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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): November 4, 1997
CONSOLIDATED STORES CORPORATION
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-8897 06-1119097
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(State or Other Jurisdiction of (Commission File Number) (IRS Employer Identification No.)
Incorporation)
</TABLE>
300 Phillipi Road, P. O. Box 28512, Columbus, Ohio 43228-0512
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (614)-278-6800
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ITEM 5. OTHER EVENTS.
On November 4, 1997, Consolidated Stores Corporation
("Consolidated") entered into an Agreement and Plan of Merger among
Consolidated, MBC Consolidated Acquisition Corporation ("Sub") and Mac Frugal's
Bargains - Close-outs, Inc. ("Mac Frugal's"), whereby Sub will be merged with
and into Mac Frugal's, resulting in Mac Frugal's being a wholly-owned subsidiary
of Consolidated (the "Merger"). A copy of the Agreement and Plan of Merger is
attached to this Form 8-K as Exhibit "1."
In connection with the Merger, Consolidated issued a press
release dated November 5, 1997. A copy of the press release is attached to this
Form 8-K as Exhibit "2."
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED STORES CORPORATION
Date: November 5, 1997 By: /s/ Michael J. Potter
----------------------------------
Michael J. Potter
Senior Vice President and
Chief Financial Officer
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Exhibit 1
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================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CONSOLIDATED STORES CORPORATION,
MBC CONSOLIDATED ACQUISITION CORPORATION
AND
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
DATED AS OF
NOVEMBER 4, 1997
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================================================================================
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TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.......................................................1
Section 1.1 THE MERGER............................................1
Section 1.2 EFFECTIVE TIME........................................1
Section 1.3 TAX-FREE REORGANIZATION...............................2
Section 1.4 CLOSING...............................................2
Section 1.5 BOARD OF DIRECTORS; OFFICERS..........................2
Section 1.6 STOCKHOLDERS' MEETINGS................................2
ARTICLE II CONVERSION OF SHARES.............................................3
Section 2.1 CONVERSION OF SHARES..................................3
Section 2.2 ISSUANCE OF PARENT COMMON STOCK.......................4
Section 2.3 TREATMENT OF STOCK OPTIONS.............................6
Section 2.4 STOCK TRANSFER BOOKS..................................6
Section 2.5 ASSISTANCE IN CONSUMMATION OF THE MERGER..............6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................7
Section 3.1 ORGANIZATION..........................................7
Section 3.2 CAPITALIZATION........................................7
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT;
COMPANY ACTION...................................9
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS.................9
Section 3.5 SEC REPORTS AND FINANCIAL STATEMENTS..................9
Section 3.6 ABSENCE OF CERTAIN CHANGES...........................10
Section 3.7 NO UNDISCLOSED LIABILITIES...........................10
Section 3.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS............10
Section 3.9 LITIGATION...........................................12
Section 3.10 NO DEFAULT..........................................12
Section 3.11 TAXES...............................................12
Section 3.12 ASSETS; REAL PROPERTY...............................14
Section 3.13 ENVIRONMENTAL MATTERS...............................14
Section 3.14 INSURANCE...........................................14
Section 3.15 TRANSACTIONS WITH AFFILIATES........................15
Section 3.16 COMPLIANCE WITH LAW.................................15
Section 3.17 VOTE REQUIRED.......................................15
Section 3.18 FINANCIAL ADVISORS..................................15
Section 3.19 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.............15
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................16
Section 4.1 ORGANIZATION.........................................16
Section 4.2 CAPITALIZATION.......................................16
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT;
NECESSARY ACTION................................17
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS................17
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS.................18
Section 4.6 ABSENCE OF CERTAIN CHANGES...........................18
Section 4.7 NO UNDISCLOSED LIABILITIES...........................19
Section 4.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS............19
Section 4.9 LITIGATION...........................................20
Section 4.10 NO DEFAULT..........................................20
Section 4.11 TAXES...............................................20
Section 4.12 ENVIRONMENTAL MATTERS...............................21
Section 4.13 INSURANCE...........................................21
Section 4.14 TRANSACTIONS WITH AFFILIATES........................22
Section 4.15 COMPLIANCE WITH LAW.................................22
Section 4.16 VOTE REQUIRED.......................................22
Section 4.17 FINANCIAL ADVISOR...................................22
ARTICLE V COVENANTS........................................................22
Section 5.1 INTERIM OPERATIONS OF THE COMPANY....................22
Section 5.2 INTERIM OPERATIONS OF PARENT.........................26
Section 5.3 TREATMENT OF CERTAIN INDEBTEDNESS....................26
Section 5.4 ACCESS TO INFORMATION................................27
Section 5.5 CONSENTS AND APPROVALS...............................27
Section 5.6 EMPLOYEE BENEFITS....................................28
Section 5.7 NO SOLICITATION......................................29
Section 5.8 ADDITIONAL AGREEMENTS................................31
Section 5.9 PUBLICITY............................................31
Section 5.10 NOTIFICATION OF CERTAIN MATTERS......................31
Section 5.11 DIRECTORS' AND OFFICERS' INSURANCE
AND INDEMNIFICATION ............................32
Section 5.12 COMPLIANCE WITH THE SECURITIES ACT..................32
Section 5.13 COOPERATION.........................................33
Section 5.14. PROXY STATEMENT/PROSPECTUS..........................33
Section 5.15 STOCK EXCHANGE LISTING..............................34
Section 5.16 CONFIDENTIALITY AGREEMENTS..........................34
Section 5.17 TAX MATTERS.....,...................................34
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ARTICLE VI CONDITIONS......................................................34
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY..........34
Section 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY
TO EFFECT THE MERGER............................35
Section 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB
TO EFFECT THE MERGER. .........................36
ARTICLE VII TERMINATION....................................................37
Section 7.1 TERMINATION..........................................37
Section 7.2 EFFECT OF TERMINATION................................38
Section 7.3 TERMINATION FEE......................................38
Section 7.4 EXTENSION; WAIVER....................................39
ARTICLE VIII MISCELLANEOUS.................................................39
Section 8.1 FEES AND EXPENSES....................................39
Section 8.2 FINDERS' FEES........................................40
Section 8.3 AMENDMENT AND MODIFICATION...........................40
Section 8.4 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES........40
Section 8.5 NOTICES..............................................40
Section 8.6 INTERPRETATION.......................................41
Section 8.7 COUNTERPARTS.........................................41
Section 8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES;
RIGHTS OF OWNERSHIP.............................42
Section 8.9 SEVERABILITY.........................................42
Section 8.10 SPECIFIC PERFORMANCE................................42
Section 8.11 GOVERNING LAW.......................................42
Section 8.12 ASSIGNMENT..........................................42
Section 8.13 JOINT AND SEVERAL LIABILITY.........................42
EXHIBITS
Form of Waiver............................................................A-1
Form of Affiliate Agreement...............................................B-1
iii
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of November 4,
1997, by and among Consolidated Stores Corporation, a Delaware corporation
("Parent"), MBC Consolidated Acquisition Corporation, a Delaware corporation and
a wholly owned subsidiary of Parent ("Sub"), and Mac Frugal's Bargains -
Close-outs Inc., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free plan of reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests."
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
---------
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law ("DGCL")
at the Effective Time (as defined in Section 1.2 below), the Company and Sub
shall consummate a merger (the "Merger") pursuant to which (i) Sub shall be
merged with and into the Company and the separate corporate existence of Sub
shall thereupon cease, and (ii) the Company shall be the successor or surviving
corporation in the Merger (the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware. Pursuant to the Merger, (x) the
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation, and (y) the By-laws of the Company, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such By-laws. The Merger shall have the effects
set forth in Section 259 of the DGCL.
