<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TBC CORPORATION,
TBC RETAIL ENTERPRISES, INC.,
TKI HOLDINGS, INC.,
AND
CERTAIN STOCKHOLDERS OF TKI HOLDINGS, INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS ................................................1
1.01 Defined Terms ........................................1
1.02 Interpretation .......................................5
ARTICLE 2 - THE MERGER .................................................5
2.01 The Merger ...........................................5
2.02 Effects of the Merger ................................5
2.03 Consummation of the Merger ...........................5
2.04 Certificate; Bylaws; Directors and Officers; Name ....6
2.05 Taking of Necessary Action; Further Action ...........6
ARTICLE 3 - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS ...............................................6
3.01 Conversion of Shares .................................6
3.02 Merger Consideration .................................7
3.03 Payment of Payoff Amounts ............................7
3.04 Stockholders Fees and Expenses .......................8
3.05 Stock Options ........................................8
3.06 Maximum Aggregate Merger Consideration ...............8
3.07 Exchange of Certificates .............................9
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE
HOLDING COMPANY ......................................9
4.01 Schedules ...........................................10
4.02 Corporate Organization ..............................10
4.03 Authority; Authorization; Enforceability ............10
4.04 Capitalization ......................................11
4.05 Subsidiaries ........................................11
4.06 Consents and Approvals; No Violation ................12
4.07 Financial Statements; Long Term Debt and
Capital Leases ....................................12
4.08 Taxes ...............................................13
4.09 Employee Plans ......................................14
4.10 Material Contracts ..................................15
4.11 Absence of Certain Changes or Events ................16
4.12 Litigation; Pending Decrees .........................16
4.13 Licenses; Compliance With Laws ......................16
4.14 Conduct to Date .....................................17
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4.15 Labor Matters .......................................18
4.16 Undisclosed Liabilities; Warranty Matters ...........18
4.17 Title to Properties; Absence of Liens, Etc. .........18
4.18 Receivables; Prepaid Expenses .......................19
4.19 Inventories .........................................20
4.20 Proprietary Rights ..................................20
4.21 Insurance; Bank Accounts ............................20
4.22 Environmental Matters ...............................21
4.23 Certain Transactions ................................22
4.24 Disclosure ..........................................22
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE
SIGNING STOCKHOLDERS ................................22
5.01 Authority; Authorization; Enforceability ............23
5.02 Consents and Approvals; No Violation ................23
5.03 Shares ..............................................23
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF BUYER ...................24
6.01 Corporate Organization ..............................24
6.02 Authority; Authorization; Enforceability ............24
6.03 Consents and Approvals; No Violation ................24
6.04 Disclosure ..........................................25
ARTICLE 7 - PRE-CLOSING OBLIGATIONS ...................................25
7.01 Conduct of the Business .............................25
7.02 Further Assurances ..................................26
7.03 Notice ..............................................27
7.04 Access ..............................................27
7.05 Stuart, Florida Lease ...............................27
ARTICLE 8 - CONDITIONS ................................................28
8.01 Conditions to Obligations of Each Party .............28
8.02 Additional Conditions to the Obligations
of Buyer and Merger Sub ...........................28
8.03 Additional Conditions to the Obligations
of the Holding Company and the Signing
Stockholders ......................................30
ARTICLE 9 - CLOSING; CERTAIN POST-CLOSING OBLIGATIONS ..............30
9.01 Time and Place ......................................30
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9.02 Deliveries at the Closing ...........................31
9.03 Certain Insurance ...................................31
9.04 Payments to Optionees and Dissenters ................31
9.05 Severance Agreements ................................31
ARTICLE 10 - TERMINATION AND WAIVER ...................................31
10.01 Termination .........................................31
10.02 Effect of Termination ...............................32
10.03 Waiver ..............................................32
ARTICLE 11 - CLAIMS; ESCROW; INDEMNIFICATION; LIMITATIONS .............32
11.01 Certain Defined Terms ...............................32
11.02 Escrow ..............................................33
11.03 Right to Reimbursement from Escrow ..................33
11.04 Limitations on Escrow Reimbursement; Survival .......33
11.05 Indemnification by Signing Stockholders .............34
11.06 Limitations on Indemnification Obligations ..........34
11.07 Indemnification for Article 5 and Other Matters .....35
11.08 Indemnification by Buyer ............................35
11.09 Indemnification Procedures ..........................36
11.10 Sole Remedy .........................................36
11.11 Trusts and Trustees .................................37
ARTICLE 12 - DAMAGE OR DESTRUCTION OF ASSETS ..........................37
ARTICLE 13 - MISCELLANEOUS ............................................37
13.01 Survival ............................................37
13.02 Public Statements ...................................37
13.03 Stockholder Representative; Stockholders' Committee .37
13.04 Notices .............................................39
13.05 Headings ............................................40
13.06 Counterparts ........................................40
13.07 Transaction Expenses ................................40
13.08 Attorneys' Fees .....................................40
13.09 Whole Agreement; Amendment ..........................40
13.10 Severability ........................................41
13.11 Binding Effect, Assignment ..........................41
13.12 Additional Parties ..................................41
13.13 Governing Law .......................................41
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EXHIBIT A - Form of Opinion of Finn Dixon & Herling, LLP
EXHIBIT B - Form of Escrow Agreement
EXHIBIT C - Form of Opinion of Thompson Hine & Flory LLP
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
----------------------
Defined Term Defined in Section or Subsection
------------ --------------------------------
<S> <C>
Allocable Portion 11.06(e)
Buyer Introduction
Capital Leases 4.07(b)
Certificate of Merger 2.03
Certificates 3.07(a)
Closing 2.03
Closing Date 9.01
Code 1.01
Common Shares 3.01(a)
Companies 1.01
Companies' Knowledge 1.01
Constituent Entities 2.01
Corporation Law Introduction
Damages 11.01(a)
Dissenting Shares 3.01(d)
Effective Time 2.03
Employee Plans 1.01
Equipment Leases 4.17(b)
Entity 1.01
Environmental Laws 1.01
ERISA 1.01
Escrow Account 1.01
Escrow Agent 1.01
Escrow Agreement 11.02
Escrow Amount 3.02(b)
Escrow Reimbursed Signing Stockholder Losses 11.05(b)
Financial Statements 1.01
Governmental Entity 1.01
Hazardous Substance 1.01
Holding Company Introduction
HSR Act 1.01
</TABLE>
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<TABLE>
<CAPTION>
Term Defined in Section or Subsection
---- --------------------------------
<S> <C>
IRS 4.08(b)
In-the-Money Options 3.05
Licenses 4.13
Liens 1.01
Long Term Debt 4.07(b)
Losses 11.01(b)
Material Adverse Effect 1.01
Material Contracts 1.01
Merger Introduction
Merger Consideration 3.02
Merger Sub Introduction
Net Merger Consideration 3.02(a)
Net Merger Consideration Per Share 3.02(a)
Operating Company Introduction
Options 3.05
Option Cancellation Agreements 3.05
Option Plans 3.05
Option Settlement Amount 3.05
Payoff Amounts 3.03
Proprietary Rights 4.20
Real Property Leases 4.17(b)
Related Persons 13.03(e)
Released Persons 13.03(e)
Representatives 7.04
Rights of Purchase 1.01
Schedules 1.01
Shares 3.02
Signing Stockholders Introduction
Stockholder Agent 13.03(c)
Stockholder Representative 13.03(a)
Stockholders' Committee 13.03(b)
Stockholders Fees and Expenses Amount 3.04
Stockholders 1.01
Surviving Corporation 2.01
</TABLE>
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<TABLE>
<CAPTION>
Term Defined in Section or Subsection
---- --------------------------------
<S> <C>
Tax Returns 1.01
Taxes 1.01
Unreimbursed Escrow Losses 11.05(b)
</TABLE>
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<TABLE>
<CAPTION>
INDEX TO SCHEDULES
------------------
Schedule No. Description
------------ -----------
<S> <C>
4.04 Stockholders and Stockholdings; Options;
Stockholders' Agreements and Other
Rights of Purchase
4.05 Investments
4.06 Consents and Approvals; No Violation
4.07 Financial Statement Exceptions; Long Term
Debt and Capital Leases
4.08 Tax Matters
4.09 Employee Plans; Employees
4.10 Material Contracts
4.12 Litigation; Outstanding Judgments
4.13 Licenses; Compliance With Laws
4.14 Changes Since December 31, 1999
4.16 Warranty and Service Contract Matters
4.17 Equipment and Real Property Leases; Title;
Condition of Assets; Certain Equipment
4.18 Receivables
4.19 Inventories
4.20 Proprietary Rights
4.21 Insurance; Bank Accounts
4.22 Environmental Matters
4.23 Certain Transactions
</TABLE>
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AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER is being executed this 2nd day of
June, 2000, by and among TBC Corporation, a Delaware corporation ("Buyer"), TBC
Retail Enterprises, Inc., a Delaware corporation and a wholly owned subsidiary
of Buyer ("Merger Sub"), TKI Holdings, Inc., a Delaware corporation (the
"Holding Company"), and those stockholders of the Holding Company who, by their
execution of this Agreement or their execution of a counterpart of this
Agreement after the date hereof, have agreed or will thereby agree to be bound
hereby (collectively, the "Signing Stockholders"), under the following
circumstances:
A. The Holding Company owns all of the issued and outstanding
capital stock of Tire Kingdom, Inc., a Florida corporation (the
"Operating Company").
B. Buyer and the Signing Stockholders have agreed to Buyer's
acquisition of the Holding Company pursuant to the terms of this
Agreement.
C. Upon the terms and conditions set forth herein, the
respective Boards of Directors of the Holding Company and Merger Sub
have approved the merger of Merger Sub into the Holding Company (the
"Merger") in accordance with the General Corporation Law of the State
of Delaware (the "Corporation Law"), determined that the Merger is in
the best interests of and fair to their respective stockholders, and
resolved to recommend the Merger to their respective stockholders.
D. The Signing Stockholders are the owners of in excess of 67%
of the issued and outstanding shares of capital stock of the Holding
Company, and each of the Signing Stockholders has agreed to vote in
favor of, adopt, and approve this Agreement and the Merger.
E. As the sole stockholder of Merger Sub, Buyer, through its
Board of Directors, has voted in favor of, consented to, adopted, and
approved this Agreement and the Merger.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS.
1.01 DEFINED TERMS. In addition to the capitalized terms defined
elsewhere in this Agreement, the capitalized terms set forth below shall have
the following meanings whenever used in this Agreement:
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"Code" means the Internal Revenue Code of 1986 and the rules and
regulations thereunder, all as from time to time amended.
"Companies" means, collectively, the Holding Company and the Operating
Company.
"Companies' Knowledge" means the actual knowledge of any of James F.
Wright, Eric M. Margolin, Thomas Garvey, or Alvaro Diaz, as officers or as a
member of management of the Holding Company and/or the Operating Company, after
due inquiry, or the actual knowledge of any of the directors of the Holding
Company or the Operating Company, without further inquiry.
"Employee Plans" means all employment, bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or bonus,
employee stock ownership, stock appreciation rights, severance, termination,
collective bargaining, insurance (including without limitation, self-insured
arrangements, disability coverage, life, health or accident benefits), fringe
benefit, employee discount, vacation or other benefit, or incentive policies,
contracts, or arrangements, formal or informal, written or oral, of the
Companies, including without limitation, all "employee pension benefit plans" as
defined in Section 3(2) of ERISA and "employee welfare plans" as defined in
Section 3(1) of ERISA, and all trust agreements (if any) related thereto,
relating to any present or former director, officer, or employee of the
Companies.
"Entity" means an individual, firm, trust, corporation, partnership,
limited liability company, joint venture, business, enterprise, association, or
organization, however constituted or existing.
"Environmental Laws" means all applicable federal, state or local laws,
statutes, ordinances, rules, regulations, codes, licenses, permits,
authorizations, approvals, consent orders, judgments, decrees, injunctions, or
agreements with any governmental entity related to (i) the protection,
preservation, or restoration of the environment (including, without limitation,
air, water vapor, surface water, ground water, drinking water supply, surface
soil, subsurface soil, plant and animal life, or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release, or disposal of Hazardous
Substances. The term "Environmental Laws" includes, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C.ss.9601, et seq.; the Resource Conservation and Recovery Act,
as amended, 42 U.S. C.ss.6901, et seq.; the Clean Air Act, as amended, 42 U.S.C.
ss.7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.
C.ss.1251, et seq.; the Toxic Substances Control Act, as amended, 15
U.S.C.ss.2601, et seq.; the Emergency Planning and Community Right to Know Act,
42 U.S.C. ss.11001, et seq.; the Safe Drinking Water Act, 42 U.S.C.ss.300f, et
seq.; all comparable state and local laws; and any common law (including without
limitation, common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
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"ERISA" means the Employee Retirement Income Security Act of 1974 and
the rules and regulations thereunder, all as from time to time amended.
"Escrow Account" means the escrow account created pursuant to the terms
of the Escrow Agreement.
"Escrow Agent" means SunTrust Bank.
"Financial Statements" means the (i) audited consolidated financial
statements, schedules, and notes of the Companies, at and for the years ended
December 31, 1997, 1998, and 1999; (ii) the interim financial statements of the
Companies at and for the three months ended March 31, 2000; and (iii) the
interim financial statements of the Companies at and for the month ended April
30, 2000.
"Governmental Entity" means any federal, state, or local court,
governmental authority, or other regulatory or administrative agency or
commission.
"Hazardous Substance" means any substance presently listed, defined,
designated, or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include, without limitation, petroleum or any derivative or
by-product thereof, asbestos, radioactive materials, polychlorinated biphenyls,
and battery acids.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the rules and regulations thereunder, as from time to time amended.
"Liens" means any mortgage, pledge, charge, security interest, or other
encumbrance of any nature whatsoever upon or conditional assignment of any
property or assets.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), results of operations, business, or
properties of the Companies, taken as a whole; provided, however, that (i) any
adverse change, event or effect that arises out of the cessation of the
Operating Company's relationship(s) with Michelin Tire Corporation, Michelin
North America Inc., and/or Michelin Americas Small Tires shall not be taken into
account in determining whether there has been or would be a "Material Adverse
Effect", (ii) any adverse change, event or effect that is demonstrated to be
primarily caused by the announcement or pendency of the Merger or the other
transactions contemplated hereby shall not be taken into account in determining
whether there has been or would be a "Material Adverse Effect", and (iii) any
adverse change, event or effect that is demonstrated to be primarily caused by
conditions affecting the United States economy generally or the economy of the
Southeast region of the United States shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect".
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"Material Contracts" means all of the following to which either of the
Companies is a party, is bound by, receives any benefits under, or by which any
property or assets of either of the Companies may be bound: (i) the Real
Property Leases; (ii) the Equipment Leases; (iii) all franchise, dealer, or
other distribution agreements pursuant to which either of the Companies sells or
otherwise distributes its products or services or pursuant to which any Entity
sells or otherwise distributes products or services of either of the Companies;
(iv) all supply contracts or other such agreements or understandings (other than
routine purchase orders which do not constitute blanket purchase orders and
purchase orders relating to the purchase of inventory) pursuant to which either
of the Companies purchased in its last fiscal year, or expects to purchase in
this fiscal year, in excess of $50,000 worth of products; (v) any agreement,
arrangement, or commitment which materially restricts the conduct of any line of
business, including without limitation, all standstill or noncompete agreements;
(vi) any contract, agreement, or other arrangement (other than pursuant to the
Employee Plans), providing for the furnishing of services to or by, providing
for the rental of real or personal property to or from, or otherwise requiring
payments to or from, any current or former director, officer, or stockholder of
either of the Companies, any family member of any such director, officer or
stockholder or any Entity in which any of the foregoing holds, directly or
indirectly, a substantial interest; (vii) any agreement, indenture or other
instrument relating to the borrowing of money by either of the Companies (other
than trade payables entered into in the ordinary course of business), including
without limitation, Long Term Debt and Capital Leases; (viii) any agreement
pursuant to which either of the Companies is obligated to lend money or make
advances, or has lent money or made advances which are still outstanding, to any
Entity (other than routine travel advances to any employee not to exceed $2,000,
routine salary advances to any employee not to exceed $3,000, or deposits or
advances in respect of products purchased in the ordinary course of business);
(ix) any agreement, arrangement, or commitment to guarantee the obligations of
or to indemnify or exonerate from liability any Entity (other than the
Companies) or the current or former directors or officers of either of the
Companies (other than pursuant to the Certificate of Incorporation or By-Laws of
either of the Companies or applicable law or pursuant to any insurance
maintained by the Companies for the benefit of current or former directors and
officers); (x) any power of attorney presently in effect giving any Entity the
right to act on behalf of either of the Companies; (xi) any partnership or joint
venture agreement; (xii) any confidentiality or secrecy agreement (other than
such agreements binding on landlords or vendors not to disclose information
regarding the Companies); (xiii) any consulting agreement; (xiv) the Employee
Plans; and (xv) any other contract, commitment, agreement, or understanding,
whether written or oral (other than routine purchase orders which do not
constitute blanket purchase orders and purchase orders relating to the purchase
of inventory), which involves more than $50,000 and is not terminable without
penalty upon not more than 90 days' notice.
