, by and among BSQ
Acquisition, Inc., a Delaware corporation ("Purchaser"), and the stockholders
listed on the signature page hereof (each such stockholder being referred to
herein as a "Stockholder" and, collectively with each other Stockholder, the
"Stockholders").
WITNESSETH:
WHEREAS, each Stockholder, as of the date hereof, is the owner of or has
the sole right to vote with respect to the number of shares of (i) Class A
Common Stock, par value $0.10 per share (the "Class A Stock") and (ii) Class B
Common Stock, par value $0.10 per share (the "Class B Stock" and, together with
the Class A Stock, the "Common Stock"), of Hechinger Company, a Delaware
corporation (the "Company"), set forth below the name of such Stockholder on
Schedule 1 attached hereto, and the Stockholders collectively have the right,
pursuant to the 1989 Voting Agreement referred to below, to vote with respect to
the additional shares of Class A Stock and Class B Stock set forth on Schedule 1
(as to the shares of which any Stockholder is the owner, the "Owned Shares," and
collectively with all other shares which any Stockholder has the sole right or
the right under the 1989 Voting Agreement to vote, the "Shares" (in each case
after giving effect to Section 6 hereof)); and
WHEREAS, in reliance upon the execution and delivery of this Agreement,
Purchaser and Hechinger Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Purchaser ("Acquisition"), will enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), with the
Company which provides, among other things, that upon the terms and subject to
the conditions thereof Acquisition shall be merged with and into the Company and
the separate corporate existence of Acquisition shall thereupon cease; and
WHEREAS, to induce Purchaser and Acquisition to enter into the Merger
Agreement and to incur the obligations set forth therein, the Stockholders are
entering into this Agreement pursuant to which each Stockholder agrees to vote
in favor of the Merger and certain other matters as set forth herein, and to
make certain agreements with respect to such Stockholder's Shares upon the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
Section 1. Voting of Shares; Proxy. (a) Each Stockholder agrees that
until the earlier of (i) the Effective Time (as defined in the Merger
Agreement) or (ii) the date on which the Merger Agreement is terminated
(the earlier thereof being hereinafter referred to as the "Merger
Termination Date"), such Stockholder shall vote all of such Stockholder's
Shares at any meeting of the Company's stockholders (whether annual or
special and whether or not an adjourned or postponed meeting), or, if
applicable, take action by written consent (i) for adoption and approval of
the Merger Agreement and otherwise in favor of the Merger and any other
transaction contemplated by the Merger Agreement as such Merger Agreement
may be modified or amended from time to time and (ii) against any action,
omission or agreement which would or could impede or interfere with, or
have the effect of discouraging, the Merger, including, without limitation,
any Acquisition Proposal (as defined in the Merger Agreement) other than
the Merger. Any such vote shall be cast or consent shall be given in
accordance with such procedures relating thereto as shall ensure that it is
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of such vote or consent.
(a) At the request of Purchaser, each Stockholder, in furtherance
of the transactions contemplated hereby and by the Merger Agreement, and
in order to secure the performance by such Stockholder of his duties
under this Agreement, shall promptly execute, in
<PAGE> 38
accordance with the provisions of Section 212(e) of the Delaware General
Corporation Law, and deliver to Purchaser, an irrevocable proxy,
substantially in the form of Annex A hereto, and irrevocably appoint
Purchaser or its designees, with full power of substitution, his or her
attorney and proxy to vote, or, if applicable, to give consent with
respect to, all of such Stockholder's Shares in respect of any of the
matters set forth in, and in accordance with the provisions of, Section
1(a) above. Each Stockholder acknowledges that the proxy executed and
delivered by him shall be coupled with an interest, shall constitute,
among other things, an inducement for Purchaser and Acquisition to enter
into the Merger Agreement, shall be irrevocable and shall not be
terminated by operation of law upon the occurrence of any event,
including, without limitation, the death or incapacity of such
Stockholder. Notwithstanding any provision contained in such proxy, such
proxy shall terminate upon the Merger Termination Date.