Section 1.2 EFFECTIVE TIME. Parent, Sub and the Company will cause a
Certificate of Merger (the "Certificate of Merger") with respect to the Merger
to be executed and filed on the Closing Date (as defined in Section 1.4) (or on
such other date as Parent and the Company may agree) with the Secretary of State
of the State of Delaware as provided in the DGCL. The Merger shall become
effective on the date on which the Certificate of Merger has been duly filed
with the
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Secretary of State or such time as is agreed upon by the parties and specified
in the Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time."
Section 1.3 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) and 368(a)(2)(E) of the
Code. In this regard, Parent represents that it presently intends, and that at
the Effective Time it will intend, to continue the Company's historic business
or use a significant portion of the Company's business assets in a business.
Section 1.4 CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., local time, on a date to be specified by the parties,
which shall be no later than the third business day after satisfaction or waiver
of all of the conditions set forth in Article VI hereof (the "Closing Date"), at
the offices of Parent, unless another time, date or place is agreed to in
writing by the parties hereto.
Section 1.5 BOARD OF DIRECTORS; OFFICERS. The directors and officers of
Sub immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation, in each case until their respective successors are
duly elected and qualified.
Section 1.6 STOCKHOLDERS' MEETINGS. (a) In order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law, duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Company Special Meeting"), as soon as
practicable after the registration statement on Form S-4 (together with all
amendments, schedules, and exhibits thereto) to be filed by Parent in connection
with the registration of the Parent Common Stock to be issued by Parent in the
Merger (the "Registration Statement") is declared effective, for the purpose of
considering and taking action upon this Agreement. The Company shall include in
the joint proxy statement/prospectus forming a part of the Registration
Statement (the "Proxy Statement/Prospectus") the recommendation of the Board of
Directors of the Company that stockholders of the Company vote in favor of the
approval of the Merger and the adoption of this Agreement. Parent agrees that it
will vote, or cause to be voted, all of the shares of Company Common Stock (as
defined in Section 2.1(b)) then owned by it, Sub or any of its other
Subsidiaries, if any, in favor of the approval of the Merger and adoption of
this Agreement at the Company Special Meeting.
(b) In order to consummate the Merger, Parent, acting through its Board
of Directors, shall, in accordance with applicable law, duly call, give notice
of, convene and hold a special meeting of its stockholders (the "Parent Special
Meeting" and together with the "Company Special Meeting," the "Special
Meetings"), as soon as practicable after the Registration Statement is declared
effective, for the purpose of authorizing the issuance of shares of Parent
Common Stock (as defined below), authorizing an increase in the number of
authorized shares of Parent Preferred Stock (as defined in Section 4.2) and
authorizing any other action requiring stockholder approval pursuant to the
Merger. Parent shall include in the Proxy Statement/Prospectus the
recommendation of the Board of Directors of Parent that stockholders of Parent
vote in favor of the issuance of shares of Parent common stock, par value $.01
("Parent Common Stock"), in the Merger.
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(c) Nothing in this Section 1.6 is intended to impair the fiduciary
duties of the Boards of Directors of the Company or Parent or, in the case of
the Board of Directors of the Company, to restrict its ability to withdraw its
recommendation otherwise contemplated pursuant to Section 1.6(a) of this
Agreement (subject to the termination provisions of Article VII) or to exercise
its right of termination pursuant to Section 7.1(c) of this Agreement, or in the
case of the Board of Directors of Parent, to restrict its ability to withdraw
its recommendation otherwise contemplated pursuant to Section 1.6(b) of this
Agreement (subject to the termination provisions of Article VII) or to exercise
its right of termination pursuant to Section 7.1(d) of this Agreement.
ARTICLE II
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CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES. (a) Each share of Common Stock, par
value $.01 per share, of Sub issued and outstanding immediately prior to the
Effective Time, without any other action by Parent, Sub or the Company, shall,
at the Effective Time, be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Each share of Company common stock, par value $.02778 ("Company
Common Stock"), issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled pursuant to Section 2.1(e) hereof) shall, at
the Effective Time, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and converted automatically into the right to
receive a number of duly authorized, validly issued, fully paid and
nonassessable shares of Parent Common Stock equal to the Exchange Rate (as
defined below). Additionally, each share of Parent Common Stock issued pursuant
to the Merger will be issued with one associated preferred stock purchase right
(a "Right").
(c) For purposes hereof, the "Exchange Rate" shall mean:
(i) 1.00, if and only if the Average Parent Share Price (as
defined below) is less than or equal to $39.00; provided, however, that
in the event the Average Parent Share Price is equal to or less than
$35.00, then in that event the Company may, in its sole discretion,
terminate this Agreement in accordance with the provisions of Article
VII hereof, in which case none of the parties hereto shall have any
further obligations hereunder except as set forth in Section 7.2; or
(ii) The quotient of (A) $39.00 divided by (B) the Average
Parent Share Price, if and only if the Average Parent Share Price is
both (x) greater than $39.00 and (y) less than or equal to $41.49; or
(iii) .94, if and only if the Average Parent Share Price is
both (x) greater than $41.49 and (y) less than or equal to $43.62; or
(iv) (A) .94 less (B) the product of (x) the Average Parent
Share Price less $43.62 multiplied by (y) .01, if and only if the
Average Parent Share Price is both (I) greater than $43.62 and (II)
less than or equal to $49.62; or
3
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(v) .88, if and only if the Average Parent Share Price is
greater than $49.62.
(d) The "Average Parent Share Price" shall mean the average closing
price per share of Parent Common Stock on the New York Stock Exchange (the
"NYSE") as reported on the NYSE Composite Tape during the period comprising the
twenty NYSE trading days immediately preceding the second NYSE trading day
immediately preceding the Effective Time of the Merger (the "Pricing Period").
Promptly following the closing of the Pricing Period, Parent and Company will
issue a joint press release announcing the Exchange Rate.
(e) All shares of Company Common Stock that are owned by the Company as
treasury stock and any shares of Company Common Stock owned by Parent, Sub or
any other direct or indirect wholly owned Subsidiary of Parent shall, at the
Effective Time, be canceled and retired and shall cease to exist and no Parent
Common Stock shall be delivered in exchange therefor.
(f) On and after the Effective Time, holders of certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") shall cease to have any rights as
stockholders of the Company, except the right to receive the consideration set
forth in this Article II (the "Merger Consideration") for each share of Company
Common Stock held by them.
Section 2.2 ISSUANCE OF PARENT COMMON STOCK. (a) The manner in which
each share of Company Common Stock (other than shares to be canceled as set
forth in Section 2.1(e)) will be converted into Parent Common Stock shall be as
set forth in this Section 2.2.
(b) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates
representing shares of Company Common Stock, no dividend or distribution with
respect to shares shall be payable on or with respect to any fractional share
and such fractional share interests shall not entitle the owner thereof to vote
or to exercise any other rights of a stockholder of Parent. In lieu of any such
fractional shares, each holder of Company Common Stock who otherwise would be
entitled to receive a fractional share of Parent Common Stock pursuant to the
Merger will be paid an amount in cash equal to such fractional interest
multiplied by the Average Parent Share Price. As soon as practicable after the
determination of the amount of cash to be paid to former stockholders of the
Company in lieu of any fractional interests, Parent shall make available to the
Exchange Agent (as defined below), which shall in turn make available in
accordance with this Agreement, such amounts to such former stockholders.
(c) Parent shall designate a bank or trust company to act as agent for
the holders of shares of Company Common Stock in connection with the Merger (the
"Exchange Agent") to receive the shares of Parent Common Stock to which holders
of shares of Company Common Stock shall become entitled pursuant to this Article
II.