"Rights of Purchase" means any subscriptions, options, warrants, scrip,
rights, calls, convertible securities, commitments, promises, or any other
similar agreements or arrangements of any character.
4
<PAGE> 14
"Schedules" means the Schedules to this Agreement which are being
executed and delivered by the Holding Company to Buyer and Merger Sub
simultaneously with the execution and delivery of this Agreement.
"Stockholders" means, collectively, the Entities (including without
limitation, the Signing Stockholders) which own all of the issued and
outstanding capital stock of the Holding Company.
"Taxes" means all federal, state, local, or foreign income, franchise,
sales, use, excise, real and personal property, transfer, employment, social
security, unemployment, withholding, and other taxes, assessments, charges,
fees, or levies, and any interest or penalties on any of the foregoing.
"Tax Returns" means all federal, state, local, and foreign returns and
reports relating to or required to be filed in connection with the
determination, collection, assessment, or reporting of Taxes.
1.02 INTERPRETATION. As used in this Agreement, the masculine, feminine
and neuter genders and the plural and singular numbers shall be deemed to
include the others in all cases where they would so apply.
ARTICLE 2. THE MERGER.
2.01 THE MERGER. At the Effective Time (as defined in Section 2.03
hereof), in accordance with this Agreement and the Corporation Law, Merger Sub
shall be merged with and into the Holding Company, the separate existence of
Merger Sub (except as may be continued by operation of law) shall cease, and the
Holding Company shall continue as the surviving corporation (the "Surviving
Corporation"). The Holding Company and Merger Sub are sometimes referred to
herein as the "Constituent Entities."
2.02 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the Corporation Law. As of the Effective Time, the Holding Company shall be a
wholly owned subsidiary of Buyer.
2.03 CONSUMMATION OF THE MERGER. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Article 7 hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of the State of Delaware a certificate of merger in such form
as required by, and executed in accordance with, the relevant provisions of the
Corporation Law (the "Certificate of Merger"), and take all such further action
as may be required by law to make the Merger effective. The Merger shall occur
immediately upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware (the date and time of such filing being referred
to herein as the "Effective Time"). The closing of the
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Merger and the transactions contemplated by this Agreement (the "Closing") shall
take place as specified in Article 9.
2.04 CERTIFICATE; BYLAWS; DIRECTORS AND OFFICERS; NAME. At the
Effective Time, (a) the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended as provided
by law, the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated accordingly, and a statement to this effect shall be
included in the Certificate of Merger; (b) the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, until thereafter amended as provided by law; (c) the
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, until their successors are
elected; (d) the officers of Merger Sub shall be the initial officers of the
Surviving Corporation, in each case until their successors are elected and
qualified; and (e) the corporate name of the Merger Sub immediately prior to the
Effective Time shall be the name of the Surviving Corporation.
2.05 TAKING OF NECESSARY ACTION; FURTHER ACTION. Buyer, Merger Sub, and
the Holding Company shall each take all such reasonable and lawful action as may
be necessary or appropriate in order to effectuate the Merger as promptly as
possible after its conditions to Closing are satisfied. If, at any time
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to and of all assets, property
rights, privileges, powers, and franchises of either of the Constituent
Entities, the officers and directors of such corporations are fully authorized
in the name of their respective corporation or otherwise to take, and shall
take, all such lawful and necessary action.
ARTICLE 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
3.01 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Merger Sub, the Holding
Company, the Surviving Corporation, or the holders of the following securities:
(a) Each Share of the Holding Company's Common Stock, par
value $.01 per share (the "Common Shares"), which is issued and
outstanding immediately prior to the Effective Time, other than
Dissenting Shares (as defined in Subsection 3.01(d) hereof), shall be
cancelled and extinguished and be converted into and become a right to
receive from Buyer the per share consideration which is set forth in
Section 3.02.
(b) Each Common Share, if any, which is issued and owned by
the Holding Company immediately prior to the Effective Time shall be
cancelled, and no payment shall be made with respect thereto.
(c) Each share of Common Stock, par value $.01 per share, of
Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into
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and become one validly issued, fully paid, and nonassessable share of
Common Stock, par value $.01 per share, of the Surviving Corporation.
(d) Notwithstanding anything to the contrary in this
Agreement, if appraisal rights are available to holders of any Shares
(as defined in Section 3.02) pursuant to Section 262 of the Corporation
Law, all outstanding Shares, the holders of which have demanded and
perfected their rights for appraisal thereof in accordance with all of
the requirements of the Corporation Law and have not effectively
withdrawn or lost their rights to such appraisal (the "Dissenting
Shares"), shall not be converted into the per share consideration set
forth in Section 3.02, and the holders of such Dissenting Shares shall
be entitled only to such rights as are granted by the Corporation Law.
3.02 MERGER CONSIDERATION. The aggregate merger consideration (the
"Merger Consideration") to be paid by Buyer in exchange for all of the issued
and outstanding Common Shares (the "Shares") shall be an amount equal to (i)
$45,000,000, minus (ii) the Payoff Amounts with respect to the Long Term Debt,
minus (iii) $700,174 (such amount being the principal balance owing under the
Capital Leases as of May 31, 2000, as set forth on the Companies' books and
records), minus (iv) the aggregate Option Settlement Amounts, minus (v) the
Stockholders Fees and Expenses Amount, and minus (vi) $618,000, such amount
being the maximum amount which the Companies would be required to withhold with
respect to any bonuses described in Section 3.05, together with the Companies'
Medicare tax obligation of 1.45% of the amount of such bonuses. The Merger
Consideration shall be payable as follows:
(a) To the Stockholders, the sum of the Merger Consideration
minus the Escrow Amount (the "Net Merger Consideration"). Upon due
presentation, in accordance with the provisions of Section 3.07, of
each Certificate representing any Shares, an amount equal to the Net
Merger Consideration divided by 100,357 (the "Net Merger Consideration
Per Share") shall be payable by Buyer with respect to each Share
represented by the applicable Certificate. Such amount shall be payable
in cash, by wire transfer of immediately available funds to such bank
account as may be specified by the Stockholder thereof.
(b) At the Closing, Buyer shall deliver to the Escrow Agent
the sum of $2,100,000 (the "Escrow Amount'), to be held by the Escrow
Agent for distribution in accordance with the terms of the Escrow
Agreement.
The Net Merger Consideration Per Share shall be subject to reduction as provided
in Section 3.06 below.
3.03 PAYMENT OF PAYOFF AMOUNTS. On the Closing Date, based upon the
information provided to Buyer by the Holding Company in accordance with
Subsection 8.02(h), Buyer shall cause the Surviving Corporation to deliver to
the holders of Long Term Debt an amount sufficient to repay in full all amounts
outstanding in respect of such Long Term Debt
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<PAGE> 17
immediately prior to the Closing (the "Payoff Amounts"), with the result that,
immediately following the Closing, there will be no further obligations of the
Companies with respect to any Long Term Debt outstanding immediately prior to
the Closing.
3.04 STOCKHOLDERS FEES AND EXPENSES. On the Closing Date, Buyer shall
deliver $2,132,000 (the "Stockholders Fees and Expenses Amount") to an account
designated by the Stockholder Representative to be used to pay fees, expenses,
costs, and other obligations arising out of or in connection with the
transactions contemplated in this Agreement, including bonuses to certain
employees of the Operating Company in an aggregate gross before-tax amount not
to exceed $2,000,000, which bonuses shall be determined at the discretion of the
Stockholders' Committee and payable out of the Stockholders Fees and Expenses
Amount. Promptly after the payment of such bonuses, the Stockholders' Committee
shall provide Buyer with all information necessary to calculate the actual
amount of any withholding tax obligations with respect to such bonuses, plus the
Companies' 1.45% Medicare tax obligation thereon. Buyer shall promptly refund to
the Stockholders' Committee any portion of the amount described in clause (vi)
of Section 3.02 in excess of the actual amount of such withholding tax
obligations plus the Companies' 1.45% Medicare tax obligation thereon.
3.05 STOCK OPTIONS. Prior to the Closing, the Holding Company shall
enter into binding agreements ("Option Cancellation Agreements") with the
holders of all options to purchase Common Shares (collectively, the "Options")
which have been granted and are then outstanding under any stock option plan or
other option arrangement of the Holding Company (collectively, the "Option
Plans"), pursuant to which agreements the holders of such Options agree that the
Options shall be cancelled immediately prior to the Effective Time and (i) in
the case of Options with an exercise price at or in excess of the Net Merger
Consideration Per Share and any Options which are not vested as of the Closing,
settled without cash consideration, or (ii) in the case of Options with an
exercise price below the Net Merger Consideration Per Share (the "In-the-Money
Options"), settled by cash payment to the holders to be mailed within three
business days after the Effective Time. The cash payment to the holder of each
cancelled In-the-Money Option shall be an amount equal to (A) the excess, if
any, of (i) the quotient obtained by dividing the sum of (x) the Net Merger
Consideration plus (y) the aggregate amount of option exercise prices
attributable to all In-the-Money Options, by the number of Shares plus the
number of In-the-Money Options over (ii) the per share exercise price of such
In-the-Money Option, multiplied by (B) the number of Common Shares for which
such In-the-Money Option was granted (the "Option Settlement Amount"), less all
deductions required by the respective Option Plan and any Tax withholding
required in connection therewith.
3.06 MAXIMUM AGGREGATE MERGER CONSIDERATION. In the event that there
are more than 100,357 Shares issued and outstanding, the Net Merger
Consideration Per Share payable by the Buyer in exchange for all the Shares
(assuming for purposes of this Section that there are no Dissenting Shares),
shall be reduced to appropriately reflect the actual number of Shares.
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3.07 EXCHANGE OF CERTIFICATES. (a) At the Closing, Buyer shall act as
exchange agent in effecting the exchange of the Net Merger Consideration Per
Share for certificates or satisfactory lost certificate affidavits in lieu
thereof (collectively, the "Certificates") representing Shares entitled to
payment pursuant to Section 3.01 (including any Dissenting Shares which may be
surrendered as no longer dissenting).
(b) Upon the surrender of each Certificate, together with such
Tax or other information as may be required to enable Buyer, Merger Sub, or the
Surviving Corporation to comply with any withholding or reporting obligations
under applicable law, the Stockholder thereof shall be entitled to receive in
exchange therefor an amount equal to the Net Merger Consideration Per Share
multiplied by the number of Shares represented by such Certificate, payable as
provided in Section 3.02, and such Certificate shall be cancelled. Until so
surrendered and exchanged, each Certificate shall represent solely the right to
receive an amount equal to the Net Merger Consideration Per Share multiplied by
the number of Shares represented by such Certificate and payable as provided in
Section 3.02. No interest shall be paid or accrued on the Net Merger
Consideration Per Share upon the surrender of the Certificate. If any Net Merger
Consideration is paid to any Entity other than the Entity in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the Entity requesting such exchange shall pay to
Buyer any transfer or other Taxes required by reason of the payment of such Net
Merger Consideration to any Entity other than that of the registered holder of
the Certificate surrendered, or such Entity shall establish to the satisfaction
of Buyer that such Tax has been paid or is not applicable. Notwithstanding the
foregoing, neither Buyer nor any party hereto shall be liable to a holder of
Shares for any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
(c) Each holder of a Certificate not tendered for exchange at
the Closing may surrender the Certificate to the Surviving Corporation and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor an amount equal to the Net Merger Consideration Per Share
multiplied by the number of Shares represented by such Certificate, payable as
provided in Section 3.02, without any interest thereon, but shall have no
greater rights against the Surviving Corporation than may be accorded to general
unsecured creditors of the Surviving Corporation.
(d) After the Effective Time, there shall be no transfers of
any Shares on the stock transfer books of the Surviving Corporation. If
Certificates are presented to the Surviving Corporation or Buyer after the
Closing, they shall be cancelled and exchanged for the applicable Net Merger
Consideration Per Share, payable as provided in this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY.
The Holding Company represents and warrants to Buyer as follows as of
the date of this Agreement:
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4.01 SCHEDULES. The Holding Company has heretofore delivered one set of
the Schedules to Buyer and Merger Sub, identified by its signature thereon.
4.02 CORPORATE ORGANIZATION. (a) The Holding Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware, and the Operating Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Florida.
(b) The Holding Company conducts no business and has no
assets, other than the capital stock of the Operating Company. The Holding
Company is not qualified to do business as a foreign corporation in any state,
and neither the Holding Company's ownership or leasing of property or the nature
of its business makes any such qualification necessary.
(c) The Operating Company is qualified to do business as a
foreign corporation and is in good standing in the State of North Carolina.
Neither the Operating Company's ownership or leasing of property or the nature
of the business conducted by it makes it necessary for the Operating Company to
be qualified to do business as a foreign corporation in any state other than
North Carolina.
(d) Each of the Companies has the requisite corporate power
and authority to own, lease, and operate its properties and assets and to carry
on its business as it is now being conducted.
(e) The Holding Company has heretofore delivered or made
available to Buyer true and complete copies of the Holding Company's Certificate
of Incorporation and By-Laws and the Operating Company's Articles of
Incorporation and Bylaws, all as currently in effect.
4.03 AUTHORITY; AUTHORIZATION, ENFORCEABILITY. (a) The Holding Company
has the requisite power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Board of Directors of the Holding
Company in accordance with the Corporation Law; and except for the approval of
the Stockholders in accordance with Section 251 and all other applicable
provisions of the Corporation Law, no other corporate proceedings on the part of
the Holding Company or its Stockholders or directors are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby.
(b) This Agreement has been duly executed and delivered by the
Holding Company and constitutes a valid and binding obligation of the Holding
Company, enforceable against it in accordance with its terms.
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4.04 CAPITALIZATION. (a) The authorized capital stock of the Holding
Company consists of 123,500 Common Shares, of which 120,000 are designated as
voting and 3,500 are designated as non-voting. No non-voting Common Shares are
issued and outstanding. A total of 100,357 voting Common Shares are issued and
outstanding, and there are no treasury shares. Schedule 4.04(a) sets forth a
complete and accurate listing of each Stockholder and the number of Shares owned
of record by such Stockholder.
(b) The authorized capital stock of the Operating Company
consists of 60,000 shares of the Common Stock, $1.00 par value, of which 60,000
are issued and outstanding. All of the issued and outstanding shares of Common
Stock of the Operating Company are owned by the Holding Company, of record and
beneficially.
(c) Schedule 4.04(c) sets forth a complete and accurate
listing of all Options outstanding on the date of this Agreement, together with
the names of the holders thereof, dates of grant, term of Option, and per share
exercise prices thereunder. Except for the Options, there are no outstanding
Rights of Purchase relating to the issued or unissued Common Shares or other
capital shares or securities of either of the Companies which obligate or may
obligate either of the Companies to issue, deliver, or sell, or cause to be
issued, delivered, or sold, additional Common Shares or other capital shares or
securities of either of the Companies or to grant, extend, or enter into any
such Rights of Purchase.
(d) Except as set forth on Schedule 4.04(d), to the Companies'
Knowledge, there are no contracts, agreements, or understandings between or
among any Stockholders which limit, restrict, or otherwise affect the voting,
sale, transfer, or other disposition of any Common Shares.