Section 2. Certain Payments After Termination. In the event that,
during the Termination Payment Period (as defined below), (i) the Company
enters into a definitive agreement to engage in or consummates a merger, a
sale of substantially all of its assets, a business combination or other
similar transaction with a third party, or (ii) any Stockholder otherwise
sells, transfers, assigns, tenders or otherwise disposes of any of his
Owned Shares, or enters into any arrangement to do any of the foregoing,
and pursuant to any transaction described in clauses (i) or (ii) above any
Stockholder receives or will receive, directly or indirectly, aggregate
consideration (including any non-cash consideration, which shall be valued
at fair market value) in respect of the Owned Shares included in such
transaction in excess of the aggregate consideration he would have received
under the Merger Agreement for such Owned Shares (after giving effect to
the last sentence of Section 6 hereof), then such Stockholder shall pay
Purchaser, in cash (or in cash and non-cash consideration, in the same
proportion as received by the stockholders, together with any rights or
other agreements (including without limitation registration rights) with
respect to the non-cash consideration received by the stockholders), within
three business days following the consummation of such transaction, the
amount of such excess. The term "Termination Payment Period" shall mean the
period (A) commencing upon termination of the Merger Agreement under the
circumstances entitling Purchaser to payment of the Termination Fee and/or
Expenses thereunder and (B) expiring on the date which is the later of six
months after the date of such termination of the Merger Agreement and 12
months after the date hereof.
Section 3. Covenants of Stockholders. Each Stockholder covenants and
agrees for the benefit of Purchaser that, until the Merger Termination
Date, he/she will not:
(a) sell, transfer, pledge, hypothecate, encumber, assign, tender
or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
hypothecation, encumbrance, assignment, tender or other disposition of,
any of his Owned Shares or any interest therein;
(b) other than as expressly contemplated by this Agreement, grant
any powers of attorney or proxies or consents in respect of any of such
Stockholder's Shares, deposit any of such Shares into a voting trust,
enter into a voting agreement with respect to any of such Shares or
otherwise restrict or take any action adversely affecting the ability of
such Stockholder freely to exercise all voting rights with respect
thereto;
(c) directly, or indirectly through his or her agents and
representatives, initiate, solicit or encourage, any inquiries or the
making or implementation of any Acquisition Proposal or engage in any
negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to, an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; and such Stockholder shall (i)
immediately cease and cause to be terminated any existing activities,
including discussions or negotiations with any parties, conducted
heretofore with respect to any of the foregoing and will take the
necessary steps to inform his or her agents and
C-2
<PAGE> 39
representatives of the obligations undertaken in this Section 3(c), and
(ii) notify Purchaser immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued
with, him or her;
(d) convert any shares of Class B Stock included in such
Stockholder's Shares into shares of Class A Stock;
(e) permit or cause, or take any action or fail to take any action
which in either case would have the effect or permitting or causing, any
other owner of any of such Stockholder's Shares to do or engage in any
of the actions prohibited by the foregoing paragraphs (a) through (d) to
the extent such Shares are covered by the Stockholders' Agreement, dated
as of August 23, 1989, by and between Members of the Hechinger Family,
Members of the England Family and Hechinger Company (the "1989
Stockholders' Agreement") or the Voting Agreement, dated as of August
23, 1989, by and among the Voters referred to therein and the persons
listed on Exhibits A and B thereto (the "1989 Voting Agreement"); or
(f) terminate, amend or modify, or grant any waivers under, either
the 1989 Stockholders' Agreement or the 1989 Voting Agreement.