(d) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a Certificate whose shares
were converted pursuant to this Article II
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into the right to receive the Merger Consideration (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each share of
Company Common Stock formerly represented by such Certificate and the
Certificate so surrendered shall forthwith be canceled. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
(e) Immediately following the Effective Time, Parent shall deliver, in
trust, to the Exchange Agent, for the benefit of the holders of shares of
Company Common Stock, (i) certificates representing an aggregate number of
shares of Parent Common Stock as nearly as practicable equal to the product of
the Exchange Rate and the number of shares of Company Common Stock to be
converted into Parent Common Stock as determined by this Article II. As soon as
practicable after the Effective Time, each holder of shares of Company Common
Stock converted into Parent Common Stock, upon surrender to the Exchange Agent
of one or more Certificates for such shares for cancellation, shall be entitled
to receive certificates representing the number of shares of Parent Common Stock
into which such shares of Company Common Stock shall have been converted in the
Merger. No dividends or distributions that have been declared will be paid to
persons entitled to receive certificates for shares of Parent Common Stock until
such persons surrender their Certificates for shares of Company Common Stock, at
which time all such dividends shall be paid. In no event shall the persons
entitled to receive such dividends be entitled to receive interest on such
dividends. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any Parent Common Stock or dividends thereon delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) At any time following nine months after the Effective Time, the
Surviving Corporation shall be entitled to require the Exchange Agent to deliver
to it any shares of Parent Common Stock or funds (including any interest
received with respect thereto) which had been made available to the Exchange
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
and Parent (subject to abandoned property, escheat or other similar laws) only
with respect to the Merger Consideration payable or issuable upon due surrender
of their Certificates, without any interest thereon.
Section 2.3 TREATMENT OF STOCK OPTIONS. (a) Effective as of the
Effective Time, each option granted by the Company to purchase shares of Company
Common Stock that is
5
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outstanding and unexercised immediately prior thereto (the "Company Stock
Options"), whether vested or unvested as of the Effective Time, shall cease to
represent a right to acquire shares of Company Common Stock and shall be
converted automatically into a fully vested and exercisable option to purchase
shares of Parent Common Stock in an amount, at an exercise price and for an
exercise period determined as provided below (and otherwise subject to the terms
of the Company plans (the "Option Plans"), and the agreements evidencing grants
thereunder). The number of shares of Parent Common Stock subject to, and the
option price and terms and conditions of, the new option shall be determined in
a manner that preserves both (i) the aggregate gain (or loss) on the Company
Stock Option immediately prior to the Effective Time and (ii) the ratio of the
exercise price per share subject to the Company Stock Option to the fair market
value (determined immediately prior to the Effective Time) per share subject to
such option, provided that any fractional shares of Parent Common Stock
resulting from such determination shall be rounded down to the nearest share.
Effective as of the Effective Time, the Surviving Corporation shall assume each
Company Stock Option agreement, each as amended, as provided herein. The
adjustment provided herein with respect to any Company Stock Options that are
"incentive stock options" (as defined in section 422 of the Code) shall be and
is intended to be effected in a manner that is consistent with section 424(a) of
the Code. The duration and other terms of the new options shall be the same as
the Company Stock Options that they replace, except that all references to the
Company shall be deemed to be references to Parent; provided, however, that all
such new options shall not expire until at least sixty (60) days after the end
of the first fiscal quarter of Parent ending at least thirty (30) days after the
Effective Time. New option award agreements will be provided to each holder of
new options within 30 days after the Effective Time.
(b) Effective as of the Effective Time, the Option Plans shall
terminate and the provisions in any other plan, program, agreement or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any of its Subsidiaries shall be deleted.
Furthermore, the Company shall take all actions necessary to ensure that
following the Effective Time, no holder of Company Stock Options or any
participant in the Option Plans or any other plans, programs, agreements or
arrangements shall have any right thereunder to acquire any equity securities of
the Company, the Surviving Corporation or any subsidiary of either of the
foregoing.
Section 2.4 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock on the records of
the Company. If, after the Effective Time, Certificates representing shares of
Company Common Stock are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates representing Parent Common Stock
pursuant to this Article II.
Section 2.5 ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of Parent,
Sub and the Company shall provide all reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the Merger as soon
as practicable in accordance with the terms and conditions of this Agreement.
Parent shall cause Sub to perform all of its obligations in connection with this
Agreement.
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ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 ORGANIZATION. Each of the Company and its Subsidiaries is a
corporation, partnership or other entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, and has all requisite corporate or other power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries taken as a whole. All such
jurisdictions are listed in Section 3.1 of the Disclosure Schedule delivered by
the Company to Parent on or prior to the date hereof (the "Company Disclosure
Schedule"). As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. As used in this Agreement, any reference to any
event, change or effect having a material adverse effect on or with respect to
any entity (or group of entities taken as a whole) means such event, change or
effect, individually or in the aggregate with such other events, changes, or
effects, which is materially adverse to the financial condition, business or
results of operations of such entity. If "material adverse effect" is used with
respect to more than one entity, it shall mean such events, changes or effects
with respect to all such entities taken as a whole. Section 3.1 of the Company
Disclosure Schedule sets forth a complete list of the Company's Subsidiaries.
Complete and correct copies as of the date hereof of the Certificate of
Incorporation and By-laws of the Company and each of its Subsidiaries have been
provided to Parent.
Section 3.2 CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 100,000,000 shares of Company Common Stock, par value
$.02778 per share and 500,000 shares of preferred stock, par value $1.00 per
share ("Company Preferred Stock"), of which 410,000 shares have been designated
as Series A Junior Participating Preferred Stock. As of October 31, 1997, (i)
25,116,973 shares of Company Common Stock are issued and outstanding, 661,600
shares of Company Common Stock are held in the Company's treasury, 295,731
shares of Company Common Stock are reserved for issuance under the Company's
1990 Employee Stock Incentive Plan, 150,004 shares of Company Common Stock are
reserved for issuance pursuant to options previously granted
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pursuant to the 1992 Non-Employee Directors Stock Option Plan, 25,000 shares of
Company Common Stock are reserved for issuance pursuant to a Stock Option
Agreement between the Company and Peter Willmott and an aggregate of 200,000
shares of Company Common Stock are reserved for issuance pursuant to individual
Stock Option Agreements between the Company and each of its current non-employee
directors, (ii) no shares of Preferred Stock are issued and outstanding, and
(iii) no shares of Preferred Stock are issued and held in the treasury of the
Company. All the outstanding shares of the Company's capital stock are, and all
shares which may be issued pursuant to the Option Plans will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and non-assessable. Except as disclosed in Section 3.2(a) of the
Company Disclosure Schedule, there are no bonds, debentures, notes or other
indebtedness having voting rights (or convertible into securities having such
rights) ("Voting Debt") of the Company or any of its Subsidiaries issued and
outstanding. Except as disclosed in Section 3.2(a) of the Company Disclosure
Schedule as of the date hereof (and as of October 28, 1997 with respect to stock
options), (i) there are no shares of capital stock of the Company authorized,
issued or outstanding and (ii) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the issued
or unissued capital stock of the Company or any of its Subsidiaries, obligating
the Company or any of its Subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or Voting Debt of, or
other equity interest in, the Company or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or equity interests or
obligations of the Company or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or other right, convertible
security, agreement, arrangement or commitment. Except as disclosed in Section
3.2(a) of the Company Disclosure Schedule, there are no outstanding contractual
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Shares of the capital stock of the Company or any
subsidiary or affiliate of the Company or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in any
Subsidiary or any other entity. Except as permitted by this Agreement, following
the Merger, neither the Company nor any of its Subsidiaries will have any
obligation to issue, transfer or sell any shares of its capital stock pursuant
to any employee benefit plan or otherwise.
(b) Except as disclosed in Section 3.2(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either the Company or one of its Subsidiaries free and clear of
all liens, charges, security interests, options, claims or encumbrances of any
nature whatsoever.
(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries. None of
the Company or its Subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
There are no stockholder agreements, registration rights agreements or other
similar agreements to which the Company or any of its subsidiaries is a party.