(e) All outstanding Common Shares are duly authorized, validly
issued, fully paid, and nonassessable, and not subject to any right of
rescission. No outstanding Common Shares were issued in violation of any
preemptive right of any Stockholder or other Entity, and except as set forth on
Schedule 4.04(d), no Stockholder currently has any preemptive right with respect
to any Common Shares. No Stockholder has a valid claim or cause of action
against the Holding Company based on any violation of any applicable securities
law in connection with the issuance or other sale by the Holding Company of
Common Shares to such Stockholder.
(f) All outstanding capital stock of the Operating Company is
duly authorized, validly issued, fully paid, and nonassessable.
(g) Since December 31, 1999, the Holding Company has not
repurchased or otherwise acquired any of its Common Shares or other capital
shares or securities.
4.05 SUBSIDIARIES. Except as set forth on Schedule 4.05, neither of the
Companies has any investment in or owns any securities of any Entity other than
certificates of deposit,
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commercial paper, or similar money equivalents and the Holding Company's
investment in and ownership of the outstanding capital stock of the Operating
Company.
4.06 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth on
Schedule 4.06, neither the execution and delivery of this Agreement by the
Holding Company, nor the consummation by the Holding Company of the transactions
contemplated hereby, nor compliance by the Holding Company with any of the
provisions hereof, will:
(a) Conflict with or result in any breach of any provision of
the Certificate or Articles of Incorporation or Bylaws of either of the
Companies.
(b) Violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate the
performance required by, result in a right of termination or
acceleration of, result in the creation of any Lien upon any of the
properties or assets of either of the Companies under, or require any
consent, approval, or authorization which has not been obtained from
any other party to, any Material Contract, as a result of which either
of the Companies will incur expenses or damages of $25,000 or more.
(c) Violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation of any Governmental Entity
applicable to either of the Companies or any of their respective
properties or assets.
(d) Except for the filing of the Certificate of Merger and
compliance with the requirements of the HSR Act, require, on the part
of the Holding Company, any consent, approval, authorization or permit
of or from, or filing with or notification to, any Governmental Entity.
4.07 FINANCIAL STATEMENTS; LONG TERM DEBT AND CAPITAL LEASES. (a)
Except set forth on Schedule 4.07(a), the Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein) and fairly present in
all material respects the consolidated financial position of the Companies at
the dates thereof and the results of operations and cash flows for the periods
then ended subject, in the case of interim financial statements, to normal
year-end adjustments which would be made if the transactions contemplated by
this Agreement had not occurred and any other adjustments described therein,
which adjustments will not, in the aggregate, have a Material Adverse Effect,
and except that the interim financial statements lack footnotes and other
presentation items.
(b) Schedule 4.07(b) sets forth a complete and accurate
listing of (i) all indebtedness for borrowed money owing by the Companies, other
than short term debt arising under the Companies' existing revolving credit
facilities (collectively, "Long Term Debt"); and (ii) all leases of personal
property to which either Company is a party and which under generally
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accepted accounting principles, are required to be capitalized on the books and
records of the Companies (collectively, the "Capital Leases").
4.08 TAXES. (a) Except as set forth on Schedule 4.08, the Companies
have prepared in good faith and duly and timely filed, or caused to be duly and
timely filed, all Tax Returns required to be filed by either of them. The
Companies have paid, or have adequately reserved or made adequate accruals (in
accordance with generally accepted accounting principles) with respect to, all
Taxes due and payable pursuant to such Tax Returns or otherwise owing by the
Companies, whether or not shown to be owing on such Tax Returns, including
without limitation, all Taxes which are being contested in good faith by
appropriate proceedings and all Taxes for any prior period that are not yet due
and payable, and the Companies do not and will not have any liability for Taxes
referable to any period prior to the Closing Date in excess of the amount so
reserved or accrued, except (i) as set forth in Schedule 4.08, (ii) for Taxes as
to which the assessment of deficiencies and other means of collection have been
barred by the applicable statute of limitations, (iii) ordinary and normal Taxes
which are not yet due and payable, and (iii) other Taxes the liability for which
will not exceed $50,000 in the aggregate.
(b) Schedule 4.08 sets forth the following information with
respect to the Companies: (i) the most recent Tax year through which the
Internal Revenue Service ("IRS") has completed its examination of the Companies;
(ii) whether there is an examination pending by the IRS with respect to the
Companies, and, if so, the Tax years involved; (iii) whether the Companies have
executed or filed with the IRS or any other Governmental Entity any agreement
which is still in effect extending the period for assessment and collection of
any Tax and, if so, the Tax years covered by such agreement and expiration date
of such extension; and (iv) to the Companies' Knowledge, whether there are any
existing disputes as to any Taxes.
(c) Except as set forth on Schedule 4.08, neither of the
Companies is a party to any action or proceeding, nor to the Companies'
Knowledge, is any such action or proceeding threatened, by any Governmental
Entity for the assessment or collection of Taxes, and no deficiency notices or
reports have been received by the Companies in respect of any deficiencies for
Taxes. After the date of this Agreement and prior to the Closing, the Holding
Company will promptly notify Buyer of (i) the commencement or threat of any such
action or proceeding, or (ii) the receipt by either of the Companies of any such
deficiency notice or report.
(d) Set forth on Schedule 4.08 is information as of the most
recent practicable date concerning: (i) the aggregate amount of net Section 1231
losses incurred since January 1, 1995 under the Code that has been deducted or
is expected to be deducted by the Companies; (ii) any effective election made by
the Companies with respect to any Taxes which is not apparent on the face of the
Tax Returns; and (iii) a list of jurisdictions in which either of the Companies
is required to file Tax Returns. The Holding Company has heretofore made
available to Buyer true and complete copies of the Companies' Tax Returns for
1996, 1997, and 1998. Since January 1, 1995, to the Companies' Knowledge, no
claim has been made by a taxing
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authority in any jurisdiction where either of the Companies does not file Tax
Returns that either of the Companies is subject to taxation by such
jurisdiction.
(e) Except as otherwise set forth on Schedule 4.08, and except
for the affiliated group of which the Holding Company is the parent, neither of
the Companies has ever been a member of an affiliated group within the meaning
of Section 1504 of the Code.
(f) Except as otherwise set forth on Schedule 4.08, (i) the
Company has not taken any position on its federal income Tax returns (and its
not considering taking a position on a federal income Tax return required to be
filed before or after the Closing Date) that would subject it to an underpayment
of federal income Tax within the meaning of Section 6662 of the Code or any
corresponding provision of state or local Tax law; (ii) neither of the Companies
is a party to any Tax allocation or Tax sharing agreement; (iii) neither of the
Companies has agreed to make, nor is it required to make, any adjustment under
Section 481 of the Code by reason of a change in accounting method, accounting
period, or otherwise; (iv) neither of the Companies has engaged in a transfer of
assets that would have resulted in gain pursuant to Section 311 of the Code, but
which gain was treated as a deferred intercompany gain pursuant to the Code; (v)
neither of the Companies has deferred any gain from the sale of assets pursuant
to Section 453 of the Code; and (vi) neither of the Companies has made any
payments, is obligated to make any payments, or is a party to any agreement that
could obligate it to make any payments, that will not be deductible under
Section 280G or 162(m) of the Code or other compensation that must be
capitalized under Section 263 of the Code for any period prior to the Closing or
in connection with the consummation of the transactions contemplated by this
Agreement. To the Companies' Knowledge, the bonuses described in Section 3.04 of
this Agreement will not constitute "excess parachute payments" under Section
280G of the Code.
4.09 EMPLOYEE PLANS. (a) Schedule 4.09(a) sets forth a complete list of
all Employee Plans. The Holding Company has delivered or made available to Buyer
true and complete copies of all such Employee Plans, in each case as in effect
on the date of this Agreement.
(b) Except as set forth on Schedule 4.09(b), each Employee
Plan has been maintained, operated, and administered in substantial compliance
with its terms and in all material respects with all applicable requirements of
ERISA, the Code, and any other laws, rules, or regulations (including without
limitation, the provisions of ERISA relating to fiduciary obligations and
disclosure and reporting requirements, and the provisions of the Code relating
to nondiscrimination testing).
(c) Except as set forth on Schedule 4.09(c), neither of the
Companies currently maintains, or has at any time in the past maintained, any
pension plan, as defined in Section 3(2) of ERISA. Neither of the Companies is
or has been a party to or has completely or partially withdrawn from any
multi-employer plan, within the meaning of Section 3(37) of ERISA, which is
subject to any of the provisions of ERISA.
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(d) Except as set forth on Schedule 4.09(d), the Companies
have no present or future obligation to make any payments or provide benefits,
including without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees beyond their retirement or
other termination of service, other than (i) temporary coverage mandated by
applicable law, (ii) death benefits or retirement benefits under any employee
pension plan, as that term is defined in Section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the books of the Companies, or
(iv) benefits the full cost of which are borne by the current or former employee
(or his or her beneficiary).
(e) To the Companies' Knowledge, there is no action, order,
judgment, claim, suit, litigation, governmental audit, investigation, or
compliance examination relating to or seeking benefits under any Employee Plan
that is outstanding, pending, threatened, or anticipated against the Companies,
other than routine claims of participants.
(f) All required contributions and incentive bonuses and other
payments owing to any employee pursuant to each Employee Plan have been made,
except for current contributions, bonuses and other payments not yet due and
payable, all of which have been accrued and are reflected on the books and
records of the Companies.
(g) With respect to each Employee Plan, to the Companies'
Knowledge, no event has occurred and no condition exists that would subject
either of the Companies, the Surviving Corporation, or Buyer to any tax under
Sections 4972, 4974 through 4977, 4979, and 4980B of the Code or to a fine or
liability under Section 502 of ERISA.
(h) The Holding Company has delivered or made available to
Buyer true and complete copies of the most recently filed IRS Form 5500 and
accountant's opinion of the three most recent plan years for each Employee Plan
required to file or prepare the same.
(i) The Companies have not announced plans and do not have any
legally binding commitment to create any additional Employee Plans which are
intended to cover, or to amend or modify any existing Employee Plan which covers
or has covered, current or former employees, directors, officers, or consultants
of the Companies.
(j) Schedule 4.09 sets forth the name, title or
responsibility, and rate of annual compensation of each employee of the
Operating Company whose base salary exceeds $100,000 per annum. Except as set
forth on Schedule 4.09(j), between January 1, 2000 and the date of this
Agreement, no manager of any of the Operating Company's retail facilities has
left the employment of the Operating Company.
4.10 MATERIAL CONTRACTS. (a) Set forth on Schedule 4.10 is a complete
list of all Material Contracts in force and effect on the date of this
Agreement. The Holding Company has delivered or made available to Buyer true and
complete copies of all such Material Contracts and will deliver or make
available to Buyer true and complete copies of all Material Contracts
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executed after the date of this Agreement. Except as set forth on Schedule 4.10,
(i) to the Companies' Knowledge, all of the Material Contracts are valid,
binding, and in full force and effect; (ii) neither of the Companies nor, to the
Companies' Knowledge, any other party thereto is in default under any Material
Contract, which default is reasonably likely to have a Material Adverse Effect;
and (iii) to the Companies' Knowledge, there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute a
default.
(b) To the Companies' Knowledge, no Material Contract calls
for purchasing by the Operating Company of any inventory at prices substantially
in excess of prevailing market prices on the date of this Agreement.
4.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999,
there has not been any adverse change in the condition (financial or otherwise),
results of operations, business, or properties of the Companies, other than such
changes as will not have a Material Adverse Effect.
4.12 LITIGATION; PENDING DECREES. (a) Set forth on Schedule 4.12(a) is
a complete and accurate list of all litigation, actions, arbitrations,
proceedings or investigations pending against either of the Companies or, to the
Companies' Knowledge, threatened against or affecting the Companies (including
without limitation, charges or complaints filed with the Department of Labor,
the Equal Employment Opportunity Commission, the Occupational Safety and Health
Administration, or comparable or similar state agencies). To the Companies'
Knowledge, except as set forth on Schedule 4.12(a), no set of circumstances
exists or events have occurred that are likely to result in any claim or
litigation against the Companies which is not covered by the insurance currently
maintained by the Companies, other than routine customer complaints in the
ordinary course of business.
(b) Except as set forth on Schedule 4.12(b), there is no
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against either of the Companies.
4.13 LICENSES; COMPLIANCE WITH LAWS. (a) Set forth on Schedule 4.13 is
a complete list of all material permits, licenses, franchises, zoning variances,
and governmental approvals and authorizations, including without limitation,
those required under any Environmental Law (collectively, "Licenses"), which are
held or used by either of the Companies. All of the Licenses are in full force
and effect, and no material violation has occurred which has not been cured in
respect of any of the same, nor is any proceeding pending or, to the Companies'
Knowledge, threatened with respect to the revocation or limitation of any of the
same. There are no material permits, licenses, franchises, zoning variances, or
governmental approvals or authorizations, other than the Licenses, which are
necessary to own either of the Companies' assets or to conduct the business of
either Company as it is now being conducted.
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(b) Except as disclosed on Schedule 4.13(b), the business of
the Operating Company is not being conducted, and, since December 31, 1995, has
not been conducted, in violation of any law, ordinance, regulation, judgment,
order, decree, license or permit of any Governmental Entity (including without
limitation, zoning ordinances, building codes, Environmental Laws, occupational
health and safety laws and regulations, Fair Labor Standards Act or comparable
state laws governing the payment of wages or overtime, and franchise laws and
regulations), except (i) for possible violations which, insofar as reasonably
can be foreseen, will cause the Companies to incur in the future expenses or
damages of less than $50,000 in the aggregate; and (ii) that, in the case of any
costs and expenses that are the minimum amount necessary in order to remedy the
failure of the Operating Company or its facilities to be in compliance with the
Americans with Disabilities Act, as in effect on the Closing Date, such costs
and expenses will not exceed $200,000. To the Companies' Knowledge, no
investigation or review by any Governmental Entity is pending or threatened with
respect to either of the Companies, nor has any Governmental Entity indicated an
intention to conduct the same.
4.14 CONDUCT TO DATE. Except as disclosed on Schedule 4.14 and except
for the transactions contemplated by this Agreement, since December 31, 1999:
(a) Each Company has carried on its business in the ordinary
and usual course consistent with its current practices.
(b) Each Company has not issued or sold any of its capital
stock.
(c) Each Company has not declared, set aside, or paid any
dividend or other distribution in respect of its capital stock or,
directly or indirectly, redeemed or otherwise acquired any of its
capital stock.
(d) Each Company has not prepaid any Long Term Debt, Capital
Lease, or any other corporate debt or instruments which are or would be
classified as long term debt on its balance sheet, increased the amount
of its short term borrowings under available lines of credit (other
than in the ordinary course of business), or made any loan or advance
to any Entity.
(e) Each Company has not sold, assigned, transferred, or
otherwise disposed of any of its material properties or assets other
than in the ordinary course of its business.
(f) Each Company has not purchased or otherwise acquired from
any third party assets constituting any other line of business or any
material properties or assets outside the ordinary course of its
business.
(g) Each Company has not entered into any supply contract or
other such agreement or understanding relating to the purchase of
products by it which would constitute a Material Contract and which is
not listed on Schedule 4.10.
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(h) Each Company has not increased the rate of compensation of
any employee whose base salary exceeds $100,000 per annum after the
increase or made an across-the-board increase in the compensation of
any class of employees; paid any bonus to any of its directors,
officers, or other employees, except as required under existing
Employee Plans; secured, collateralized, or funded any Employee Plan
not previously secured, collateralized, or funded; entered into,
terminated, or substantially modified any employment agreement or other
Employee Plan; or agreed to do any of the foregoing.
(i) Each Company has not entered into, or amended, modified or
terminated, any Material Contract outside the ordinary course of its
business.
4.15 LABOR MATTERS. The Holding Company has no employees. Except as set
forth on Schedules 4.12(a) and 4.12(b), there are no controversies pending
between the Operating Company and any of its current or former employees, other
than routine individual grievances which will not have a Material Adverse
Effect. No employee of the Operating Company is represented by any labor union
and, to the Companies' Knowledge, no labor union is attempting any such
representation.