Section 4. Covenants of Purchaser. Purchaser covenants and agrees for
the benefit of the Stockholders that (a) immediately upon execution of this
Agreement, Purchaser shall enter into the Merger Agreement, and (b) until
the Merger Termination Date, it shall use all reasonable efforts to take,
or cause to be taken, all action, and do, or cause to be done, all things
necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement and the Merger Agreement,
consistent with the terms and conditions of each such agreement; provided,
however, that nothing in this Section 4, Section 13 or any other provision
of this Agreement is intended, nor shall it be construed, to limit or in
any way restrict Purchaser's or Acquisition's right or ability to exercise
any of its rights under the Merger Agreement.
Section 5. Representations and Warranties of the Stockholders. Each
Stockholder represents and warrants to Acquisition that: (a) the execution,
delivery and performance by such Stockholder of this Agreement will not
conflict with, require a consent, waiver or approval under, or result in a
breach of or default under, any of the terms of any contract, commitment or
other obligation (written or oral) to which such Stockholder is bound; (b)
such Stockholder has full right, power and authority to execute and deliver
this Agreement and to perform his obligations hereunder; (c) this Agreement
has been duly executed and delivered by such Stockholder and constitutes a
legal, valid and binding obligation of such Stockholder, enforceable
against such Stockholder in accordance with its terms; (d) such Stockholder
is the sole owner of or has the right to vote with respect to such
Stockholder's Shares and such Stockholder's Shares represent all shares of
Common Stock of or with respect to which such Stockholder is the sole owner
or has the right to vote at the date hereof, and such Stockholder does not
have any right to acquire, nor is he or she the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of, any other shares of any class of capital stock of the Company
or any securities convertible into or exchangeable or exercisable for any
shares of any class of capital stock of the Company (other than shares
subject to options or other rights granted by the Company); (e) such
Stockholder owns its Owned Shares free and clear of all liens, claims,
pledges, charges, proxies, restrictions, encumbrances, proxies and voting
agreements of any nature whatsoever (each an "Encumbrance") other than as
provided by this Agreement (and except under the 1989 Voting Agreement and
the 1989 Stockholders' Agreement, the terms of which have been waived by
the parties thereto to the extent necessary for Stockholder to execute and
deliver this Agreement), and good and valid title to its Owned Shares, free
and clear of any Encumbrance, will pass to Purchaser upon closing; (f) each
of the 1989 Stockholders' Agreement and the 1989 Voting
C-3
<PAGE> 40
Agreement was duly authorized, executed and delivered and is in full force
and effect, and such agreements have not been amended or modified in any
respect; and (g) all contracts and agreements listed on Schedule 5.11.1 to
the Merger Agreement to which such Stockholder or any of his "associates"
(as such term is used in the Merger Agreement) is a party were duly
authorized, executed and delivered by the parties thereto and are in full
force and effect, and none of the parties to any such contract or agreement
is in material breach or default thereunder. The representations and
warranties contained herein shall be made as of the date hereof and as of
the Closing.
Section 6. Adjustments; Additional Shares. In the event (a) of any
stock dividend, stock split, merger (other than the Merger)
recapitalization, reclassification, combination, exchange of shares or the
like of the capital stock of the Company on, of or affecting the Common
Stock or (b) that any Stockholder shall become the owner of, or otherwise
obtain the right to vote with respect to, any additional shares of Common
Stock or other securities entitling the holder thereof to vote or give
consent with respect to the matters set forth in Section 1, then the terms
of this Agreement shall apply to the shares of capital stock or other
instruments or documents that the Stockholders own or have the right to
vote immediately following the effectiveness of the events described in
clause (a) or any Stockholder becoming the owner of or obtaining the right
to vote with respect to any Common Stock or other securities as described
in clause (b), as though, in either case, they were Shares and/or Owned
Shares hereunder. For purposes of determining under Section 2 hereof the
aggregate consideration that a Stockholder would have received pursuant to
the Merger Agreement, the Merger Consideration provided therein shall be
deemed adjusted upon the occurrence of any of the events described in
clause (a) of the foregoing sentence in such manner as may be appropriate,
in the reasonable judgment of Purchaser, to preserve the economic intent of
said Section 2.