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Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION. (a) The Company has full corporate power and authority to execute and
deliver this Agreement, and, subject to obtaining any necessary approval of its
stockholders as contemplated by Section 1.6(a) hereof with respect to the
Merger, to consummate the transactions contemplated hereby. The execution,
delivery and performance by the Company of this Agreement, and the consummation
by it of the transactions contemplated hereby, have been duly and validly
authorized by its Board of Directors and, except for obtaining the approval of
its stockholders as contemplated by Section 1.6(a) hereof with respect to the
Merger, no other corporate action or proceedings on the part of the Company is
necessary to authorize the execution and delivery by the Company of this
Agreement and the consummation by it of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, assuming
this Agreement constitutes a valid and binding obligation of Parent and Sub,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly and validly approved
and taken all corporate action required to be taken by the Board of Directors
for the consummation of the transactions contemplated by this Agreement,
including, but not limited to, all actions necessary to render the provisions of
Section 203 of the DGCL inapplicable to such transactions.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed
in Section 3.4 of the Company Disclosure Schedule, and except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the DGCL, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and for the approval of this Agreement by the Company's stockholders and
the filing and recordation of the Certificate of Merger as required by the
DGCL, neither the execution, delivery or performance of this Agreement, nor the
consummation by the Company of the transactions contemplated hereby or thereby
nor compliance by the Company with any of the provisions hereof or thereof will
(i) conflict with or result in any breach of any provision of the Certificate
of Incorporation or By-laws or similar organizational documents of the Company
or of any of its Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not have a material adverse effect on the Company and its
Subsidiaries and would not, or would not be reasonably likely to, materially
impair the ability of the Company to consummate the Merger or the other
transactions contemplated hereby or thereby, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any material
credit agreement, credit facility, note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness (collectively, the "Debt Instruments"), lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which any of them or any
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of their properties or assets may be bound (a "Company Agreement") or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties or
assets, except in the case of clause (iii) or (iv) for such violations, breaches
or defaults which would not, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries, and which would not, or
would not be reasonably likely to, materially impair the ability of the Company
to consummate the Merger or the other transactions contemplated hereby. Except
as disclosed in Section 3.4 of the Company Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any agreement that expressly limits the
ability of the Company or any Subsidiary or affiliate to compete in or conduct
any line of business currently being conducted by the Company or compete with
any person or in any geographic area or during any period of time.
Section 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has filed
with the United States Securities and Exchange Commission (the "SEC"), and has
heretofore made available to Parent true and complete copies of, all forms,
reports, schedules, statements and other documents required to be filed by it
and its Subsidiaries since December 31, 1994 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or the Securities Act of 1933, as
amended (the "Securities Act") (as such documents have been amended since the
time of their filing, collectively, the "Company SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment, the
Company SEC Documents, including, without limitation, any financial statements
or schedules included therein (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied as to form in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations of
the SEC thereunder. Each of the consolidated financial statements included in
the Company SEC Documents have been prepared from, and are in accordance with,
the books and records of the Company and/or its consolidated Subsidiaries,
comply in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if any)
of the Company and its consolidated Subsidiaries as at the dates thereof or for
the periods presented therein.
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except to the extent disclosed
in the Company SEC Documents filed prior to the date of this Agreement or as
otherwise disclosed to Parent in the Company Disclosure Schedules (including
Section 3.6 thereof), since February 2, 1997, (a) the Company and its
Subsidiaries have conducted their respective businesses and operations in the
ordinary course of business consistent with past practice, and (b) there has not
occurred (i) any events, changes, or effects (including the incurrence of any
liabilities of any nature, whether or not accrued, contingent or otherwise)
having or, which would be reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Company and its Subsidiaries; (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock
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or property) with respect to the equity interests of the Company or of any of
its Subsidiaries, other than dividends paid by wholly owned Subsidiaries; or
(iii) any material change by the Company or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP. Except as set forth on Schedule 3.6 of the Company Disclosure Schedule,
since February 2, 1997, neither the Company nor any of its Subsidiaries has
taken any of the actions prohibited by Section 5.1 hereof, except in the
ordinary course of business consistent with past practice.
Section 3.7 NO UNDISCLOSED LIABILITIES. Except (a) to the extent
disclosed in the Company SEC Documents filed prior to the date of this
Agreement, (b) for liabilities and obligations incurred in the ordinary course
of business consistent with past practice and (c) for matters disclosed in the
Company Disclosure Schedules (including Section 3.7 thereof), since February 2,
1997, neither the Company nor any of its Subsidiaries have incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise (including without limitation those relating, directly or indirectly,
to the Company's distribution facility), that have, or would be reasonably
likely to have, a material adverse effect on the Company and its Subsidiaries or
would be required to be reflected or reserved against on a consolidated balance
sheet of the Company and its Subsidiaries (including the notes thereto) prepared
in accordance with GAAP as applied in preparing the February 2, 1997
consolidated balance sheet of the Company and its Subsidiaries. Section 3.4 of
the Company Disclosure Schedule sets forth each instrument evidencing
indebtedness of the Company and its Subsidiaries which will accelerate or become
due or payable, or result in a right of redemption or repurchase on the part of
the holder of such indebtedness, or with respect to which any other payment or
amount will become due or payable, in any such case with or without due notice
or lapse of time, as a result of this Agreement, the Merger or the other
transactions contemplated hereby.
Section 3.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS. The Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto), at the
date mailed to the Company's stockholders, on the date filed with the SEC and at
the time of the Special Meetings, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, provided, however, that
no representation is made by the Company with respect to statements made therein
based on information supplied by Parent or Sub for inclusion in the Proxy
Statement/Prospectus. None of the information supplied by the Company for
inclusion or incorporation by reference in the Registration Statement will, at
the date it becomes effective and at the time of the Special Meetings contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Subject to the proviso set forth in the second preceding sentence,
the Proxy Statement/Prospectus will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Section 3.9 LITIGATION. Except to the extent disclosed in the Company
SEC Documents filed prior to the date of this Agreement or in Section 3.9 of the
Company Disclosure Schedule, there is no suit, claim, action, proceeding or, to
the best knowledge of the Company, investigation pending
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or threatened against or affecting, the Company or any of its Subsidiaries
which, individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Company and its Subsidiaries, or would, or would be
reasonably likely to, materially impair the ability of the Company to consummate
the Merger or the other transactions contemplated hereby.
Section 3.10 NO DEFAULT. The business of the Company and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of its respective Certificate of Incorporation or By-laws
or similar organizational documents. To the best knowledge of the Company, no
investigation or review by any Governmental Entity with respect to the Company
or any of its Subsidiaries is pending or threatened, nor has any Governmental
Entity indicated an intention to conduct the same, except such investigations or
reviews that, individually or in the aggregate, would not have a material
adverse effect on the Company and its Subsidiaries or would not, or would not be
reasonably likely to, materially impair the ability of the Company to consummate
the Merger or the other transactions contemplated hereby.
Section 3.11 TAXES. (a) Except as set forth in Section 3.11(a) of the
Company Disclosure Schedule, the Company and each of its Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its Subsidiaries is or has been a member has timely filed all
Tax Returns required to be filed by it (other than those that are not,
individually or in the aggregate, material), has paid all Taxes shown thereon to
be due and has provided adequate accruals in all material respects in accordance
with GAAP in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. In addition, (i) no
material claim for unpaid Taxes has become a lien against the property of the
Company or any of its Subsidiaries or is being asserted against the Company or
any of its Subsidiaries, (ii) no audit of any Tax Return of the Company or any
of its Subsidiaries is being conducted by a taxing authority that has had or
could reasonably be expected to have, a material adverse effect on the Company
and its Subsidiaries taken as a whole, (iii) no extension of the statute of
limitations on the assessment of any Taxes has been granted by the Company or
any of its Subsidiaries and is currently in effect that has had or could
reasonably be expected to have, a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(b) As of the date of this Agreement, except as set forth in Section
3.11(b) of the Company Disclosure Schedule:
(i) there are no material liens for Taxes upon any property or
assets of the Company or any Subsidiary thereof, except for liens for
Taxes not yet due and payable and liens for Taxes that are being
contested in good faith by appropriate proceedings;
(ii) neither the Company nor any of its Subsidiaries has
agreed to or is required to make any adjustment under Section 481(a) of
the Code;
(iii) the federal income Tax Returns of the Company and its
Subsidiaries have been examined by the Service (or the applicable
statutes of limitation for the
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assessment of federal income Taxes for such periods have expired) for
all periods as set forth in Section 3.11(b) of the Company Disclosure
Schedule;
(iv) neither the Company nor any of its Subsidiaries is a
party to any material agreement providing for the allocation or sharing
of Taxes; and
(v) neither the Company nor any of its Subsidiaries has, with
regard to any assets or property held or acquired by any of them, filed
a consent to the application of Section 341(f) of the Code, or agreed
to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by the Company or any of its Subsidiaries.