4.16 UNDISCLOSED LIABILITIES; WARRANTY MATTERS. (a) Except as and to
the extent disclosed, reflected or reserved against in the Financial Statements,
neither Company has, as of the respective dates thereof, any material
liabilities and obligations (whether accrued, absolute, contingent or otherwise)
which are required to be reflected on a balance sheet prepared in accordance
with generally accepted accounting principles or disclosed in the notes thereto,
and there was no material loss contingency, as defined in paragraph 1 of
Statement of Financial Accounting Standards No. 5, of the Companies which would
be required to be disclosed pursuant to generally accepted accounting principles
which was not so reflected or disclosed. Since December 31, 1999, except to the
extent so disclosed, reflected, or reserved against, neither of the Companies
has incurred any such material liability or obligation (other than liabilities
and obligations incurred or assumed in the ordinary course of business), and no
such material loss contingency has arisen.
(b) Schedule 4.16 contains a true and complete copy of the
forms of all unexpired warranties made by the Operating Company with respect to
products sold by it (other than warranties arising by operation of law) and the
forms of all unexpired service contracts under which the Operating Company has
any obligation. The warranty/service contract reserve set forth on the most
recent balance sheet included in the Financial Statements was established in
accordance with generally accepted accounting principles consistently applied.
4.17 TITLE TO PROPERTIES; ABSENCE OF LIENS, ETC. (a) Neither Company
currently owns any real property or has owned any real property at any time
prior hereto (other than leaseholds).
(b) (i) Schedule 4.17(b)(i) contains a true and complete list
of all material leases, bailments, or right-to-use consignments of equipment or
other personal property to which
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either Company is a party (the "Equipment Leases"), and (ii) Schedule
4.17(b)(ii) contains a true and complete list of all leases of real property to
which either Company is a party (the "Real Property Leases").
(c) Except for the equipment subject to the Equipment Leases,
the real property subject to the Real Property Leases, and various personal
items of nominal value belonging to the Operating Company's employees, each of
the Companies owns all properties and assets used in the conduct of its business
since January 1, 1999, other than any properties or assets disposed of since
such date in the ordinary course of business.
(d) Except as disclosed on Schedule 4.17(d), each of the
Companies has good and marketable title (or in the case of leaseholds, good and
valid leasehold title) to all of its properties and assets, including without
limitation, those assets and properties reflected in the Financial Statements,
free and clear of all Liens, except (i) the Lien of current Taxes not yet
delinquent or which are being contested in good faith by appropriate
proceedings; (ii) properties and assets disposed of since the dates of such
Financial Statements in the ordinary course of business; (iii) such secured
indebtedness as is disclosed in the Financial Statements or in the Schedules;
(iv) Liens and imperfections of title which do not individually or in the
aggregate materially detract from the value, or impair the use, of the
properties as currently used; (v) inchoate mechanics and materialmens' Liens for
construction in progress; and (vi) other Liens of workmen, repairmen,
warehousemen and carriers arising in the ordinary course of business which are
not, either individually or in the aggregate, material in amount. To the
Companies' Knowledge, there are no eminent domain proceedings pending or
threatened with respect to any of the real property subject to the Real Property
Leases other than the eminent domain proceedings set forth on Schedule 4.12(a),
which relate to possible road projects, the effect of which would not be
material to the particular facility involved.
(e) Except as set forth on Schedule 4.17(e), taken as a whole,
the buildings and material tangible personal property owned or leased by the
Operating Company are (i) in good working condition (normal wear and tear
excepted) for such assets, given their respective ages, and (ii) adequate and
suitable for the purposes for which they are presently being used.
(f) Set forth on Schedule 4.17(f) is a complete list of each
item of "equipment" (as defined in Article 9 of the Uniform Commercial Code)
owned by the Operating Company and having a net book value in excess of $5,000
as of December 31, 1999.
4.18 RECEIVABLES; PREPAID EXPENSES. (a) Except as set forth on Schedule
4.18, all of the accounts, notes, and other receivables which are reflected in
the most recent balance sheet included in the Financial Statements were acquired
in the ordinary course of business, are valid receivables, and except to the
extent reserved against on the books and records of the Companies, are, to the
Companies' Knowledge, collectible in full, in the ordinary course of business.
The receivables reserve set forth on the most recent balance sheet included in
the Financial
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Statements was established in accordance with generally accepted accounting
principles consistently applied.
(b) To the Companies' Knowledge, all prepaid expenses of the
Companies accrued on their books and records on the Closing Date will represent
BONA FIDE prepayments made by the Companies, full credit for which will be
afforded to the Companies by the Entities that received such prepayments.
4.19 INVENTORIES. The inventories set forth on the December 31, 1999
and the March 30, 2000 balance sheets of the Companies which constitute part of
the Financial Statements were properly recorded and valued (net of any reserves
noted thereon) in accordance with generally accepted accounting principles and,
subject to such reserves, consisted of items of a quality and quantity currently
usable and saleable in the ordinary course of business. Neither Company has
reason to believe that any currently unsold inventory of the Operating Company
will not be used in the business or sold within a reasonable period of time
following the Closing at not less than the amount reflected on such balance
sheets or, in the case of inventory acquired after March 30, 2000, at not less
than the amount reflected on the Companies' books and records. The Operating
Company does not have any consigned inventory except as described on Schedule
4.19.
4.20 PROPRIETARY RIGHTS. (a) Set forth on Schedule 4.20 is a complete
and accurate list of all patents, trademarks, tradenames, or copyright
registrations (collectively, "Proprietary Rights") owned or held by either
Company. To the Companies' Knowledge, with the exception of the right to
advertise, display, and sell products purchased by the Operating Company from
its suppliers using the trademarks of those suppliers, no Proprietary Rights
other than those listed on Schedule 4.20 are used in or necessary for the
conduct of either Company's business as now being conducted.
(b) Except as set forth on Schedule 4.20, the Companies own
all Proprietary Rights listed therein, the use of such Proprietary Rights by the
Companies does not infringe upon the rights of any other party, and no claim of
such infringement is pending or, to the Companies' Knowledge, threatened. No
licenses, sublicenses, or agreements with respect to the Proprietary Rights
listed on Schedule 4.20 have been granted or entered into by either Company.
Except as set forth on Schedule 4.20, to the Companies' Knowledge, no third
party is infringing upon any of the Proprietary Rights listed therein or has
made any claim of ownership or right to use any of such Proprietary Rights.
4.21 INSURANCE; BANK ACCOUNTS. (a) Set forth on Schedule 4.21(a) is a
list of all insurance maintained by either Company or under which either of them
is entitled to coverage or benefits. True and complete copies of such insurance
policies and all agreements with insurers relating thereto have previously been
made available, and will upon request be delivered, to Buyer. The Companies'
insurance coverage with respect to all pending litigation or claims against the
Companies which is covered thereby is satisfactory to discharge the liability of
the Companies with respect to any such litigation or claim (other than the
deductible portion
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thereof). The Companies have adequate reserves established in accordance with
generally accepted accounting principles with respect to any deductible portion
of such pending litigation and claims. Assuming that the Companies continue to
accrue for any amounts that may become owing under the One Year Master Premium
Agreement Paid Loss Retrospective Rating Plan, dated November 19, 1999, at the
level at which the Companies have been accruing for such liability during the
first five months of 2000, the Companies will have accrued by November 30, 2000,
amounts sufficient to cover any retrospective premium or other cost or
assessment for which either Company may be or become obligated as a result of
payments or expenses incurred by the Companies' insurer(s) with respect to such
litigation or claims. The reserves established on the books and records of the
Companies are satisfactory to discharge any liability of the Companies' with
respect to the pending litigation or claims set forth in items 2, 4, 5, and 8 on
Schedule 4.12(a).
(b) Set forth on Schedule 4.21(b) is a list of all bank
accounts maintained by either Company and the name of each individual who is
authorized to sign checks on behalf of the Companies or to otherwise act with
respect to each account.
4.22 ENVIRONMENTAL MATTERS. (a) Except as set forth on Schedule 4.22
and except for any liability with respect to the matter set forth in item 8 of
Schedule 4.12(a), neither Company has any liability under any Environmental Law
(including without limitation, any liability for release of any Hazardous
Substance), which, together with all such liability, will exceed $50,000 in the
aggregate.
(b) Except as set forth on Schedule 4.22, (i) there are no
actions, suits, demands, notices, claims, or proceedings under any Environmental
Law pending or, to the Companies' Knowledge, threatened against either Company
or relating to any real property previously or currently leased by either
Company, including without limitation, any notices, demand letters, or requests
for information from any Governmental Entity making inquiries relating to any
Environmental Law or any notice that either Company is or may be a potentially
responsible party under any Environmental Law; (ii) to the Companies' Knowledge,
there are no investigations pending or threatened against either Company or
relating to any real property previously or currently leased by either Company;
and (iii) there are no investigations or remedial activities ongoing, pending or
under consideration by either Company relating to compliance with any
Environmental Law or the possible presence of any Hazardous Substance at either
any real property previously or currently leased by either Company or any
adjacent real property.
(c) Except as set forth on Schedule 4.22, to the Companies'
Knowledge, there are no past or present conditions, circumstances, activities,
practices, omissions, plans or contractual undertakings that will interfere with
or prevent continued compliance by the Companies with Environmental Laws and the
requirements of any permits or licenses issued under any Environmental Law or
that will give rise to any liability or other obligation of either of the
Companies under any Environmental Law.
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(d) Except as set forth on Schedule 4.22, (i) no Lien exists,
and no condition exists which could result in the filing of a Lien, against any
property of either Company under any Environmental Law, and (ii) neither Company
has been requested or required by any Governmental Entity to perform any
investigatory or remedial activity under or in connection with any Environmental
Law which has not been so performed to the complete and final satisfaction of
such Governmental Entity.
(e) Except as set forth on Schedule 4.22, no condition
currently exists on, in, under, or adjacent to any real property previously or
currently leased by either Company that requires or required reporting to a
Governmental Entity or remedial activities under any Environmental Law.
4.23 CERTAIN TRANSACTIONS. (a) Except pursuant to the Employee Plans,
the Real Property Leases, or as set forth on Schedule 4.23, none of the current
or former officers, directors, or management level employees of either Company
and no Stockholder is currently a party to any transaction with either Company
involving total payments to or from either Company of more than $10,000, or
since January 1, 1999 has been a party to any such transaction, including
without limitation, any contract, agreement, or other arrangement (a) providing
for the furnishing of services (other than as an officer, director, or
management level employee) to or by, (b) providing for rental of real or
personal property to or from, or (c) otherwise requiring payments to or from,
any such officer, director, management level employee, or Stockholder, any
member of the family of any such officer, director, management level employee,
Stockholder, or any Entity in which any such officer, director, management level
employee, or Stockholder has a substantial interest or which is an affiliate of
such officer, director, management level employee, or Stockholder.
(b) Except as set forth on Schedule 4.23 or in the Material
Contracts, no customer of the Operating Company (i) has been granted or is
entitled to any rebate which has not been paid or accrued on the books and
records of the Operating Company or (ii) has a right to purchase products or
services from the Operating Company at prices or upon terms other than the
Company's standard prices or terms.
4.24 DISCLOSURE. To the Companies' Knowledge, the representations and
warranties of the Holding Company contained in this Agreement and the
information set forth on the Schedules do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE SIGNING STOCKHOLDERS.
Each of the Signing Stockholders severally represents and warrants to
Buyer as follows as of the date of this Agreement:
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5.01 AUTHORITY; AUTHORIZATION; ENFORCEABILITY. (a) Such Signing
Stockholder has full right and lawful authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized and approved
by all necessary action on behalf of such Signing Stockholder and its partners.
(c) This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, such Signing Stockholder,
enforceable against it in accordance with its terms.
5.02 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by such Signing Stockholder, nor the consummation by
such Signing Stockholder of the transactions contemplated hereby, nor compliance
by the Holding Company with any of the provisions hereof, will:
(a) Conflict with or result in any breach of any provision of
such Signing Stockholder's partnership agreement or other governing
instruments.
(b) Violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate the
performance required by, result in a right of termination or
acceleration of, or result in the creation of any Lien upon any of the
properties or assets of such Signing Stockholder under, any agreement,
instrument, or obligation to which such Signing Stockholder is a party
or to which such Signing Stockholder or any of its respective
properties or assets may be subject.
(c) Violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation of any Governmental Entity
applicable to such Signing Stockholder or any of its properties or
assets.
(d) Except for the filing of the Certificate of Merger and
compliance with the requirements of the HSR Act, require, on the part
of such Signing Stockholder, any consent, approval, authorization or
permit of or from, or filing with or notification to, any Governmental
Entity or any other party to any agreement or instrument described in
clause (b) above.
5.03 SHARES. The Shares owned by such Signing Stockholder are owned by
such Signing Stockholder free and clear of all Liens or other legal or
beneficial interest of any other Entity. Such Signing Stockholder has not
granted any Entity, other than Buyer or Merger Sub, any Right of Purchase with
respect to any of the Shares owned by such Signing Stockholder, except for the
agreements listed on Schedule 4.04.
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ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to the Holding Company and to
the Signing Stockholders as follows as of the date of this Agreement:
6.01 CORPORATE ORGANIZATION. (a) Each of the Buyer and the Merger Sub
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Buyer is the direct and sole stockholder of
Merger Sub.
(b) Buyer has heretofore delivered to the Signing Stockholders
true and complete copies of each of the Buyer's and the Merger Sub's Certificate
of Incorporation and By-Laws, all as currently in effect.
6.02 AUTHORITY; AUTHORIZATION; ENFORCEABILITY. (a) Buyer and Merger Sub
each has the requisite power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and approved by the Board of Directors of Buyer, the Board of Directors of
Merger Sub, and Buyer (as the sole stockholder of Merger Sub), in accordance
with the Corporation Law. No other proceedings on the part of Buyer or Merger
Sub or their stockholders are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby.
(c) This Agreement has been duly executed and delivered by,
and constitutes a valid and binding obligation of, Buyer and Merger Sub,
enforceable against Buyer and Merger Sub in accordance with its terms.
6.03 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by Buyer or Merger Sub, nor the consummation by Buyer
or Merger Sub of the transactions contemplated hereby, nor compliance by Buyer
or Merger Sub with any of the provisions hereof, will:
(a) Conflict with or result in any breach of any provision of
the Certificate of Incorporation or Bylaws of Buyer or Merger Sub.
(b) Violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or
acceleration of, any agreement, instrument, or obligation to which
Buyer or Merger Sub is a party or to which Buyer or Merger Sub or any
of their respective properties or assets may be subject.
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(c) Violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation of any Governmental Entity
applicable to either of Buyer or Merger Sub or any of their respective
properties or assets.
(d) Except for the filing of the Certificate of Merger and
compliance with the requirements of the HSR Act, require on the part of
Buyer or Merger Sub any consent, approval, authorization or permit of
or from, or filing with or notification to, any Governmental Entity.
6.04 DISCLOSURE. The representations and warranties of Buyer contained
in this Agreement do not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements contained herein not
misleading.
ARTICLE 7. PRE-CLOSING OBLIGATIONS.
7.01 CONDUCT OF THE BUSINESS. The Holding Company covenants and agrees
that, prior to the Closing, unless Buyer shall otherwise agree in writing, or
except as disclosed in the Schedules or as otherwise expressly contemplated by
this Agreement:
(a) Neither Company shall take any action except in the
ordinary course of business and consistent with past practices, and the
Operating Company shall use its reasonable best efforts to maintain and
preserve its business organization, customer network, assets,
employees, and advantageous business relationships (provided, however,
that no change to the Operating Company's relationship(s) with Michelin
Tire Corporation, Michelin North America Inc., and/or Michelin Americas
Small Tires shall constitute or be deemed to constitute a breach of
this covenant).