Section 7. Specific Performance. Each Stockholder acknowledges that
the agreements contained in this Agreement are an integral part of the
transactions contemplated by the Merger Agreement, and that, without these
agreements, Purchaser and Acquisition would not enter into the Merger
Agreement, and acknowledges that damages would be an inadequate remedy for
any breach by him of the provisions of this Agreement. Accordingly, the
Stockholders each agree that the obligations of the Stockholders hereunder
shall be specifically enforceable and they shall not take any action to
impede Purchaser from seeking to enforce such right of specific
performance.
Section 8. Notices. All notices, requests, claims, demands and other
communications hereunder shall be effective upon receipt (or refusal of
receipt), shall be in writing and shall be delivered in person, by telecopy
or telefacsimile, by telegram, by next-day courier service, or by mail
(registered or certified mail, postage prepaid, return receipt requested)
to any Stockholder at the address listed on the signature page hereof, and
to Purchaser c/o Leonard Green and Partners, L.P. at 11111 Santa Monica
Boulevard, Suite 2000, Los Angeles, California 90025, Attention: Jonathan
D. Sokoloff, telecopy number 310-954-0404, or to such other address or
telecopy number as any party may have furnished to the other in writing in
accordance herewith.
Section 9. Binding Effect; Survival. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
Section 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such State, without
giving effect to conflicts of laws principles.
Section 11. Counterparts. This Agreement may be executed in two
counterparts, both of which shall be an original and both of which together
shall constitute one and the same agreement.
C-4
<PAGE> 41
Section 12. Effect of Headings. The Section headings herein are for
convenience of reference only and shall not affect the construction hereof.
Section 13. Additional Agreements; Further Assurance. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement. The Stockholders will provide Purchaser with all documents which
may reasonably be requested by Purchaser and will take reasonable steps to
enable Purchaser to obtain all rights and benefits provided it hereunder.
Section 14. Amendment; Waiver. No amendment or waiver of any
provision of this Agreement or consent to departure therefrom shall be
effective unless in writing and signed by Purchaser and all affected
Stockholders, in the case of an amendment, or by the party which is the
beneficiary of any such provision, in the case of a waiver or a consent to
depart therefrom.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto all as of the day and year first above written.
BSQ ACQUISITION, INC.
By /s/ JONATHAN D. SOKOLOFF
------------------------------------
Name: Jonathan D. Sokoloff
Title: Chairman
JOHN W. HECHINGER, SR.
By: /s/ JOHN W. HECHINGER, JR.
----------------------------------
John W. Hechinger, Jr., as
Attorney-in-fact for
John W. Hechinger, Sr.
Address: 1801 McCormick Drive
Largo, MD 20774
JOHN W. HECHINGER, JR.
By: /s/ JOHN W. HECHINGER, JR.
----------------------------------
John W. Hechinger, Jr.
Address: 1801 McCormick Drive
Largo, MD 20774
JUNE HECHINGER
By: /s/ JOHN W. HECHINGER, JR.
----------------------------------
John W. Hechinger, Jr., as
Attorney-in-fact for
June Hechinger
Address: 1801 McCormick Drive
Largo, MD 20774
S. ROSS HECHINGER
By: /s/ S. ROSS HECHINGER
----------------------------------
S. Ross Hechinger
Address: 1801 McCormick Drive
Largo, MD 20774
C-5
<PAGE> 42
JUNE LIMITED PARTNERSHIP
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr.,
General Partner
/s/ S. ROSS HECHINGER
- --------------------------------------
By: S. Ross Hechinger, General
Partner
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr. as
Attorney-in-fact for Sally
Hechinger Rudoy, General Partner
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr. as
Attorney-in-fact for
Nancy Hechinger Lowe, General
Partner
Address for June Limited Partnership:
1801 McCormick Drive
Largo, MD 20774
JARSAN ASSOCIATES LIMITED PARTNERSHIP
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr.