(c) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts or
gross income, excise, premium, custom, duty, real or personal property, ad
valorem, value added, sales, withholding, social security, retirement,
employment, unemployment, occupation, use, service, service use, profits,
license, net worth, payroll, capital stock, franchise, stamp, transfer and
recording taxes, alternative or add-on minimum taxes fees and charges, imposed
by the Service or any taxing authority (whether domestic or foreign including,
without limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include liability for payment of any amounts as a
result of being a party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other person with respect to the
payment of any amounts of the type described in this section (c), any interest
whether paid or received, fines, penalties (including penalties for failures in
connection with information returns including, partnership information returns
and escheat returns) or additional amounts attributable to, or imposed upon, or
with respect to, any such taxes, charges, fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
Section 3.12 ASSETS; REAL PROPERTY. The assets, properties, rights and
contracts, including, without limitation (as applicable), title or leaseholds
thereto, of the Company and its Subsidiaries, taken as a whole, are sufficient
to permit the Company and its Subsidiaries to conduct their business as
currently being conducted. All real property owned by the Company and its
Subsidiaries (the "Real Property") is owned free and clear of all liens,
charges, security interests, options, claims, mortgages, pledges, easements,
rights-of-way or other encumbrances and restrictions of any nature whatsoever,
except those which do not materially impair the ability of the Company, taken as
a whole, to conduct its business as now being conducted.
Section 3.13 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.13
of the Company Disclosure Schedule, as of the date of this Agreement, the
Company is in compliance in all material respects with all applicable
Environmental Laws and there are no Environmental
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Liabilities and Costs of the Company and its Subsidiaries that would have or are
reasonably likely to have a material adverse effect on the Company and its
Subsidiaries which have not been fully reserved against in the Company's
consolidated financial statements.
For purposes of this Section 3.13, the following definitions shall
apply:
"Environmental Laws" means all applicable foreign, federal, state and
local laws, common law, regulations, rules and ordinances relating to pollution
or protection of the environment.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all reasonable fees, disbursements and
expenses of counsel, expert and consulting fees and costs of investigations and
feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, under any Environmental Law,
or arising from environmental conditions, as a result of past or present
ownership, leasing or operation of any properties, owned, leased or operated by
the Company or any of its Subsidiaries.
Section 3.14 INSURANCE. As of the date hereof, the Company and each of
its Subsidiaries are insured by insurers against such losses and risks and in
such amounts as are customary in the businesses in which they are engaged. All
policies of insurance and fidelity or surety bonds are in full force and effect.
Descriptions of these plans and related liability coverage have been previously
provided to Parent. Section 3.14 of the Company Disclosure Schedule contains a
listing of all open workers compensation and general liability claims as of a
recent date. These claims, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
To the best knowledge of the Company, all necessary notifications of claims have
been made to insurance carriers.
Section 3.15 TRANSACTIONS WITH AFFILIATES. Except to the extent
disclosed in the Company SEC Documents filed prior to the date of this Agreement
or in Section 3.15 of the Company Disclosure Schedule, from December 31, 1994
through the date of this Agreement there have been no transactions, agreements,
arrangements or understandings between the Company or its Subsidiaries, on the
one hand, and the Company's affiliates (other than wholly-owned Subsidiaries of
the Company) or other persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
Section 3.16 COMPLIANCE WITH LAW. The Company and its Subsidiaries have
complied in all material respects with all laws, statutes, regulations, rules,
ordinances, and judgments, decrees, orders, writs and injunctions, of any court
or governmental entity relating to any of the property owned, leased or used by
them and applicable to them, or applicable to their business, including, but not
limited to, equal employment opportunity, discrimination, occupational safety
and health, interstate commerce, antitrust laws, ERISA and laws relating to
Taxes (as defined in Section 3.11). The Company, with respect to each store
location, has all permits and licenses necessary to carry on
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the business being conducted at each store location, except for such permits and
licenses the failure of which to obtain would not have a material adverse effect
on the Company and its Subsidiaries, taken as a whole.
Section 3.17 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote are
the only votes of the holders of any class or series of the Company's capital
stock necessary to approve the Merger.
Section 3.18 FINANCIAL ADVISORS. (a) Except for Batchelder & Partners,
Inc. ("Batchelder & Partners") and Montgomery Securities, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company, and
the fees and commissions payable to Batchelder & Partners and Montgomery
Securities as contemplated by this Section will be payable by the Company.
(b) The Company has received an opinion from Montgomery Securities,
dated as of a date which is on or prior to the date of this Agreement to the
effect that, as of such date, the Exchange Rate is fair from a financial point
of view to the stockholders of the Company.
Section 3.19 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company and
its Subsidiaries have no financial liabilities of any kind or nature in excess
of $500,000 related to the Supplemental Executive Retirement Plan dated January
1, 1995.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 4.1 ORGANIZATION. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate or other power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not have a material adverse effect on Parent and
its Subsidiaries taken as a whole. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a material adverse effect on Parent and its Subsidiaries taken as a
whole.
Section 4.2 CAPITALIZATION. (a) The authorized capital stock of Parent
consists of 290,000,000 shares of Parent Common Stock (b) 8,000,000 shares of
non-voting common stock, par value $.01 per share (the "Parent Non-Voting Common
Stock") and (c) 2,000,000 shares of preferred stock, par value $.01 per share
(the "Parent Preferred Stock"), of which 600,000 shares have been designated as
Series A Junior Participating Preferred Stock. As of October 31, 1997, (i)
84,359,968 shares of Parent Common Stock are issued and outstanding, (ii) no
shares of Parent Non-Voting
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Common Stock are issued and outstanding; (iii) no shares of Parent Preferred
Stock are issued and outstanding, (iv) no shares of Parent Common Stock are
issued and held in the treasury of Parent, and (v) 5,394,321 shares of Parent
Common Stock are reserved for issuance under Parent's 1996 Performance Incentive
Plan (of which, 3,406,445 are reserved for issuance pursuant to options already
granted), 5,804,411 are reserved for issuance under Parent's Executive Stock
Option and Stock Appreciation Rights Plan and 712,495 shares of Parent Common
Stock are reserved for issuance under the Director Stock Option Plan (of which
285,016 are reserved for issuance pursuant to options already granted). All of
the outstanding shares of Parent's capital stock are, and all shares which may
be issued pursuant to the exercise of outstanding options or pursuant to the
Parent Plan will be, when issued in accordance with the respective terms
thereof, duly authorized, validly issued, fully paid and non-assessable. Except
as set forth in Section 4.2 of the Disclosure Schedule delivered by Parent to
the Company on or prior to the date hereof (the "Parent Disclosure Schedule"),
there are no bonds, debentures, notes or other indebtedness having voting rights
(or convertible into securities having such rights) ("Parent Voting Debt") of
Parent or any of its Subsidiaries issued and outstanding. Except as set forth
above, and except as set forth in Section 4.2 of the Parent Disclosure Schedule
and except for transactions contemplated by this Agreement, as of the date
hereof, (i) there are no shares of capital stock of Parent authorized, issued or
outstanding and (ii) there are no existing options, warrants, calls, pre-emptive
rights, subscriptions or other rights, convertible securities, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of Parent or any of its Subsidiaries, obligating Parent or any of
its Subsidiaries to issue, transfer or sell or cause to be issued, transferred
or sold any shares of capital stock or Parent Voting Debt of, or other equity
interest in, Parent or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests or obligations of Parent or any
of its Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, convertible security, agreement, arrangement
or commitment. There are no outstanding contractual obligations of Parent or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the capital stock of Parent or any subsidiary or
affiliate of Parent or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Subsidiary or any other entity.