(b) Neither Company shall, directly or indirectly, do any of
the following: (i) take any action or incur any expenses in
contemplation of a reorganization or restructuring of either Company;
(ii) amend its Certificate or Articles of Incorporation or Bylaws or
similar organizational documents; (iii) split, combine or reclassify
any shares of its capital stock or declare, set aside or pay any
dividend or make any distribution, payable in cash, stock, property or
otherwise, with respect to its capital stock; (iv) adopt a plan of
liquidation or resolutions providing for the liquidation, dissolution,
merger, consolidation or other reorganization of either Company; or (v)
authorize or propose any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
(c) Neither Company shall, directly or indirectly: (i) issue,
sell, pledge, encumber or dispose of, or authorize, propose, or agree
to the issuance, sale, pledge, encumbrance or disposition of, any
shares of its capital stock or any other equity securities or any
Rights of Purchase with respect thereto; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any Entity or division
thereof or make any
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material investment, either by purchase of stock or securities,
contributions to capital, property transfer, or purchase of any
material amount of property or assets, in any Entity; (iii) other than
as set forth in the Schedules or incurred in the ordinary course of
business pursuant to the Companies' existing revolving credit
facilities, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee, endorse (other than to a Company
account) or otherwise as an accommodation become responsible for, the
obligations of any Entity, or make any loans or advances, including
without limitation, advances to suppliers or customers; (iv) enter into
any new Material Contract or release or relinquish any Material
Contract right; (v) other than as necessary to accommodate ordinary
seasonal requirements, materially increase the Operating Company's
inventory levels beyond the average levels maintained by the Operating
Company since December 30, 1999; (vi) take any action involving
possible expenditures or the acquisition or disposition of assets, in
each case in excess of $20,000, other than the purchase or sale of
inventory in the ordinary course of business; or (vii) authorize or
propose any of the foregoing, or enter into or modify any contract,
agreement, commitment, or arrangement to do any of the foregoing.
(d) Each Company shall use its best efforts to keep in place
its current insurance policies, and if any such policy is cancelled,
each Company shall use its best efforts to replace such policy or
policies.
(e) The Holding Company shall deliver to Buyer the interim
financial statements of the Companies at and for the month ended May
31, 2000, if the Closing has not occurred prior to June 21, 2000. All
interim financial statements to be delivered by the Companies pursuant
to this Subsection 7.01(e) shall be prepared in accordance with
generally accepted accounting principles (except for footnotes and
other presentation items) applied on a consistent basis (except as may
be indicated therein) and fairly present in all material respects the
consolidated financial position of the Companies at the dates thereof
and the results of operations and cash flows for the periods then
ended, subject to normal year-end adjustments which would be made if
the transactions contemplated by this Agreement had not occurred and
any other adjustments described therein, which adjustments will not, in
the aggregate, have a Material Adverse Effect. Such financial
statements and the items set forth therein shall conform, to the extent
applicable, with the portions of the representations and warranties set
forth in Sections 4.16, 4.18, 4.19, and 4.21 relating to financial
statement items to the same extent as if such interim financial
statements constituted Financial Statements for purposes of Article 4.
The Holding Company covenants and agrees that it will take all necessary action
to cause the Operating Company to comply with and satisfy its obligations under
this Section 7.01.
7.02 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions and to do,
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or cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement, and to cooperate with each other in connection with the foregoing,
including, but not limited to, using reasonable efforts (a) to obtain all
necessary waivers, consents, and approvals from other parties to Material
Contracts; (b) to obtain all necessary consents, approvals, and authorizations
as are required to be obtained under any federal, state or foreign law or
regulations; (c) to effect all necessary filings with any Governmental Entity;
(d) to fulfill all conditions to this Agreement; and (e) to keep the other
parties reasonably apprised of the status of all such efforts.
7.03 NOTICE. The Holding Company shall give prompt notice to Buyer, and
Buyer shall give prompt notice to the Holding Company, of (a) the occurrence, or
failure to occur, of any event, the occurrence or failure of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing, (b) any material failure of the Holding Company or Buyer or any of
their respective officers, directors, employees, or agents, to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by such party under this Agreement, (c) any material claims, actions,
proceedings, or investigations commenced or, to the Companies' Knowledge,
threatened, involving or affecting either Company or any of its properties or
assets, or, to the Companies' Knowledge, against any employee, consultant,
director, officer, of either Company or any Stockholder, in his, her or its
capacity as such, and (d) any change in the condition (financial or otherwise),
results of operations, business, or properties of either Company, or the
occurrence of an event, in either case which, so far as reasonably can be
foreseen at the time of such change or occurrence, has had or can reasonably be
expected to have, a Material Adverse Effect; provided, however, that no such
notification shall affect the representations or warranties of the parties or
the conditions to the obligations of the parties hereunder unless the Closing
occurs, in which event such notices shall, provided that they are clearly
identified on their face as a notice being delivered pursuant to the
requirements of this Section 7.03, be deemed to amend the Schedules and the
representations and warranties of the parties accordingly.
7.04 ACCESS. From the date hereof to the Closing, the Holding Company
shall continue to afford the officers, employees, advisors, and agents of Buyer
(collectively, the "Representatives") complete access at all reasonable times to
the officers, employees, agents, properties, books, records and contracts of the
Companies, and to furnish Buyer and the Representatives with such operating and
other data and information as they may reasonably request. No investigation
pursuant to this Section 7.04 shall affect any representations or warranties of
the parties herein or the conditions to the obligations of the parties
hereunder.
7.05 STUART, FLORIDA LEASE. The Holding Company shall use its
reasonable best efforts to obtain a nondisturbance agreement from the lender
holding a mortgage on the Stuart, Florida store currently being leased by the
Operating Company.
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ARTICLE 8. CONDITIONS.
8.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party under this Agreement, including the obligation to
consummate the transactions contemplated by this Agreement, shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) NO INJUNCTION OR PROCEEDINGS. No preliminary or permanent
injunction or other order, decree, or filing issued by a Governmental
Entity, nor any statute, rule, regulation, or executive order
promulgated or enacted by any Governmental Entity, shall be in effect
which materially adversely affects the transactions contemplated by
this Agreement, and no suit, action, or proceeding shall be pending by
or with any Governmental Entity which seeks to have declared illegal or
would make illegal or otherwise prevent the consummation of such
transactions or seeks damages with respect thereto.
(b) GOVERNMENTAL APPROVALS, ETC.. The Holding Company and
Buyer shall have obtained such licenses, permits, consents, approvals,
authorizations, qualifications, and orders of Governmental Entities as
are necessary for consummation of the transactions contemplated by this
Agreement, including the expiration or termination of any applicable
waiting periods (and any extensions thereof) under the HSR Act with
respect to the Merger.
8.02 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGER SUB. The
obligations of Buyer and Merger Sub under this Agreement, including their
obligation to consummate the transactions contemplated by this Agreement, shall
be subject to the satisfaction at or prior to the Closing of the following
additional conditions, unless waived by Buyer:
(a) PERFORMANCE OF OBLIGATIONS OF THE HOLDING COMPANY AND THE
SIGNING STOCKHOLDERS. The Companies shall have performed in all
material respects all obligations and agreements required to be
performed by them under this Agreement prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Holding Company and the Signing Stockholders set
forth in this Agreement shall be true and correct in all material
respects at and as of the time of the Closing as if made at and as of
such time, except as expressly contemplated by this Agreement.
(c) LEGAL OPINION(S). The Holding Company and the Signing
Stockholders shall have delivered to Buyer an opinion of (i) Finn Dixon
& Herling LLP, dated the Closing Date and addressed to Buyer,
substantially in the form of Exhibit A to this Agreement; and (ii)
Florida counsel that the Operating Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Florida;
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has the requisite corporate power and authority to own, lease, and
operate its properties and assets and to carry on its business as it is
now being conducted; that its authorized capital stock of the Operating
Company consists of 60,000 shares of Common Stock, par value $1.00 per
share; and that the Merger does not require any consent, approval,
authorization, or permit of or from, or filing with any State of
Florida Governmental Entity.
(d) RESIGNATIONS AND RELEASES. The Operating Company shall
have delivered to Buyer letters of resignation, effective as of the
Closing, executed and tendered by (i) each of the then incumbent
directors of the Operating Company, and (ii) any non-employee officers
of either Company. Each such resignation shall contain an
acknowledgment that the director or officer has been paid all amounts
owing to him or her by the Companies in connection with his or her
services as a director or officer and shall release the Companies from
any further liability of any nature whatsoever to the director or
officer except with respect to matters as to which such director or
officer may be entitled to indemnification as provided in Section 9.03.
(e) CERTIFICATES. The Holding Company and each Signing
Stockholder shall have furnished to Buyer a certificate that the
conditions set forth in Subsections 8.02(a) and 8.02(b) to be satisfied
by the Holding Company or the Signing Stockholder, as the case may be,
have been satisfied as of the Closing Date.
(f) CONSENTS. The Holding Company shall have delivered to
Buyer each consent, approval, or authorization described on Schedule
4.06 and noted on such Schedule as being a condition to Buyer's
obligation to close the transactions contemplated hereby.
(g) OPTION CANCELLATION AGREEMENTS. The Holding Company shall
have delivered to Buyer a signed Option Cancellation Agreement, duly
executed by each holder of an Option, as described in Section 3.05
hereof.
(h) LONG TERM DEBT. The Holding Company shall have delivered
to Buyer written confirmation by each holder of Long Term Debt as the
amount necessary to discharge such Long Term Debt in full on the
Closing Date, together with wire transfer instructions for the payment
of the same.
(i) ESCROW AGREEMENT. The Holding Company shall have delivered
to Buyer the Escrow Agreement, duly executed by the Stockholder
Representative.
(j) OPERATING COMPANY STOCK CERTIFICATES. The Holding Company
shall have delivered to Buyer all stock certificates representing any
outstanding capital stock of the Operating Company.
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(k) NO MATERIAL ADVERSE CHANGE. Except as disclosed in
the Schedules, since December 31, 1999, there shall have been no change
in the financial condition, results of operations, business, or
properties of the Companies that, in the aggregate, have had or can
reasonably be expected to have, a Material Adverse Effect.
8.03 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE HOLDING COMPANY
AND THE SIGNING STOCKHOLDERS. The obligations of the Holding Company and the
Signing Stockholders under this Agreement, including the obligation of each to
consummate the transactions contemplated by this Agreement, shall be subject to
the satisfaction at or prior to the Closing of the following additional
conditions, unless waived by them:
(a) PERFORMANCE OF OBLIGATIONS OF BUYER AND MERGER SUB. Buyer
and Merger Sub shall have performed in all material respects all
obligations and agreements required to be performed by them under this
Agreement prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in this Agreement shall be true and
correct in all material respects at and as of the time of the Closing
as if made at and as of such time, except as expressly contemplated by
this Agreement.
(c) LEGAL OPINION. Buyer and Merger Sub shall have delivered
to the Signing Stockholders an opinion of Thompson Hine & Flory LLP,
dated the Closing Date and addressed to the Signing Stockholders,
substantially in the form of Exhibit C to this Agreement.
(d) CERTIFICATES. Buyer and Merger Sub each shall have
furnished to the Holding Company and the Signing Stockholders a
certificate, executed by their respective chief executive officers,
certifying that the conditions set forth in Subsections 8.03(a) and
8.03(b) have been satisfied as of the Closing Date.
(e) ESCROW AGREEMENT. Buyer shall have delivered to the
Holding Company and the Signing Stockholders the Escrow Agreement, duly
executed by Buyer and the Escrow Agent.
(f) PAYOFF OF LONG TERM DEBT. Buyer shall have made
arrangements for the Surviving Corporation to repay and discharge the
Long Term Debt contemporaneously with the Closing.
ARTICLE 9. CLOSING; CERTAIN POST-CLOSING OBLIGATIONS.
9.01 TIME AND PLACE. The Closing shall take place at the offices of
Thompson Hine & Flory LLP, 2000 Courthouse Plaza, NE, Dayton, Ohio 45402 at
10:00 a.m., local time, as soon as practicable after satisfaction or waiver of
all of the conditions contained in Article 8 or at such
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other place or at such other time as Buyer and the Holding Company may mutually
agree (the date of the Closing being referred to herein as the "Closing Date").
9.02 DELIVERIES AT THE CLOSING. At the Closing, Buyer, Merger Sub, the
Companies, and the Signing Stockholders shall take any and all actions and do
all other lawful things called for by this Agreement or necessary to consummate
the transactions contemplated by this Agreement. At the Closing, all actions
shall be deemed to have been taken simultaneously and the taking of any action
shall be contingent upon the taking of all other action called for in this
Agreement or necessary to consummate the transactions contemplated hereby. Once
the Closing has occurred, for accounting purposes, the Closing shall be deemed
to have occurred at 12:01 a.m. on June 1, 2000.
9.03 CERTAIN INSURANCE. For a period of six years after the Effective
Time, the Buyer shall continue in effect the executive protection insurance
presently maintained by the Companies for the benefit of their current and
former directors or officers or provide other insurance no less favorable in
coverage and amount than the insurance presently maintained by the Companies;
provided, however, that the coverage and amount of the insurance maintained or
otherwise provided by Buyer may be reduced to the extent necessary to cause the
aggregate premiums for the same for such six year period not to exceed $60,000.
In addition, the Buyer will not take any action to alter or impair any
exculpatory or indemnification provisions now existing in the Certificate of
Incorporation or Bylaws of the Holding Company or the Operating Company for the
benefit of any individual who served as a director or officer of the Holding
Company and/or the Operating Company at any time prior to the Effective Time.
9.04 PAYMENTS TO OPTIONEES AND DISSENTERS. Buyer shall cause the
Surviving Corporation to make the payments to optionees within the time period
provided in Section 3.05 and to satisfy obligations with respect to Dissenting
Shares in accordance with the provisions of the Corporation Law.
9.05 SEVERANCE ARRANGEMENTS. For a period of at least one year from and
after the Closing, the Buyer shall cause the Surviving Corporation to honor and
comply with the severance policy of the Companies set forth in an attachment to
Schedule 4.09(a) hereto.
ARTICLE 10. TERMINATION AND WAIVER.
10.01 TERMINATION. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(a) By mutual written consent of the Holding Company and
Buyer.
(b) By the Holding Company and the Signing Stockholders,
acting jointly, or Buyer and Merger Sub, acting jointly, if (i) the
Closing shall not have occurred on or before June 15, 2000, or (ii) any
of the conditions set forth in Section 8.01 hereof shall
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not be met on or prior to June 15, 2000; provided, however, that the
right to terminate this Agreement under this Subsection 10.01(b) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure
of the Closing to occur on or before such date.
(c) By Buyer and Merger Sub if any of the conditions set forth
in Section 8.02 shall not be met at or prior to June 15, 2000.
(d) By the Holding Company and the Signing Stockholders if any
of the conditions set forth in Section 8.03 shall not be met at or
prior to June 15, 2000.
10.02 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 10.01, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of the Holding
Company, the Signing Stockholders, Buyer, or Merger Sub or their affiliates,
except that a party shall be liable for any breach of its obligations hereunder.
10.03 WAIVER. At any time prior to the Closing, any party hereto may
(i) extend the time for the performance of any of the obligations or other acts
of any other party hereto or (ii) waive compliance with any of the agreements of
any other party or with any conditions to its, his, or her own obligations. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 11. CLAIMS; ESCROW; INDEMNIFICATION; LIMITATIONS.
11.01 CERTAIN DEFINED TERMS. For purposes of this Article 11:
(a) "Damages" means all liabilities, demands, claims, assessments,
levies, losses, judgments, amounts paid in settlement, fines, penalties,
damages, and costs and expenses reasonably required and incurred, including
without limitation, reasonable fees and expenses of attorneys, accountants,
investigators, and experts. By way of example and not in limitation of the
foregoing, in the case of Buyer or the Surviving Corporation, Damages include
all costs and expenses reasonably required (it being understood that no
governmental or court action or notice is necessary for the costs and expenses
to be "required") to cause either Company to be in compliance with the
representations and warranties set forth in Article 4, such as costs and
expenses reasonably required in order to remedy the failure of either Company or
its facilities or equipment to be in compliance with Environmental Laws on the
Closing Date to the extent represented and warranted.
(b) "Losses" means any of the following:
(i) All legal and accounting fees and expenses incurred or
paid by either Company in connection with the transactions contemplated
by this Agreement (including
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without limitation, legal and accounting fees and expenses incurred by
or on behalf of any Stockholder in connection with the transactions
contemplated hereby, but paid by or invoiced to either Company), and
all Damages incident thereto.
(ii) All Damages relating to any employment or alleged
employment by either Company or any Stockholder of any finder, broker,
agent, or other intermediary in connection with the negotiation or
consummation of this Agreement or any of the transactions contemplated
hereby.
(iii) All amounts paid by the Surviving Corporation in respect
of any Dissenting Shares, in excess of the aggregate Merger
Consideration which would otherwise have been paid for such Dissenting
Shares, together with all Damages incident to any Stockholder's
exercise of appraisal rights with respect to such Dissenting Shares
pursuant to Section 262 of the Corporation Law.