General Partner
/s/ S. ROSS HECHINGER
- --------------------------------------
By: S. Ross Hechinger
General Partner
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr. as
Attorney-in-fact for
Sally Hechinger Rudoy, General
Partner
/s/ JOHN W. HECHINGER, JR.
- --------------------------------------
By: John W. Hechinger, Jr. as
Attorney-in-fact for
Nancy Hechinger Lowe, General
Partner
Address for Jarsan Associates Limited Partnership:
1801 McCormick Drive
Largo, MD 20774
C-6
<PAGE> 43
SCHEDULE 1
<TABLE>
<S> <C> <C>
John W. Hechinger:
Owned Shares:............................... 0 A Shares and 1,009,336 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
John W. Hechinger, Jr.:
Owned Shares:............................... 96,690 A Shares and 376,566 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
June Hechinger:
Owned Shares:............................... 63,927 A Shares and 489,917 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
S. Ross Hechinger:
Owned Shares:............................... 108,119 A Shares and 471,180 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
June Limited Partnership:
Owned Shares:............................... 26,557 A Shares and 2,601,229 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
Jarsan Partnership:
Owned Shares:............................... 0 A Shares and 215,330 B Shares
Shares/Sole Right to Vote:.................. 0 A Shares and 0 B Shares
Total Number of Shares covered by 1989 Voting and
Stockholders' Agreements....................... 861,064 A Shares and 8,180,813 B Shares
</TABLE>
C-7
<PAGE> 44
ANNEX A
[FORM OF PROXY]
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned
pursuant to the Stockholder Agreement, dated as of July , 1997 (the
"Stockholder Agreement"), between the undersigned and BSQ Acquisition, Inc., a
Delaware corporation, a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby irrevocably appoints
and , and each of them, the attorneys,
agents and proxies, with full power of substitution in each of them, for the
undersigned and in the name, place and stead of the undersigned, in respect of
any of the matters set forth in clauses (i) and (ii) of Section 1(a) of the
Stockholder Agreement, to vote or, if applicable, to give written consent, in
accordance with the provisions of said Section 1(a) and otherwise act
(consistent with the terms of the Stockholder Agreement) with respect to all
shares of Class A and Class B Common Stock, par value $.10 per share (the
"Shares"), of Hechinger Company, a Delaware corporation (the "Company"), whether
now owned or hereafter acquired, which the undersigned is or may be entitled to
vote at any meeting of the Company held after the date hereof, whether annual or
special and whether or not an adjourned or postponed meeting, or, if applicable,
to give written consent with respect thereto. This Proxy is coupled with an
interest, shall be irrevocable and binding on any successor in interest of the
undersigned and shall not be terminated by operation of law on the occurrence of
any event, including, without limitation, the death or incapacity of the
undersigned. This Proxy shall operate to revoke any prior proxy as to the Shares
heretofore granted by the undersigned. This Proxy shall terminate as and when
provided in Section 1(b) of the Stockholder Agreement. This Proxy has been
executed in accordance with Section 212(e) of the Delaware General Corporation
Law.
<TABLE>
<S> <C>
Dated:
-------------------- --------------------
Dated:
-------------------- --------------------
</TABLE>
C-8
<PAGE> 45
EXHIBIT B
The applicable stockholder shall not:
(a) during the Non-Competition Term (as defined below), without the
prior written consent of Purchaser, directly or indirectly, engage in,
assist (financially or otherwise), or perform services (other than on
behalf of the Company or any of its affiliates) in any Competitive
Business, whether such engagement, assistance or performance is as an
officer, director, proprietor, employee, partner, stockholder or other
investor (other than as a holder of less than 1% of the outstanding capital
stock of a publicly traded corporation), creditor, guarantor, consultant,
advisor, agent, sales representative or other participant; and
(b) during the Non-Competition Term, directly, indirectly or as an
agent on behalf of or in conjunction with any person, firm, partnership,
corporation or other entity, hire, solicit, encourage the resignation of,
or in any other manner seek to engage or employ any Ineligible Person (as
defined below), whether or not for compensation and whether as an officer,
employee, consultant, advisor, independent sales representative,
independent contractor or otherwise.