(b) There are no voting trusts or other agreements or understandings to
which Parent or any of its Subsidiaries is a party with respect to the voting of
the capital stock of Parent or its Subsidiaries. None of Parent or its
Subsidiaries is required to redeem, repurchase or otherwise acquire shares of
capital stock of Parent, or any of its Subsidiaries, respectively, as a result
of the transactions contemplated by this Agreement.
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION. Each of Parent and Sub has full corporate power and authority to execute
and deliver this Agreement, and, subject to obtaining any necessary approval of
Parent's stockholders as contemplated by Section 1.6(b) hereof with respect to
the Merger, to consummate the transactions contemplated hereby. The execution,
delivery and performance by Parent and Sub of this Agreement and the
consummation by Parent and Sub of the transactions contemplated hereby have been
duly and validly authorized by their respective Boards of Directors and by Sub's
sole stockholder and, except in the case of obtaining any necessary approval of
Parent's stockholders as contemplated by Section 1.6(b) hereof, no other
corporate action or proceedings on the part of Parent and Sub are
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necessary to authorize the execution and delivery by Parent and Sub of this
Agreement and the consummation by Parent and Sub of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub, and, assuming this Agreement constitutes valid and binding
obligations of the Company, constitutes valid and binding obligations of each of
Parent and Sub, enforceable against them in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. The
shares of Parent Common Stock issued pursuant to the Merger will be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed
in Schedule 4.4 of Parent's Disclosure Schedule, and except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Securities Act, the
DGCL, the HSR Act, state blue sky laws and any applicable state takeover laws
and the approval by Parent's stockholders of the issuance of Parent Common Stock
in the Merger, neither the execution, delivery or performance of this Agreement
by Parent and Sub nor the consummation by Parent and Sub of the transactions
contemplated hereby nor compliance by Parent and Sub with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
amended and restated certificate of incorporation or by-laws of Parent and Sub,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Governmental Entity (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not have a
material adverse effect on Parent and its Subsidiaries or would not, or would
not be reasonably likely to, materially impair the ability of Parent and Sub to
consummate, the Merger or the other transactions contemplated hereby), (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, guarantee, other
evidence of indebtedness, lease, license, contract, agreement or other
instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets, except in the case of clauses (iii) and (iv) for violations, breaches or
defaults which would not have a material adverse effect on Parent and its
Subsidiaries or would not, or would not be reasonably likely to, materially
impair the ability of Parent or Sub to consummate, the Merger or the other
transactions contemplated hereby. Except as disclosed in Section 4.4 of the
Parent Disclosure Schedule, neither Parent nor Sub is a party to any agreement
that expressly limits the ability of Parent or Sub to compete in or conduct any
line of business or compete with any person or in any geographic area or during
any period of time.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent has filed with
the SEC, and has heretofore made available to the Company, true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its Subsidiaries since December 31, 1994 under
the Exchange Act or the Securities Act (as such documents have
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been amended since the time of their filing, collectively, the "Parent SEC
Documents"). As of their respective dates or, if amended, as of the date of the
last such amendment, the Parent SEC Documents, including, without limitation,
any financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b) complied
as to form in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. Each of the consolidated financial
statements included in the Parent SEC Documents have been prepared from, and are
in accordance with, the books and records of Parent and/or its consolidated
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position and the consolidated results of operations and cash flows
(and changes in financial position, if any) of Parent and its consolidated
Subsidiaries as at the dates thereof or for the periods presented therein.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Except to the extent disclosed
in the Parent SEC Documents filed prior to the date of this Agreement, since
February 1, 1997, (a) Parent and its Subsidiaries have conducted their
respective businesses in the ordinary course of business consistent with past
practice, and (b) there has not occurred (i) any events, changes, or effects
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having or, which would be reasonably likely to
have, individually or in the aggregate, a material adverse effect on Parent and
its Subsidiaries; (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to the
equity interests of Parent or of any of its Subsidiaries other than regular
quarterly cash dividends or dividends paid by wholly owned Subsidiaries; or
(iii) any change by Parent or any of its Subsidiaries in accounting principles
or methods, except insofar as may be required by a change in GAAP. Since
February 1, 1997, Parent has not taken any of the actions prohibited by Section
5.2 hereof.
Section 4.7 NO UNDISCLOSED LIABILITIES. Except (a) to the extent
disclosed in the Parent SEC Documents filed prior to the date of this Agreement,
(b) for liabilities and obligations incurred in the ordinary course of business
consistent with past practice and (c) for matters listed on Section 4.7 of the
Parent Disclosure Schedule, since February 1, 1997, neither Parent nor any of
its Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that have, or would be
reasonably likely to have, a material adverse effect on Parent and its
Subsidiaries or would be required to be reflected or reserved against on a
consolidated balance sheet of Parent and its Subsidiaries (including the notes
thereto) prepared in accordance with GAAP as applied in preparing the February
1, 1997 consolidated balance sheet of Parent and its Subsidiaries. Section 4.7
of the Parent Disclosure Schedule sets forth each instrument evidencing
indebtedness of Parent which will accelerate or become due or payable, or result
in a right of redemption or repurchase on the part of the holder of such
indebtedness, or with respect to which any other payment or amount will become
due or payable, in any such case with or without due notice or lapse of time, as
a result of this Agreement, the Merger or the other transactions contemplated
hereby.
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Section 4.8 INFORMATION IN PROXY STATEMENT/PROSPECTUS. The Registration
Statement (or any amendment thereof or supplement thereto), at the date it is
filed with the SEC and as of the date it becomes effective and the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) at the
date mailed to Parent's stockholders and at the time of the Special Meetings,
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, provided, however, that no representation is made by Parent or Sub
with respect to statements made therein based on information supplied by the
Company for inclusion in the Registration Statement. None of the information
supplied by Parent or Sub for inclusion or incorporation by reference in the
Proxy Statement/Prospectus will, at the date mailed to stockholders and at the
time of the Special Meetings, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. Subject to the proviso set forth in the second
preceding sentence, the Registration Statement will comply in all material
respects with the provisions of the Securities Act and Exchange Act,
respectively, and the rules and regulations thereunder.
Section 4.9 LITIGATION. Except to the extent disclosed in the Parent
SEC Documents filed prior to the date of this Agreement, as of the date of this
Agreement, there is no suit, claim, action, proceeding or investigation pending
or, to the best knowledge of Parent, threatened against or affecting, Parent or
any of its Subsidiaries, which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on Parent and its Subsidiaries or
would, or would be reasonably likely to, materially impair the ability of Parent
or Sub to consummate the Merger or the other transactions contemplated hereby.
Section 4.10 NO DEFAULT. The business of Parent and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of its respective Certificate of Incorporation or By-laws
or similar organizational documents. To the best knowledge of Parent of Sub and
except as set forth in Section 4.10 of the Parent Disclosure Schedule, no
investigation or review by any Governmental Entity with respect to Parent or any
of its Subsidiaries is pending or threatened, nor has any Governmental Entity
indicated an intention to conduct the same, except such investigations or
reviews that, individually or in the aggregate, would not have a material
adverse effect on Parent and its Subsidiaries or would not, or would not be
reasonably likely to, materially impair the ability of Parent or Sub to
consummate the Merger or other transactions contemplated hereby.