(iv) All Damages relating to or arising out of any breach or
inaccuracy of any representation or warranty on the part of either
Company contained in this Agreement or in any certificate or other
instrument required to be furnished to Buyer by either Company in
connection with the transactions contemplated hereby.
(v) All Damages relating to or arising out of either Company's
breach of any covenant or breach or failure to perform any of its
obligations contained in this Agreement or in any certificate or other
instrument required to be furnished to Buyer by either Company in
connection with the transactions contemplated hereby.
The parties acknowledge that Losses may exist under clauses (i) through (iii)
above notwithstanding the fact that the events or occurrences involved in such
Loss may also or may not constitute a Loss under clause (iv) or (v) above.
11.02 ESCROW. At the Closing, the Stockholder Representative, Buyer,
and the Escrow Agent shall execute an Escrow Agreement in the form attached
hereto as Exhibit B (the "Escrow Agreement"), and Buyer shall deposit with the
Escrow Agent, to be held and distributed in accordance with the terms of the
Escrow Agreement, that portion of the Merger Consideration described in
Subsection 3.02(b) hereof with respect to each Share.
11.03 RIGHT TO REIMBURSEMENT FROM ESCROW. Following the Closing,
subject to the limitations set forth in Section 11.04 and the Escrow Agreement,
the Buyer shall have the right to be reimbursed from the Escrow Account for the
amount of any Losses incurred by the Buyer, either Company, or the Surviving
Corporation.
11.04 LIMITATIONS ON ESCROW REIMBURSEMENT; SURVIVAL. Buyer's right to
be reimbursed from the Escrow Account for the amount of any Losses in accordance
with Section 11.03 shall be subject to the following limitations:
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(a) The representations and warranties set forth in this
Agreement or in any certificate or other instrument required to be
furnished to Buyer or Merger Sub by either of the Companies in
connection with the transactions contemplated hereby shall survive only
for a period of eighteen months after the Closing Date, except that the
representations set forth in Sections 4.03, 4.04, and 4.05 shall
survive until the expiration of the respective statute of limitations
applicable thereto and those set forth in Section 4.08 shall survive
only until the expiration of the respective statute of limitations
applicable to each Tax matter described therein.
(b) Buyer shall not be entitled to any reimbursement in
connection with Losses described in Subsection 11.01(b)(iv) unless the
aggregate amount theretofore incurred by Buyer, either Company, or the
Surviving Corporation in connection with such Losses exceeds, on a
cumulative basis, $50,000 and then only to the extent of any such
excess.
11.05 INDEMNIFICATION BY SIGNING STOCKHOLDERS. (a) In the event that
(i) Buyer, either Company, or the Surviving Corporation suffers any Losses
described in Subsection 11.01(b)(iv) relating to any breach or inaccuracy of any
of the representations or warranties contained in Section 4.03, 4.04 (other than
Subsection 4.04(g)) or 4.05, or (ii) Buyer, either Company, or the Surviving
Corporation suffers any Losses described in Subsection 11.01(b)(i), (ii) or
(iii), then each Signing Stockholder agrees to indemnify the Buyer from and
against his or its Allocable Portion of any such Losses the Buyer, either
Company, or the Surviving Corporation shall suffer; provided, however, that the
Signing Stockholders' liability under this Section 11.05 shall be subject to the
limitations set forth in Section 11.06 below.
(b) In addition, to the extent that Losses which otherwise would have
been indemnifiable by the Signing Stockholders pursuant to this Section 11.05
are reimbursed from the Escrow Account pursuant to Section 11.02 ("Escrow
Reimbursed Signing Stockholder Losses") and, as a result, Losses as to which the
Signing Stockholders have no obligation to indemnify Buyer pursuant to this
Section 11.05, but which would otherwise have been reimbursed from the Escrow
Account ("Unreimbursed Escrow Losses") can not be reimbursed therefrom, then the
Signing Stockholders shall have a further limited obligation to reimburse the
Buyer for Unreimbursed Escrow Losses in an aggregate amount not to exceed the
lesser of the Escrow Reimbursed Selling Stockholder Losses or the Unreimbursed
Escrow Losses. Subject to the limitation set forth in the immediately preceding
sentence, the Signing Stockholders will reimburse the Buyers for Unreimbursed
Escrow Losses, with each Signing Stockholder's obligation being limited to such
Signing Stockholder's Allocable Portion of such Unreimbursed Escrow Losses. For
the avoidance of doubt, the Signing Stockholders' aggregate obligation to
reimburse for Unreimbursed Escrow Losses shall not exceed an amount equal to the
lesser of (i) the Escrow Reimbursed Signing Stockholder Losses, or (ii) the
Unreimbursed Escrow Losses.
11.06 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. The Signing
Stockholders' liability under Section 11.05 shall be subject to the following
limitations:
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(a) The Signing Stockholders shall have no obligation under
Section 11.05 unless and until there are no funds remaining in the
Escrow Account.
(b) The Signing Stockholders shall have no liability under
Section 11.05 with respect to any Loss if the Buyer would not be
entitled to reimbursement of the Loss from the Escrow Account, if there
were funds remaining in the Escrow Account.
(c) In no event shall any Signing Stockholder's liability
under Section 11.05 exceed the aggregate Merger Consideration paid to
such Signing Stockholder pursuant to Subsection 3.02(a).
(d) The Signing Stockholders shall have no obligation to
defend, indemnify, and hold harmless or otherwise reimburse the Buyer,
either Company, or the Surviving Corporation except as and to the
extent provided in Sections 11.05, 11.07, and 11.10, and the Escrow
Account shall be Buyer's sole recourse for Losses except to the limited
extent provided in Sections 11.05, 11.07, and 11.10
(e) "Allocable Portion" means, with respect to the liability
of any Signing Stockholder for any particular Loss, that fraction equal
to the number of Shares owned by such Signing Stockholder over the
total number of Shares owned by all Signing Stockholders.
11.07 INDEMNIFICATION FOR ARTICLE 5 AND OTHER MATTERS. If the Closing
occurs, each Signing Stockholder shall indemnify and hold Buyer, each Company,
and the Surviving Corporation harmless from and against all Damages incurred by
either arising out of, in connection with, or as a result of any
misrepresentation, inaccuracy, breach, or nonfulfillment of any representation
or warranty on the part of such Signing Stockholder contained in Article 5 of
this Agreement or in any certificate or other instrument required to be
furnished to Buyer by such Signing Stockholder in connection with the
transactions contemplated hereby. Notwithstanding the foregoing, in no event
shall any Signing Stockholder's aggregate liability under Section 11.05 and this
Section 11.07 exceed the aggregate Merger Consideration paid to such Signing
Stockholder pursuant to Subsection 3.02(a).
11.08 INDEMNIFICATION BY BUYER. If the Closing occurs, Buyer shall
indemnify and hold the Signing Stockholders harmless from and against all
Damages incurred by any of them arising out of, in connection with, or as a
result of (i) any misrepresentation, inaccuracy, breach, or nonfulfillment of
any representation, warranty, covenant, or agreement on the part of Buyer or
Merger Sub contained in this Agreement or in any certificate or other instrument
required to be furnished to the Signing Stockholders by Buyer or Merger Sub in
connection with the transactions contemplated hereby; or (ii) the employment or
alleged employment by Buyer or Merger Sub of any finder, broker, agent, or other
intermediary in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby.
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11.09 INDEMNIFICATION PROCEDURES. (a) Any party claiming
indemnification under any provision of this Agreement shall promptly notify the
party from whom indemnification is sought of the facts and circumstances giving
rise to such claim; provided, however, that failure to give such prompt notice
shall relieve a party from its indemnification obligation only to the extent of
any prejudice resulting from such failure.
(b) In the event any claim for indemnification under Section 11.05,
11.07, or 11.08 involves a claim or demand being asserted or sought to be
collected by a third party, the party(ies) from whom indemnity or recovery is
being sought (the "indemnifying party") shall have the right (but not the
obligation) to assume control of the defense, settlement, adjustment, or
compromise of the third party claim or demand. Should the indemnifying party
assume such control, (i) all expenses associated with the defense, settlement,
adjustment, or compromise of the claim or demand shall be borne by the
indemnifying party; (ii) the party(ies) seeking indemnity or recovery (the
"indemnified party") shall, at the indemnifying party's expense, provide the
indemnifying party with such information and assistance as the indemnifying
party may reasonably request; (iii) the indemnified party shall be entitled to
participate in the defense of the claim or demand, but shall not be entitled to
indemnification with respect to the costs and expenses of such defense if the
indemnifying party shall have assumed such defense with counsel reasonably
satisfactory to the indemnified party; and (iv) the indemnifying party shall
obtain the prior written approval of the indemnified party, which shall not be
unreasonably withheld, before entering into any settlement, adjustment, or
compromise of the third party claim or demand or ceasing to defend against such
claim or demand, if pursuant to or as a result of such settlement, adjustment,
compromise or cessation, injunctive or other nonmonetary relief or any monetary
relief not discharged in full by the indemnifying party would be imposed against
the indemnified party. In the event that the indemnifying party chooses not to
assume control of the defense, settlement, adjustment, or compromise of any such
third party claim or demand, the indemnified party shall control the same. In
such event, no settlement, adjustment, or compromise of such third party claim
or demand shall be made by the indemnified party without the indemnifying
party's prior consent, which shall not be unreasonably withheld.
(c) Notwithstanding the provisions of Subsection 11.09(b), if the
indemnifying party fails to take timely and diligent action to defend any third
party claim or demand described in this Section 11.09, or if the interests of
the indemnified party and the indemnifying party in such defense are materially
adverse, the indemnified party shall have the right to defend and settle the
same as the indemnified party may reasonably deem appropriate, provided that no
settlement, adjustment, or compromise of such third party claim or demand shall
be made by the indemnified party without the indemnifying party's prior consent,
which shall not be unreasonably withheld.
11.10 SOLE REMEDY. If the Closing occurs, the rights and remedies
afforded to any party in this Article 11 shall be the sole and exclusive remedy
of such party for all matters described in Sections 11.03, 11.05, 11.07, and
11.08, including any breach of this Agreement, other than matters relating to
any breach involving fraud.
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11.11 TRUSTS AND TRUSTEES. Each of the parties hereby acknowledges that
any Entity signing this Agreement, or any other document relating hereto, in
his, her, or its capacity as a trustee (a "trustee") or a trust (a "trust") is
signing solely in such capacity and not in any individual capacity,
notwithstanding the inclusion or exclusion of language to that effect. In
addition, each of the parties acknowledges that no trustee shall have any
liability hereunder or under any related document beyond the assets of the
identified trust.
ARTICLE 12. DAMAGE OR DESTRUCTION OF ASSETS. If the corporate
headquarters or any of the warehouses of the Operating Company is lost or
destroyed or materially damaged prior to the Closing, Buyer shall have the right
to terminate this Agreement, in which case Buyer, Merger Sub, the Operating
Company, and the Signing Stockholders shall have no further obligations or
rights hereunder.
ARTICLE 13. MISCELLANEOUS.
13.01 SURVIVAL. (a) Subject to the provisions of Subsection 11.04(a),
the respective representations and warranties of each party shall survive the
Closing, any investigation made by the parties hereto, and payment of all or any
portion of the aggregate Merger Consideration payable with respect to the
Shares.
(b) This Article 13 shall survive any pre-Closing termination of this
Agreement, however occurring.
13.02 PUBLIC STATEMENTS. The parties agree to consult with each other
and their respective counsel prior to issuing any press release or public
announcement with respect to this Agreement, or the transactions contemplated
hereby. Each party shall use all reasonable efforts to give to the other parties
sufficient opportunity to review any such press release or other public
announcement in advance of release.
13.03 STOCKHOLDER REPRESENTATIVE; STOCKHOLDERS' COMMITTEE. (a) For
purposes of this Agreement and the Escrow Agreement, each Signing Stockholder
hereby designates and appoints, and each other Stockholder shall, effective as
of the Effective Time, be deemed to have designated and appointed, Weiss, Peck &
Greer, L.L.C. (the "Stockholder Representative") as its attorney-in-fact with
full power on its behalf to perform any and all acts necessary or appropriate in
connection with this Agreement and the Escrow Agreement and all matters
described therein.
(b) Each Signing Stockholder hereby designates and appoints, and each
other Stockholder shall, effective as of the Effective Time, be deemed to have
designated and appointed, each of Wesley W. Lang, Jr., Craig S. Whiting, and
Sanjeev Meehra as members of a committee (the "Stockholders' Committee") who
shall have all authority to allocate and grant the bonuses (if any) to certain
employees of the Operating Company which are described in Section 3.04 of this
Agreement and all matters relating or incident thereto.
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(c) The Stockholder Representative, any Entity acting as
attorney-in-fact for any Stockholder (a "Stockholder Agent"), and the members of
the Stockholders' Committee, and any one of them, shall not have any duties or
responsibilities except those expressly set forth in this Agreement or the
Escrow Agreement, and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Agreement, the Escrow
Agreement, or any other agreement signed or authorized by such persons on any
Stockholder's behalf.
(d) The Stockholder Representative, the Stockholder Agents, and the
members of the Stockholders' Committee, and any one of them, shall be entitled
to rely, and shall be fully protected in relying, upon any statements furnished
to them, or any one of them, by any Stockholder or Buyer, or any other evidence
deemed by the Stockholder Representative, the Stockholder Agents, or the members
of the Stockholders' Committee, or any one of them, to be reliable, and the
Stockholder Representative, the Stockholder Agents, and the members of the
Stockholders' Committee, or any one of them, shall be entitled to act on the
advice of counsel selected by them, or any one of them. The Stockholder
Representative, the Stockholder Agents, and the members of the Stockholders'
Committee, and any one of them, shall be fully justified in failing or refusing
to take any action under this Agreement, the Escrow Agreement, or any other
agreement signed or authorized by such persons on any Stockholder's behalf,
unless they or any one of them shall have received such advice or concurrence of
the Stockholders as they deem appropriate or they shall have been expressly
indemnified to their satisfaction by the Stockholders against any and all
liability and expense that the Stockholder Representative, the Stockholder
Agents, and the members of the Stockholders' Committee, or any one of them, may
incur by reason of taking or continuing to take any such action. The Stockholder
Representative, the Stockholder Agents, and the members of the Stockholders'
Committee, and any one of them, shall in all cases be fully protected in acting,
or refraining from acting, under this Agreement, the Escrow Agreement, or any
other agreement signed or authorized by such persons on any Stockholder's
behalf, in reliance upon the powers granted hereunder, and any statements
furnished to them, or any one of them, by any Stockholder or Buyer or any other
evidence deemed by the Stockholder Representative, the Stockholder Agents, or
the members of the Stockholders' Committee, or any one of them, to be reliable,
and any action taken or failure to act pursuant thereto, shall be binding upon
all of the Stockholders.
(e) Each of the Signing Stockholders does hereby, on behalf of itself,
its spouse (if applicable), and the respective affiliates, heirs,
representatives, executors, administrators, successors, and assignees of each of
them (if any) (together, the "Related Persons"), release and absolutely forever
discharge each of the Stockholder Representative, each Stockholder Agent, and
each member of the Stockholders' Committee, and the respective managers,
officers, directors, shareholders, affiliates, employees, agents, successors,
and assigns of each such person (together, the "Released Persons"), from and
against all claims, demands, proceedings, damages, debts, liabilities,
obligations, costs, expenses, actions and causes of action of any kind or nature
whatsoever, that such Signing Stockholder has, or at any time previously had, or
at any time in the future shall have, arising with respect to any Shares held by
such Signing Stockholder on or prior to the date hereof.