As used above:
(i) "Competitive Business" means any business, including without
limitation the business of any of the Named Stores (as defined below),
involving the marketing and sale of services, products or service or
product categories, where 50% or more of the revenues of any such business
are derived from services, products or service or product categories which
the Company sells or markets, regardless of the format of such business.
Without limiting the foregoing, any business involving the marketing and
sale of hardware, home improvement and home decor products (and the
offering of related services) through a "home center," hardware store or
"do-it-yourself" format, the Company's "better Spaces" format or any other
format currently utilized or planned to be utilized by the Company, shall
be deemed a "Competitive Business." "Named Stores" means the Home Depot,
Home Base, Menards, Lowe's, Sears Hardware, D-I-Y, Eagle Hardware and
Garden and National Home Centers stores, or any of their successors and
assigns.
(ii) "Ineligible Person" means any person who (x) is at the time an
offer of employment is extended to him or her an employee of the Company or
its affiliated entities or (y) has been such an employee within the twelve
months prior to such time and either resigned or was terminated for cause
as a result of his or her intentional action or inaction.
(iii) "Non-Competition Term" means (x) with respect to John W.
Hechinger, Jr., a period of 24 months from and after the Effective Time,
(y) with respect to W. Clark McClelland, a period of 24 months from and
after the Effective Time in the case of any such engagement with or
assistance or performance to companies operating the Named Stores, and in
all other cases a period of 12 months from and after the Effective Time,
and (z) with respect to Kenneth J. Cort, a period of 24 months from and
after the Effective Time in the case of any such engagement with or
assistance or performance to companies operating the Named Stores, and in
all other cases a period of 18 months from and after the Effective Time.
A-36
<PAGE> 1
EXHIBIT 2B
ANNEX B
FIRST AMENDMENT, DATED AS OF AUGUST 27, 1997, TO THE AGREEMENT AND PLAN OF
MERGER, DATED AS OF JULY 17, 1997, BETWEEN HECHINGER COMPANY, BSQ ACQUISITION,
INC. AND HECHINGER ACQUISITION, INC.
<PAGE> 2
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT, dated as of August 27, 1997 (the "First Amendment"), to
the AGREEMENT AND PLAN OF MERGER, dated as of July 17, 1997 (the "Merger
Agreement"), by and among Hechinger Acquisition, Inc., a Delaware corporation
("Acquisition"), BSQ Acquisition, Inc., a Delaware corporation ("BSQ
Acquisition"), and Hechinger Company, a Delaware corporation ("Hechinger").
RECITALS
A. The Merger Transaction. Acquisition, BSQ Acquisition and Hechinger have
entered into the Merger Agreement, providing for the Merger (as defined in the
Merger Agreement) of Acquisition with and into Hechinger and pursuant to which
Hechinger, following the Merger, will become a wholly owned subsidiary of BSQ
Acquisition.
B. Amendment. Acquisition, BSQ Acquisition and Hechinger desire to amend
certain terms set forth in the Merger Agreement pursuant to Section 11.10 of the
Merger Agreement which permits the amendment thereof by written agreement of the
parties thereto.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreement set forth therein, the
parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Merger Agreement.
2. Amendment.
2.1 Section 4.1(a). Section 4.1(a) of the Merger Agreement is
hereby amended by deleting the words "equal to $3.00" in the eleventh
line thereof and substituting in their place the words "equal to
$2.375."
2.2 Section 4.2. Section 4.2 of the Merger Agreement shall be
amended by inserting, immediately after the end of the fourth sentence
thereof, the following sentence:
"In the event any holder of Shares or of Options entitled to
payment hereunder holds an odd number of Shares or has options
exercisable into an odd number of Shares such that, in either case,
such holder would otherwise receive a fractional cent, such
fractional cent shall be rounded upwards to the next whole cent;
provided, however, that the parties hereto shall agree upon
appropriate provisions in the letter of transmittal referred to above
to minimize the amount of additional consideration being paid as a
result of this sentence."