Section 4.11 TAXES. (a) Except as set forth in Section 4.11 of the
Parent Disclosure Schedule, Parent and each of its Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its Subsidiaries is or has been a member has timely filed all
Tax Returns required to be filed by it (other than those that are not,
individually or in the aggregate, material), has paid all Taxes shown thereon to
be due and has provided adequate accruals in all material respects in accordance
with GAAP in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. In addition, (i) no
material claim for unpaid Taxes has become a lien against the property of Parent
or any of its Subsidiaries or is being asserted against Parent or any of its
Subsidiaries, (ii) no audit of any Tax
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Return of Parent or any of its Subsidiaries is being conducted by a taxing
authority that has had or could not reasonably be expected to have, a material
adverse effect on the Company and its Subsidiaries taken as a whole, (iii) no
extension of the statute of limitations on the assessment of any Taxes has been
granted by Parent or any of its Subsidiaries and is currently in effect that has
had or could reasonably be expected to have, a material adverse effect on Parent
and its Subsidiaries taken as a whole.
(b) As of the date of this Agreement, except as set forth in Section
4.11 of the Parent Disclosure Schedule:
(i) there are no material liens for Taxes upon any property or
assets of Parent or any Subsidiary thereof, except for liens for Taxes
not yet due and payable and liens for Taxes that are being contested in
good faith by appropriate proceedings;
(ii) neither Parent nor any of its Subsidiaries has agreed to
or is required to make any adjustment under Section 481(a) of the Code;
(iii) the federal income Tax Returns of Parent and its
Subsidiaries have been examined by the Service (or the applicable
statutes of limitation for the assessment of federal income Taxes for
such periods have expired) for all periods through and including
January 29, 1994;
(iv) neither Parent nor any of its Subsidiaries is a party to
any material agreement providing for the allocation or sharing of
Taxes; and
(v) neither Parent nor any of its Subsidiaries has, with
regard to any assets or property held or acquired by any of them, filed
a consent to the application of Section 341(f) of the Code, or agreed
to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by Parent or any of its Subsidiaries.
Section 4.12 ENVIRONMENTAL MATTERS. Except as disclosed in Section 4.12
of the Parent Disclosure Schedule, as of the date of this Agreement, Parent is
in compliance in all material respects with all applicable Environmental Laws
and there are no Environmental Liabilities and Costs of Parent and its
Subsidiaries that would have or are reasonably likely to have a material adverse
effect on Parent and its Subsidiaries which have not been fully reserved against
in the Parent's consolidated financial statements.
For purposes of this Section 4.12, the following definitions shall
apply:
"Environmental Laws" means all applicable foreign, federal, state and
local laws, common law, regulations, rules and ordinances relating to pollution
or protection of the environment.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all reasonable fees,
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disbursements and expenses of counsel, expert and consulting fees and costs of
investigations and feasibility studies and responding to government requests for
information or documents), fines, penalties, restitution and monetary sanctions,
interest, direct or indirect, known or unknown, absolute or contingent, past,
present or future, resulting from any claim or demand, by any person or entity,
whether based in contract, tort, implied or express warranty, strict liability,
joint and several liability, criminal or civil statute, under any Environmental
Law, or arising from environmental conditions, as a result of past or present
ownership, leasing or operation of any properties, owned, leased or operated by
the Company or any of its Subsidiaries.
Section 4.13 INSURANCE. As of the date hereof, Parent and each of its
Subsidiaries are insured by insurers against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. All
policies of insurance and fidelity or surety bonds are in full force and effect.
Descriptions of these plans and related liability coverage have been previously
provided to the Company.
Section 4.14 TRANSACTIONS WITH AFFILIATES. Except to the extent
disclosed in Parent SEC Documents filed prior to the date of this Agreement,
from December 31, 1994 through the date of this Agreement there have been no
transactions, agreements, arrangements or understandings between Parent or its
Subsidiaries, on the one hand, and Parent's affiliates (other than wholly-owned
Subsidiaries of Parent) or other persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act.
Section 4.15 COMPLIANCE WITH LAW. Parent and its Subsidiaries have
complied in all material respects with all laws, statutes, regulations, rules,
ordinances, and judgments, decrees, orders, writs and injunctions, of any court
or governmental entity relating to any of the property owned, leased or used by
them, or applicable to their business, including, but not limited to, equal
employment opportunity, discrimination, occupational safety and health,
interstate commerce, antitrust laws, ERISA and laws relating to Taxes.
Section 4.16 VOTE REQUIRED. The affirmative vote of the holders of (a)
a majority of the shares of Parent Common Stock voting at the Parent Special
Meeting are the only votes of the holders of any class or series of Parent's
capital stock necessary to approve the issuance of Parent Common Stock; and (b)
a majority of the outstanding shares of Parent Common Stock entitled to vote at
the Parent Special Meeting are the only votes of the holders of any class or
series of Parent's Capital Stock necessary to approve the authorization of
Parent Preferred Stock.
Section 4.17 FINANCIAL ADVISOR. (a) Except for Merrill Lynch & Co.
("Merrill Lynch"), no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Merger Sub, and the fees and commissions payable to
Merrill Lynch as contemplated by this Section will be payable by Parent.
(b) Parent has received an opinion from Merrill Lynch, dated as of a
date which is on or prior to the date of this Agreement to the effect that, as
of such date, the Exchange Rate is fair from a financial point of view to
Parent.
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ARTICLE V
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COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE COMPANY. The Company covenants
and agrees that, without the prior consent of Parent, which consent shall not be
unreasonably withheld, (i) except as expressly provided in this Agreement, and
(ii) during the period prior to the Effective Time:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, each of the Company
and its Subsidiaries shall use its best efforts to preserve its
business organization intact and maintain its existing relations with
customers, suppliers, employees, creditors and business partners;
(b) the Company will not, directly or indirectly, split,
combine or reclassify the outstanding Company Common Stock, or any
outstanding capital stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i)
amend its Certificate of Incorporation or By-laws or similar
organizational documents; (ii) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with respect
to its capital stock other than dividends paid by the Company's
Subsidiaries to the Company or its Subsidiaries; (iii) issue, sell,
transfer, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company or its Subsidiaries, other
than issuances pursuant to exercise of stock-based awards or options
outstanding on the date hereof as disclosed in Section 3.2 or in
Section 5.1(c) of the Company Disclosure Schedule; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any
material assets other than in the ordinary course of business
consistent with past practice; or (v) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock;
(d) except as disclosed in Section 5.1(d) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries
shall: (i) except as otherwise provided in this Agreement and except
for normal, regularly scheduled increases for non-officer employees
consistent with past practice or pursuant to the terms of existing
collective bargaining agreements, grant any increase in the
compensation payable or to become payable by the Company or any of its
Subsidiaries to any officer or employee (including through any new
award made under, or the exercise of any discretion under, any Benefit
Plan); (ii) adopt any new, or amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement, savings or other employee benefit plan,
agreement or
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arrangement; (iii) enter into any, or amend any existing, employment or
severance agreement with or, grant any severance or termination pay to,
any officer, director, employee or consultant of the Company or any of
its Subsidiaries; or (iv) make any additional contributions to any
grantor trust created by the Company to provide funding for
non-tax-qualified employee benefits or compensation; or (v) provide any
severance program to any Subsidiary which does not have a severance
program as of the date of this Agreement;
(e) neither the Company nor any of its Subsidiaries shall
modify, amend or terminate any of the Company Agreements or waive,
release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice;
(f) neither the Company nor any of its Subsidiaries shall
permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be canceled or terminated without notice to
Parent, except in the ordinary course of business consistent with past
practice;
(g) except as set forth in Section 5.1(g) of the Company
Disclosure Schedule, including, without limitation, the opening and
equipping of the five proposed store locations set forth therein,
neither the Company nor any of its Subsidiaries shall: (i) incur or
assume any debt except for borrowings under existing credit facilities
in the ordinary course consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person, except in the ordinary course of business consistent with past
practice; (iii) make any loans, advances or capital contributions to,
or investments in, any other person (other than to wholly owned
Subsidiaries of the Company or customary loans or advances to employees
in accordance with past practice); (iv) enter into any purchase order
other than in the ordinary course of business consistent with past
practice; or (v) enter into any other material commitment (including,
but not limited to, any leases, capital expenditure or purchase of
assets) other than in the ordinary course of business consistent with
past practice;
(h) neither the Company nor any of its Subsidiaries shall
change any of the accounting principles used by it unless required by
GAAP;
(i) neither the Company nor any of its Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities
or obligations, (x) reflected or reserved against in the consolidated
financial statements (or the notes thereto) of the Company and its
consolidated Subsidiaries, (y) incurred in the ordinary course of
business consistent with past practice or (z) which are legally
required to be paid, discharged or satisfied;
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(j) neither the Company nor any of its Subsidiaries will adopt
a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other material
reorganization of the Company or any of its Subsidiaries other than the
Merger or in accordance with Section 5.7;
(k) neither the Company nor any of its Subsidiaries will take,
or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate
in any respect at, or as of any time prior to, the Effective Time;
(l) neither the Company nor any of its Subsidiaries will
engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Company's affiliates, including, without limitation, any transactions,
agreements, arrangements or understandings with any affiliate or other
person covered under Item 404 of Regulation S-K under the Securities
Act that would be required to be disclosed under such Item 404, other
than pursuant to such agreements, arrangements, or understandings
existing on the date of this Agreement (which are set forth on Section
3.15 of the Company Disclosure Schedule);
(m) close, shut down, or otherwise eliminate any of the
Company's stores other than in the ordinary course of business
consistent with past practice;
(n) change the name of or exterior signage (except ordinary
course maintenance) at any of the Company's stores;
(o) close, shut down, or otherwise eliminate any of the
Company's distribution centers;
(p) move the location, close, shut down or otherwise eliminate
the Company's headquarters, or effect a general staff reduction at such
headquarters;
(q) change or modify in any material respect the Company's
existing advertising programs and policies in the ordinary course of
business consistent with past practice;
(r) except as set forth in Section 5.1(g) or Section 5.1(r) of
the Company Disclosure Schedule, enter into any new lease (other than
renewals of existing leases after consultation with Parent) or purchase
or acquire or enter into any agreement to purchase or acquire any real
estate;
(s) neither the Company nor any of its Subsidiaries will incur
any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries;
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(t) neither the Company nor any of its Subsidiaries will take,
or cause, any act or omission that would prevent the Merger from (i)
qualifying as a tax-free plan of reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code, or (ii)
being accounted for as a pooling of interests; and
(u) neither the Company nor any of its Subsidiaries will enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing.