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(f) Each of the Signing Stockholders does, on behalf of itself and the
Related Persons, hereby irrevocably covenant to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against any Released Party, based
upon any matter purported to be released hereby. Without in any way limiting any
of the rights and remedies otherwise available to the Released Parties, the
Signing Stockholders, severally and not jointly with any other Stockholder,
shall indemnify and hold harmless the Released Parties from and against all
loss, liability, claim, damage (including incidental and consequential damages)
or expense (including costs of investigation and defense and reasonable
attorneys' fees) arising directly or indirectly from or in connection with the
assertion by or on behalf of such Signing Stockholder or any of his, her or its
Related Persons of any claim or other matter purported to be released pursuant
to this Agreement
13.04 NOTICES. All notices and other communications hereunder shall be
in writing, shall be delivered personally or sent by U.S. mail, telecopy, or
overnight delivery service, to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like notice, and shall
be deemed given when received by the party for whom intended:
(a) If to Buyer or Merger Sub:
c/o TBC Corporation
4770 Hickory Hill Drive
P.O. Box 18342
Memphis, Tennessee 38181-0342
Attn: Lawrence C. Day
Fax #: (901) 541-3639
with a copy to:
Thompson Hine & Flory LLP
2000 Courthouse Plaza N.E.
P.O. Box 8801
Dayton, Ohio 45401-8801
Attn: Sharen Swartz Neuhardt, Esq.
Fax #: (937) 443-6635
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(b) If to the Holding Company or the Signing Stockholders:
Stockholders of Tire Kingdom
c/o Weiss Peck & Greer, L.L.C.
One New York Plaza
New York, New York 10004-1950
Attn: Wesley W. Lang, Jr.
Fax #: (212) 908-0112
with a copy to:
Finn Dixon & Herling, LLP
One Landmark Square
Stamford, Connecticut 06901-2689
Attn: Michael J. Herling, Esq.
Fax#: (203) 348-5777
The sending party shall have the burden of proving receipt.
13.05 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.06 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
13.07 TRANSACTION EXPENSES. The Signing Stockholders shall bear all
legal and accounting fees and expenses incurred by the Signing Stockholders or
the Companies in connection with the transactions contemplated by this
Agreement, and the Buyer shall bear all costs and expenses incurred by Buyer or
Merger Sub; provided, however, that in the event that this Agreement is
terminated and the Merger is not consummated, the Holding Company agrees to
reimburse Buyer for one-half of the HSR filing fee, e.g., $22,500.
13.08 ATTORNEYS' FEES. If any legal action or any other proceeding is
brought for the enforcement of this Agreement or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in connection with
such action or proceeding, in addition to any other remedies available.
13.09 WHOLE AGREEMENT; AMENDMENT. (a) This Agreement and the Exhibits,
Schedules, other instruments, and documents referred to herein contain the
entire agreement between the parties with respect to the transactions
contemplated hereby, and supersede all negotiations, representations,
warranties, commitments, offers, contracts, and writings prior to
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the date hereof, including without limitation, the letter of intent, dated March
17, 2000, as amended, between certain of the Signing Stockholders, the
Companies, and Buyer.
(b) This Agreement may not be amended except by means of a
written instrument, duly executed by all parties hereto, which specifically
references this Agreement and states that this Agreement is being amended in the
respects set forth therein.
13.10 SEVERABILITY. If any provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other terms and provisions of this Agreement will nevertheless remain in full
force and effect so long as, and only so long as, the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party hereto. Upon any determination that any
provision is invalid, illegal, or incapable of being enforced and does not
adversely affect the substance of these transactions in a material way, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated by this
Agreement are consummated to the extent possible.
13.11 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
devisees, or other successors and assigns, and shall be enforceable by and
against such Entities. No assignment of this Agreement shall relieve the
assigning party of responsibility for the performance of all of its or his
obligations hereunder. Nothing herein is intended to nor shall it create any
rights in any person other than the parties hereto and their respective
successors and assigns.
13.12 ADDITIONAL PARTIES. Any Stockholder may become a party to this
Agreement and thereby be deemed a Signing Stockholder for all purposes hereof by
executing and delivering a counterpart signature page to this Agreement (either
directly or by its attorney-in-fact), and upon such execution and delivery,
shall become a "Signing Stockholder" hereunder with all of the rights and
obligations thereof.
13.13 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, as
applicable to agreements wholly executed and performed therein.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first set forth above.
TBC CORPORATION
By /s/ RONALD E. MCCOLLOUGH
------------------------------------
Ronald E. McCollough,
Executive Vice President, Chief Financial
Officer, and Treasurer
TBC RETAIL ENTERPRISES, INC.
By /s/ RONALD E. MCCOLLOUGH
------------------------------------
Ronald E. McCollough,
Executive Vice President, Chief Financial
Officer, and Treasurer
TKI HOLDINGS, INC.
By /s/ JAMES F. WRIGHT
------------------------------------
Title: President/C.E.O.
WEISS, PECK & GREER, L.L.C., AS SOLE
TRUSTEE FOR THE WPG CORPORATE
DEVELOPMENT ASSOCIATES III, L.P.
LIQUIDATING TRUST
By /s/ CRAIG S. WHITING
------------------------------------
Title: Managing Director
WEISS, PECK & GREER, L.L.C., AS SOLE TRUSTEE FOR
THE WPG CORPORATE DEVELOPMENT ASSOCIATES III
(OVERSEAS), L.P. LIQUIDATING TRUST
By /s/ CRAIG S. WHITING
------------------------------------
Title: Managing Director
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GS CAPITAL PARTNERS, L.P.
BY: GS ADVISORS, L.L.C., AS GENERAL
PARTNER
By /s/ JOHN E. BOWMAN
------------------------------------
John E. Bowman,
Vice President
BRIDGE STREET FUND 1993, L.P.
BY: STONE STREET 1993, LLC, AS GENERAL
PARTNER
By /s/ JOHN E. BOWMAN
------------------------------------
John E. Bowman,
Vice President
STONE STREET FUND 1993, L.P.
BY: STONE STREET 1993, LLC, AS GENERAL
PARTNER
By /s/ JOHN E. BOWMAN
------------------------------------
John E. Bowman,
Vice President
43
<PAGE> 53
EXHIBIT A
Form of Opinion of Finn Dixon & Herling, LLP
1. The Holding Company is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation
and has the requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as it is
now being conducted.
2. We are not aware of the Holding Company being qualified to do business
as a foreign corporation in any state. Based upon the Holding Company's
representation and warranty that it does not own or lease property
(other than the stock of the Operating Company) or carry on any
business, we are not aware of any requirement for Holding Company to so
qualify in any state.
3. The authorized capital stock of the Holding Company is as set forth in
Section 4.04 of the Agreement. We are not aware of any Rights of
Purchase other than those listed on Schedule 4.04 of the Agreement.
4. To our knowledge, each of [the Goldman Sachs entities] and the [WPG
entities] (the "Principal Stockholders") has full right and lawful
authority to execute and deliver the Agreement and to consummate the
transactions contemplated thereby. The Holding Company has the
requisite corporate power and authority to execute and deliver the
Agreement and to consummate the transactions contemplated thereby. The
execution and delivery of the Agreement and the consummation of the
transactions contemplated thereby have been duly authorized and
approved by all necessary corporate action on the part of the Holding
Company.
5. We are not aware of any contracts, agreements, or understandings
between or among any Stockholders which limit, restrict or otherwise
affect the voting, sale, transfer or other disposition of any Common
Shares other than those listed on Schedule 4.04 of the Agreement.
6. The Agreement has been duly and validly executed and delivered by the
Holding Company and [assuming due authorization] each of the Principal
Stockholders and constitutes a legal, valid and binding obligation of
the Holding Company and each of the Principal Stockholders, enforceable
against the Holding Company and each of the Principal Stockholders in
accordance with its terms [subject to customary exceptions].
7. Except as set forth on Schedule 4.06 of the Agreement, neither the
execution and delivery of the Agreement by the Holding Company nor the
consummation by the Holding Company of the transactions contemplated
thereby will:
<PAGE> 54
(a) conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws of the Holding
Company.
(b) to our knowledge, violate any judgment, ruling, order, writ,
injunction, or decree which is applicable to the Holding
Company, or violate any federal, State of Connecticut or the
Delaware General Corporation Law ("DGCL") law, rule or
regulation applicable to the Holding Company.
(c) except for the filing of the Certificate of Merger and
compliance with the requirements of the HSR Act, to our
knowledge, require any consent, approval, authorization or
permit of or from, or filing with or notification to, any
federal, State of Connecticut or State of Delaware
Governmental Entity under the DGCL.
(d) without having undertaken any review of the laws governing the
Material Contracts, to our knowledge, violate or conflict
with, or result in the termination of, or accelerate the
performance required by, or result in the creation of any Lien
upon any properties or assets of either of the Companies under
the express terms of any Material Contracts of which we are
aware (assuming that such Material Contracts were nterpreted
under the laws of the State of Connecticut).
8. All requisite corporate action has been taken by the directors and
stockholders of the Holding Company under the DGCL to enable the
Holding Company to legally consummate the Merger.
9. We are not aware of any actions, suits or proceeding pending or
threatened against either of the Companies, or any judgments, decrees
or injunctions outstanding against either of the Companies, other than
as set forth in the Schedules.
<PAGE> 55
EXHIBIT B
---------
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT is being executed this 5th day of June, 2000, by
and among SUNTRUST BANK ("Escrow Agent"), TBC CORPORATION ("Buyer"), and WEISS,
PECK & GREER, L.L.C., in its capacity as Stockholder Representative (the
"Stockholder Representative"), under the following circumstances:
A. Buyer, TBC Retail Enterprises, Inc., TKI Holdings, Inc.
("Holding Company"), and certain stockholders of TKI Holdings, Inc. are
parties to an Agreement and Plan of Merger, dated June 2, 2000 (the
"Merger Agreement"), pursuant to the terms of which Buyer is acquiring
all of the issued and outstanding capital stock of the Holding Company.
B. Contemporaneously with the execution of this Agreement, the
parties are closing the transactions contemplated by the Merger
Agreement.
C. Pursuant to the terms of the Merger Agreement, a portion of
the merger consideration payable by Buyer is required to be escrowed
for the purposes and upon the terms set forth hereinafter.
D. Section 13.03 of the Merger Agreement and other documents
signed by each of the Stockholders (as defined in the Merger Agreement)
and the holders ("Optionees") of In-The-Money Options (as defined in
the Merger Agreement) designate and appoint the Stockholder
Representative as the attorney-in-fact for each of the Stockholders and
the Optionees, with full power on its behalf to perform any and all
acts necessary or appropriate in connection with this Agreement and all
matters described herein.
E. Buyer and the Stockholder Representative desire to appoint
the Escrow Agent as the agent for such escrow arrangement, and Escrow
Agent is agreeable to acting as such.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. (a) In addition to the capitalized terms
defined elsewhere in this Agreement, the capitalized terms set forth below shall
have the following meanings whenever used in this Agreement:
<PAGE> 56
"Claim" means a claim for reimbursement pursuant to Section 11.03 of
the Merger Agreement.
"Third Party Claim" means any Claim which involves a claim or demand
being asserted or sought to be collected by a third party.
"Non Third Party Claim" means any Claim other than a Third Party Claim
and includes any Claim for attorneys' fees and other costs and expenses incurred
by Buyer in connection with any Third Party Claim which is not covered by a
Direction Letter described in Section 5(d) of this Agreement.
(b) All capitalized terms used but not defined in this Agreement shall
have the meanings given to them in the Merger Agreement.
2. APPOINTMENT OF ESCROW AGENT. Buyer and the Stockholder
Representative hereby appoint the Escrow Agent, and Escrow Agent hereby accepts
appointment, as agent to hold the Escrowed Amounts (as defined in Section 4(b)
hereof) and to distribute the same in accordance with the terms of this
Agreement.
3. DEPOSIT OF FUNDS. Buyer hereby deposits with the Escrow Agent, and
Escrow Agent acknowledges receipt of, $2,100,000 (the "Principal Funds").
4. ESCROW ACCOUNT; OBLIGATIONS OF THE ESCROW AGENT. (a) Escrow Agent
shall maintain an account (the "Escrow Account"), into which it shall deposit
the Principal Funds.
(b) Escrow Agent shall invest any and all amounts from time to time
held in the Escrow Account in certificates of deposit, short term obligations of
the U.S. government, or overnight money market funds, as specified in accordance
with the joint written instructions of Buyer and the Stockholder Representative
from time to time received by the Escrow Agent. The interest earned as a result
of any such investment ("Interest") shall be credited to and deposited into the
Escrow Account. (The sum of the Principal Funds plus the Interest from time to
time held in the Escrow Account is referred to hereinafter as the "Escrowed
Amounts.")
(c) Escrow Agent shall maintain and preserve the Escrowed Amounts and
shall disburse the same from the Escrow Account only as provided hereinafter or
by court order.
(d) For purposes of any IRS Form 1099 reporting requirements, the
Escrow Agent shall report Interest earned on the Principal Funds, but not yet
disbursed from the Escrow Account in accordance with the provisions of Section
8(c) below, as having been earned by the Stockholders and the Optionees, pro
rata based upon the percentage of the Shares and In-The-Money Options owned by
each Stockholder and Optionee, as indicated on Schedule 1 hereto.
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<PAGE> 57
5. CLAIM NOTICES; THIRD PARTY CLAIMS PROCEDURES AND PAYMENT. (a) In the
event any Claim (other than Third Party Claims described in Section 5(e) below)
should arise, Buyer shall provide a written notice to the Stockholder
Representative which sets forth all relevant information with respect to the
Claim and includes copies of all relevant documents (a "Claim Notice").
(b) In the case of any Third Party Claim, the Stockholder
Representative shall have the right (but not the obligation) to assume control
of the defense, settlement, adjustment, or compromise of the Claim. Should the
Stockholder Representative assume such control, (i) all expenses associated with
the defense, settlement, adjustment, or compromise of the Third Party Claim
shall be borne by the Stockholder Representative; (ii) Buyer shall, at the
Stockholder Representative's expense, provide the Stockholder Representative
with such information and assistance as the Stockholder Representative may
reasonably request; (iii) Buyer shall be entitled to participate in the defense
of the Third Party Claim, but shall not be entitled to reimbursement from the
Escrow Account with respect to the costs and expenses of such defense if the
Stockholder Representative shall have assumed such defense with counsel
reasonably satisfactory to Buyer; and (iv) the Stockholder Representative shall
obtain the prior written approval of Buyer, which shall not be unreasonably
withheld, before entering into any settlement, adjustment, or compromise of the
Third Party Claim or ceasing to defend against such Claim, if pursuant to or as
a result of such settlement, adjustment, compromise or cessation, injunctive or
other nonmonetary relief or any monetary relief not discharged in full by the
Stockholder Representative would be imposed against Buyer or either of the
Companies. In the event that the Stockholder Representative chooses not to
assume control of the defense, settlement, adjustment, or compromise of any
Third Party Claim, Buyer shall control the same. In such event, no settlement,
adjustment, or compromise of such Third Party Claim shall be made by Buyer
without the Stockholder Representative's prior consent, which shall not be
unreasonably withheld.
(c) Notwithstanding the provisions of Section 5(b), if the Stockholder
Representative fails to take timely and diligent action to defend any Third
Party Claim, or if the interests of Buyer and the Stockholders and Optionees in
such defense are materially adverse, Buyer shall have the right to defend and
settle the same as Buyer may reasonably deem appropriate, provided that no
settlement, adjustment, or compromise of such Third Party Claim shall be made by
Buyer without the Stockholder Representative's prior consent, which shall not be
unreasonably withheld.
(d) If Buyer settles, adjusts, or compromises any Third Party Claim
with the consent of the Stockholder Representative, Buyer and the Stockholder
Representative shall deliver to the Escrow Agent, as promptly as is reasonably
practicable under the circumstances, but in all events within five business days
after such settlement, adjustment, or compromise, a letter (the "Direction
Letter") specifying the amount of such settlement, adjustment, or compromise,
together with the amount of any attorneys' fees and other costs and expenses
which were incurred by Buyer in connection with such Third Party Claim and which
the Stockholder
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<PAGE> 58
Representative has agreed are reimbursable from the Escrow Account. The Escrow
Agent shall, within two business days after receipt of such Direction Letter,
pay to Buyer the amount specified therein from the Principal Funds in the Escrow
Account.
(e) In the case of any Third Party Claim disclosed in the Schedules,
the Stockholder Representative hereby agrees that Buyer shall control the
defense, settlement, adjustment, or compromise of such Claim, subject to the
last sentence of Section 5(b) and the other provisions of this Section 5.