2.3 Section 4.4. Section 4.4 of the Merger Agreement is hereby
amended by (i) deleting the words "less than $3.00 per share" in the
fifth line thereof and substituting in their place the words "less than
$2.375 per share"; (ii) deleting the words "$3.00 multiplied by" in the
seventh line thereof and substituting in their place the words "$2.375
multiplied by"; and (iii) deleting the words "greater than $3.00" in the
twelfth line thereof and substituting in their place the words "greater
than $2.375."
2.4 Section 8.3.3. Section 8.3.3 of the Merger Agreement is hereby
amended by deleting the text thereof in its entirety and substituting in
its place "[Reserved.]"
3. Certain Schedules. The items set forth in Schedule 1 attached to
this First Amendment as Exhibit A shall be deemed to have been disclosed in
Schedules 5.11.3 and 7.1 of the Merger Agreement.
4. Counterparts. For the convenience of the parties hereto, this
First Amendment may be executed in any number of separate counterparts,
each such counterpart being deemed to be an original instrument, and all
such counterparts shall together constitute the same agreement.
B-2
<PAGE> 3
5. Merger Agreement. Except as herein expressly amended, the Merger
Agreement is ratified and confirmed in all respects and shall remain in
full force and effect in accordance with its terms. All references to the
Merger Agreement shall mean such Agreement as amended hereby and as may in
the future be amended, restated, supplemented or modified from time to
time.
6. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware.
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<PAGE> 4
SIGNATURE PAGE TO FIRST AMENDMENT DATED AUGUST 27, 1997 BY AND AMONG HECHINGER
ACQUISITION, INC., BSQ ACQUISITION, INC. AND HECHINGER COMPANY
IN WITNESS WHEREOF, this First Amendment has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first hereinabove written.
HECHINGER COMPANY
By: /s/ JOHN W. HECHINGER, JR.
------------------------------------
Name: John W. Hechinger, Jr.
Title: Chairman and CEO
HECHINGER ACQUISITION, INC.
By: /s/ GREGORY J. ANNICK
------------------------------------
Name: Gregory J. Annick
Title: Vice President, Secretary
and Treasurer
BSQ ACQUISITION, INC.
By: /s/ GREGORY J. ANNICK
------------------------------------
Name: Gregory J. Annick
Title: Vice President, Secretary
and Treasurer
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<PAGE> 1
EXHIBIT 20
Hechinger Company
1801 McCormick Drive
Largo, MD 20774
(301) 341-1000
FOR IMMEDIATE RELEASE
HECHINGER COMPANY SOLD TO LEONARD GREEN & PARTNERS, L.P.
LARGO, MARYLAND -- September 25, 1997 -- Hechinger Company (Nasdaq - NNM:
HECHA and HECHB) today announced that an investment partnership managed by
Leonard Green & Partners, L.P. has completed the purchase of Hechinger Company.
As previously announced, the transaction will create the nation's third-largest
home improvement chain by combining Hechinger Company with Kmart's Builders
Square under the ownership of Leonard Green & Partners, L.P. Earlier today,
stockholders of Hechinger approved the transaction, which will pay stockholders
$2.375 per share when their shares are surrendered.
The new combined company will operate 279 home improvement stores, primarily in
the Midwest, Southwest and East Coast.
Leonard Green & Partners, L.P. is a Los Angeles-based private merchant banking
firm specializing in organizing, structuring and sponsoring management buyouts
of established companies. Leonard Green & Partners, L.P. currently has in
excess of $500 million of private equity capital under management.
###
Contact: Mark R. Adams
Senior Vice President, General Counsel and Treasurer
301-925-3007