(f) Except as otherwise provided in Section 5(a), Buyer shall provide a
Claim Notice promptly upon becoming aware of the facts and circumstances
indicating that a Claim exists, but Buyer's failure to provide a Claim Notice
within any specified period of time shall not affect Buyer's rights hereunder if
Buyer cures such failure by providing the required Claim Notice on or before the
Termination Date (as defined in Section 7(a) hereof).
6. NON THIRD PARTY CLAIMS PROCEDURES AND PAYMENT. (a) Buyer and the
Stockholder Representative agree to use good faith efforts to resolve amicably
all Non Third Party Claims, to respond to requests made by the other as promptly
as is reasonably practicable under the circumstances, and to provide each other
with all information reasonably requested by the other to enable the other to
assess the basis for any Non Third Party Claim (or any objection to the
assertion of such a Claim) or the magnitude of such Claim. Without limiting the
foregoing, the Stockholder Representative shall respond in writing on behalf of
the Stockholders and the Optionees to any Non Third Party Claim asserted by
Buyer as promptly as is reasonably practicable under the circumstances, but in
all events within thirty days after receipt by the Stockholder Representative of
the Claim Notice relating thereto. The Stockholder Representative's written
response (a "Claim Response") shall specify either that (and to the extent to
which) the Stockholder Representative consents to the payment of the Non Third
Party Claim or objects to the payment of such Claim and stating its reasons
therefor.
(b) If (and to the extent that) any Claim Response indicates that the
Stockholder Representative consents to the payment of any Non Third Party Claim,
Buyer and the Stockholder Representative shall deliver to the Escrow Agent, as
promptly as is reasonably practicable under the circumstances, but in all events
within five business days after receipt by Buyer of such Claim Response, a
Direction Letter specifying the amount that the Stockholder Representative has
consented to be paid to Buyer with respect to such Claim (to the extent of such
consent, an "Allowed Claim"). The Escrow Agent shall, within two business days
after receipt of the Direction Letter, pay the Allowed Claim from the Principal
Funds in the Escrow Account in accordance with the Direction Letter.
(c) If any Claim Response contains an objection to the payment of any
Non Third Party Claim (or any portion thereof) described therein (a "Disputed
Claim"), then (i) Buyer and the Stockholder Representative shall deliver a
Direction Letter pursuant to Section 6(b) above with respect to the payment of
the undisputed portion (if any) of such Claim, and (ii) Buyer and
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<PAGE> 59
the Stockholder Representative shall use their best efforts to resolve the
Disputed Claim. If the parties are unable to resolve the Disputed Claim within
sixty days after the date of the Claim Response relating thereto, the
Stockholder Representative shall have the right to submit the Disputed Claim to
arbitration as provided in Section 10. The Stockholder Representative shall do
so by filing a Notice of Arbitration (as defined in Section 10(b)) within such
sixty day period and shall promptly provide a copy of the same to Buyer.
(d) If the Stockholder Representative fails either (i) to respond to
any Claim Notice relating to any Non Third Party Claim within thirty days after
receipt of the same, or (ii) to file a Notice of Arbitration with respect to any
Disputed Claim within sixty days after the date of its Claim Response relating
thereto, the Stockholder Representative shall be deemed to have agreed to the
validity of such Non Third Party Claim for the full amount thereof and to have
consented to the payment thereof. Buyer shall have the right to issue to the
Escrow Agent a Direction Letter with respect to any such Non Third Party Claim
at any time thereafter, setting forth the basis upon which it is issuing the
Direction Letter and instructing the Escrow Agent to disburse from the Principal
Funds in the Escrow Account an amount equal to the amount of such Claim as
indicated in the Claim Notice initially provided by Buyer with respect thereto.
Buyer shall provide a copy of such Direction Letter to the Stockholder
Representative no later than the date upon which such Direction Letter is issued
to the Escrow Agent. The Escrow Agent shall, within two business days after
receipt of the Direction Letter, pay the Non Third Party Claim from the
Principal Funds in the Escrow Account in accordance with the Direction Letter so
received.
(e) If the Stockholder Representative files a Notice of Arbitration
within sixty days after the date of its Claim Response relating to any Disputed
Claim, no disbursal of Principal Funds from the Escrow Account shall be made
with respect to such Disputed Claim until final resolution of the Claim (whether
by arbitration, settlement, or otherwise). Promptly after such final resolution,
Buyer and the Stockholder Representative shall deliver a Direction Letter to the
Escrow Agent regarding payment of such Disputed Claim, and the Escrow Agent
shall make payment of the amount specified in such Direction Letter from the
Principal Funds in the Escrow Account within two business days after receipt
thereof. To the extent that the Disputed Claim is resolved in the Stockholders'
and Optionees' favor, no distribution shall be made to Buyer with respect to the
portion of the Disputed Claim resolved in the Stockholders' and Optionees'
favor, and such amount shall remain in the Escrow Account until distribution is
otherwise required hereunder.
7. TERMINATION DATE AND PENDING CLAIMS. (a) Subject to the remaining
provisions of this Section 7, Buyer's right to reimbursement of Claims from the
Escrow Account shall end on December 4, 2001 (the "Termination Date"), and
Escrow Agent shall not disburse to Buyer any Principal Funds from the Escrow
Account for which a Direction Letter has not been received by the close of
business on the Termination Date.
(b) Not more than two business days after the Termination Date, Buyer
shall give to the Stockholder Representative a schedule of all outstanding
Claims existing as of the
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<PAGE> 60
Termination Date and asserted or yet to be asserted by Buyer (the "Schedule of
Claims"), and the amount with respect to each such Claim to be held in escrow
until such Claim is resolved. Such amount shall not exceed the greatest amount
Buyer asserts (in the reasonable good faith discretion of Buyer) is owing or, in
the case of a then unliquidated Claim, could reasonably be expected to become
owing, with respect to such Claim. Promptly (but in any event within three
business days) after the Schedule of Claims is produced, Buyer and the
Stockholder Representative shall deliver to the Escrow Agent a Direction Letter
instructing the Escrow Agent to release from the Escrow Account and promptly pay
to the Stockholder Representative the amount (if any) by which the balance of
Principal Funds in the Escrow Account exceeds the aggregate amount of all Claims
listed on the Schedule of Claims.
(c) On the second business day after final resolution, in accordance
with the provisions of this Agreement, of all Claims set forth on the Schedule
of Claims, all amounts remaining in the Escrow Account shall be paid over and
distributed to the Stockholder Representative.
8. DISBURSAL OF ESCROWED AMOUNTS. (a) All disbursals to Buyer from the
Escrow Account shall be made by wire transfer of funds to such bank account as
Buyer shall specify to Escrow Agent in the Direction Letter relating thereto.
(b) All disbursals to the Stockholder Representative from the Escrow
Account shall be made by wire transfer to such bank account or accounts as may
be specified by the Stockholder Representative by notice given to the Escrow
Agent.
(c) At the time any Principal Funds are distributed from the Escrow
Account, the Escrow Agent shall also disburse to the party receiving such
Principal Funds all Interest accrued on such Principal Funds through the date of
disbursal and then remaining in the Escrow Account.
(d) The Stockholder Representative shall distribute to the Stockholders
and the Optionees all disbursals received by the Stockholder Representative
hereunder, pro rata based upon the percentage of the Shares and In-The-Money
Options owned by each Stockholder and Optionee, as indicated on Schedule 1
hereto.
9. OBLIGATION TO DISBURSE. Escrow Agent shall comply with any Direction
Letter received in accordance with Section 5, 6, or 7 hereof regardless of
whether there is any dispute between the Stockholder Representative, the
Stockholders, the Optionees, and Buyer as to the Claim to which such Direction
Letter relates or the right to issue or validity of such Direction Letter.
10. ARBITRATION. (a) Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, including without limitation,
the validity or amount of any Claim, shall be settled by arbitration in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). Any such arbitration shall be held
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<PAGE> 61
in Atlanta, Georgia. If necessary, judgment upon any award rendered by the
arbitrator in accordance with such Commercial Arbitration Rules may be entered
in any court having jurisdiction thereof.
(b) Arbitration proceedings under this Agreement may be commenced only
by the filing with the Atlanta office of the AAA of a notice of intent to
arbitrate (a "Notice of Arbitration"). In the case of arbitration proceedings
sought to be commenced with respect to any Disputed Claim by the Stockholder
Representative, the Stockholder Representative may file such Notice of
Arbitration without the consent of any particular percentage of the Stockholders
and Optionees.
(c) Arbitration proceedings with respect to any Claim which are not
commenced within sixty days after the date of the Claim Response relating
thereto shall be forever barred.
(d) In any arbitration proceedings commenced under this Agreement, the
successful or prevailing party shall be entitled to recover from the
unsuccessful party reasonable attorneys' fees and other costs incurred in
connection therewith, and the losing party shall be responsible for all costs of
the arbitration proceedings. If Buyer is the successful or prevailing party,
Buyer shall have the option of adding the amount of its reasonable attorneys'
fees and other costs to the amount to be disbursed from the Escrow Account with
respect to the Claim resolved by such proceedings. If Buyer elects not to do so,
any liability of the Stockholder Representative shall be allocated among the
Stockholders and Optionees pro rata based upon the percentage of the Shares and
In-The-Money Options owned by each Stockholder and each Optionee, as indicated
on Schedule 1 hereto.
11. ESCROW AGENT'S LIABILITY; INDEMNIFICATION OF ESCROW AGENT;
RESIGNATION AND SUCCESSOR. (a) Escrow Agent shall not be liable to the
Stockholder Representative, any Stockholder, any Optionee, or Buyer for any
action taken or omitted to be taken by it under this Agreement, unless such
action or omission constitutes gross negligence or willful misconduct on the
part of the Escrow Agent. In any arbitration or legal proceeding relating to
this Agreement or any dispute hereunder, Escrow Agent shall be indemnified and
held harmless from all costs, expenses, and damages (including reasonable
attorneys' fees) incurred by it in connection with such action or proceeding (i)
by Buyer, if Buyer is the unsuccessful party, or (ii) by the Stockholder
Representative, who in turn will be held harmless by each Stockholder and each
Optionee, jointly and severally, if Buyer is the successful or prevailing party.
(b) The Escrow Agent may resign at any time, upon thirty days prior
written notice to Buyer and the Stockholder Representative, and shall deposit
all amounts then held in the Escrow Account with a successor escrow agent to be
jointly designated by Buyer and the Stockholder Representative. Any such
successor escrow agent must agree to be and shall be bound by, and shall have
all the rights, duties, and responsibilities of the Escrow Agent under, this
Agreement. If, upon the effective date of such resignation, no successor escrow
agent shall have been designated, the Escrow Agent shall have the right to
tender into the registry or custody of any
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<PAGE> 62
court of competent jurisdiction any part or all of the Escrow Account and shall
be relieved of any further obligations under this Agreement. Such resignation
shall not deprive the Escrow Agent of its compensation earned prior thereto, and
the provisions of Section 11(a) hereof shall survive any resignation by the
Escrow Agent.
12. ESCROW AGENT'S FEES AND EXPENSES. (a) Escrow Agent shall be paid a
fee of $2,000 for its services under this Agreement. In addition, Escrow Agent
shall be reimbursed for all reasonable attorneys' fees and reasonable and
customary expenses, such as wire transfer and certified or cashier's check
charges, incurred by Escrow Agent in connection with this Agreement or the
servicing and administration of the Escrow Account. (Such fees and expenses of
Escrow Agent are referred to hereinafter as the "Fees and Expenses.")
(b) All Fees and Expenses of the Escrow Agent shall be paid by Buyer.
13. MISCELLANEOUS. (a) No modification or amendment of any provision of
this Agreement shall be effective unless made in written instrument, duly
executed by the party to be bound thereby, which refers specifically to this
Escrow Agreement and states that an amendment or modification is being made in
the respects set forth in such instrument.
(b) This Escrow Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns, including, in the case of each Stockholder and each Optionee, the
heirs, legatees, and legal representatives of such Stockholder or Optionee.
(c) All notices, including without limitation, Claim Notices,
Resolution Notices, and Claim Responses, and all other communications which are
required or permitted hereunder shall be in writing and shall be delivered
personally or sent by U.S. mail, telecopy, or overnight delivery service, to the
party or parties for whom intended at such party's address set forth below, and
shall be deemed given when received by the party for whom intended:
If to Buyer:
TBC Corporation
4770 Hickory Hill Road
Memphis, Tennessee 38141
Attention: President
Fax: (901) 541-3639
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<PAGE> 63
With copy to:
Thompson Hine & Flory LLP
2000 Courthouse Plaza NE
Dayton, OH 45402
Attention: Sharen Swartz Neuhardt, Esq.
Fax: (937) 443-6635
If to Stockholders, the Optionees, or the Stockholder Representative:
Stockholders and Optionees of Tire Kingdom
c/o Weiss, Peck & Greer, L.L.C.,
as Stockholder Representative
One New York Plaza
New York, New York 10004-1950
Attention: Wesley W. Lang, Jr.
Fax: (212) 908-0112
With copy to:
Finn Dixon & Herling LLP
One Landmark Square
Stamford, Connecticut 06901-2689
Attention: Michael J. Herling, Esq.
Fax: (203) 348-5777
If to Escrow Agent:
SunTrust Bank
424 Church Street
Sixth Floor
Nashville, Tennessee 37219
Attention: Donna Williams, Vice President
Fax: (615) 748-5331
Any party may change the address to which notices and other communications are
to be directed to such party by giving written notice of such change to the
other parties hereto.
(d) The failure of any party to insist in any one or more instances
upon performance of any of the provisions of this Agreement or to take advantage
of any of such party's rights hereunder shall not be construed as a waiver of
any such provisions or the relinquishment of any such rights, and the same shall
continue and remain in full force and effect. No single or partial exercise by
any party of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. Waiver by any party of any
breach of any provision of
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<PAGE> 64
this Agreement shall not constitute or be construed as a continuing waiver or a
waiver of any other breach of any other provision of this Agreement.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, as applicable to contracts
executed and wholly performed therein.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement on
the date first written above.
TBC CORPORATION
By_____________________________________
Ronald E. McCollough,
Executive Vice President,
Chief Financial Officer, and Treasurer
WEISS, PECK & GREER, L.L.C., as
Stockholder Representative
By_______________________________________
Name:
Title:
SUNTRUST BANK, as Escrow Agent
By_______________________________________
Donna L. Williams,
Vice President
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<PAGE> 65
SCHEDULE I
----------
No. of Shares/In-The-Money
Name of Stockholder/Optionee Options Owned Percentage
---------------------------- ------------- ----------
<PAGE> 66
EXHIBIT C
Form of Opinion of Thompson Hine & Flory LLP
1. Each of the Buyer and the Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation and has the requisite corporate power and authority
to own, lease and operate its properties and assets and to carry on its
business as it is now being conducted, and the Buyer is the direct and
sole stockholder of the Merger Sub.
2. Each of the Buyer and the Merger Sub has the requisite corporate power
and authority to execute and deliver the Agreement and to consummate
the transactions contemplated thereby. The execution and delivery of
the Agreement and the consummation of the transactions contemplated
thereby have been duly authorized and approved by all necessary
corporate action on the part of the Buyer and the Merger Sub.
3. The Agreement has been duly and validly executed and delivered by each
of the Buyer and the Merger Sub and constitutes a legal, valid and
binding obligation of the Buyer and the Merger Sub, enforceable against
the Buyer and the Merger Sub in accordance with its terms [subject to
customary exceptions].
4. Neither the execution and delivery of the Agreement by the Buyer or the
Merger Sub nor the consummation by the Buyer or the Merger Sub of the
transactions contemplated thereby will:
(a) conflict with or result in a violation of any
provision of the Certificate of Incorporation or
By-laws of the Buyer or the Merger Sub.
(b) violate any judgment, ruling, order, writ,
injunction, or decree of which we are aware which is
applicable to the Buyer or the Merger Sub, or violate
any federal or Delaware corporate law, rule or
regulation applicable to the Buyer or the Merger Sub.
(c) except for the filing of the Certificate of Merger
and compliance with the requirements of the HSR Act,
to our knowledge, require any consent, approval,
authorization or permit of or from, or filing with or
notification to, any federal or Delaware Governmental
Entity.
5. All requisite corporate action has been taken by the directors and
stockholders of the Buyer and the Merger Sub under Delaware corporate
law to enable the Buyer and the Merger Sub to legally consummate the
Merger.
1