Section 5.2 INTERIM OPERATIONS OF PARENT. Parent covenants and agrees
that, (i) except as expressly provided in this Agreement, and (ii) during the
period prior to the Effective Time:
(a) the business of Parent shall be conducted only in the
ordinary course of business consistent with past practice and, to the
extent consistent therewith, Parent shall use its best efforts to
preserve its business organization and maintain its existing relations
with customers, suppliers, employees, creditors and business partners;
(b) Parent will not, directly or indirectly, split, combine or
otherwise reclassify the outstanding Parent Common Stock;
(c) Parent shall not amend its Certificate of Incorporation or
By-laws, except as contemplated by the Agreement; (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock
or property with respect to its capital stock other than dividends paid
by Parent's Subsidiaries to Parent or its Subsidiaries; or (iii) issue,
sell, transfer, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of Parent, other than issuances
pursuant to the grant or exercise of stock-based awards or options;
(d) Parent will not adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other material reorganization of Parent other than
the Merger or except in accordance with Section 5.7;
(e) neither Parent nor Sub will take, or cause, any act or
omission that would prevent the Merger from (i) qualifying as a
tax-free plan of reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E) of the Code, or (ii) being
accounted for as a pooling of interests;
(f) neither Parent nor Sub will take, or agree to commit to
take, any action that would make any representation or warranty of the
Parent or Sub contained herein inaccurate in any respect at, or as of
any time prior to, the Effective Time; and
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(g) Parent will not enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
Section 5.3 TREATMENT OF CERTAIN INDEBTEDNESS. Effective as of the
Effective Time, Parent, in its sole discretion, shall cause the Surviving
Corporation to retire (including all fees, penalties or related costs in
connection with any such retirement), or to continue performance of, all
existing obligations of the Company or any of its Subsidiaries under any of the
Debt Instruments (as defined in Section 3.4). All of the Debt Instruments are
set forth in Section 3.4 of the Company Disclosure Schedule. The Company and
each of its Subsidiaries will cooperate with Parent, and take such further
actions as shall be necessary, to effect the provisions of this Section 5.3.
Section 5.4 ACCESS TO INFORMATION. (a) To the extent permitted by
applicable law, the Company shall (and shall cause each of its Subsidiaries to)
afford to the officers, employees, accountants, counsel, financing sources and
other representatives of Parent, access during normal business hours and upon
48-hour prior notice from Parent to the Company, which will not unreasonably
interfere with the Company's normal business operations, during the period prior
to the Effective Time, to all of its and its Subsidiaries' properties, books,
contracts, commitments, records (including any Tax Returns or other Tax related
information pertaining to the Company and its Subsidiaries) and employees and,
during such period, the Company shall (and shall cause each of its Subsidiaries
to) furnish promptly to Parent (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (ii) all other information
concerning its business, properties and personnel as Parent may reasonably
request (including any Tax Returns or other Tax related information pertaining
to the Company and its Subsidiaries). Parent will hold any such information
which is nonpublic in confidence.
(b) To the extent permitted by applicable law, Parent shall (and shall
cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of the
Company, access during normal business hours and upon 48-hour prior notice from
the Company to Parent, which will not unreasonably interfere with Parent's
normal business operations, during the period prior to the Effective Time, to
all of its and its Subsidiaries' properties, books, contracts, commitments,
records (including any Tax Returns or other Tax related information pertaining
to Parent and its Subsidiaries) and employees and, during such period, Parent
shall (and shall cause each of its Subsidiaries to) furnish promptly to the
Company (i) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of the federal securities laws and (ii) all other information as the Company may
reasonably request (including any Tax Returns or other Tax related information
pertaining to Parent and its Subsidiaries). The Company will hold any such
information which is nonpublic in confidence.
Section 5.5 CONSENTS AND APPROVALS. (a) The Company and Parent shall
take all reasonable actions necessary to file as soon as practicable
notifications under the HSR Act and to respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Anti-trust Division
of the Department of Justice for additional information or documentation and
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to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other Governmental Entity in connection with
antitrust matters.
(b) Parent and the Company shall, and each shall cause each of its
Subsidiaries to, subject to the preceding subsection, (i) cooperate with one
another to prepare, as soon as practicable, all filings and other presentations
in connection with seeking any regulatory approval from a Governmental Entity,
exemption or other authorization necessary to consummate the transactions
contemplated by this Agreement, (ii) prosecute such filings and other
presentations with diligence, (iii) diligently oppose any objections to, appeals
from or petitions to reconsider or reopen any such approval by persons not party
to this Agreement, and (iv) take all such further action as in Parent's and the
Company's judgment reasonably may facilitate obtaining any final order or orders
approving such transactions consistent with this Agreement.
(c) Each of the Company, Parent and Sub will take all reasonable
actions necessary to comply promptly with all legal requirements (which actions
shall include, without limitation, furnishing all information in connection with
approvals of or filings with any Governmental Entity, including, without
limitation, any schedule, or report required to be filed with the SEC), and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their Subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each of
the Company, Parent and Sub will, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Parent, Sub, the Company
or any of their Subsidiaries in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
Section 5.6 EMPLOYEE BENEFITS. (a) Parent agrees to cause Surviving
Corporation and its Subsidiaries to provide to certain employees of the Company
payments and benefits, which are set forth in this Section 5.6(a), and certain
of which shall be effected, by means of individual agreements, negotiated in
good faith by the parties hereto, reflecting the economic terms set forth in
this Section 5.6.
(i) SEVERANCE PAY
-------------
With respect to the executives of the Company listed on Section
5.6(a)(i) of the Company Disclosure Schedule attached hereto (the "Covered
Executives"), effective as soon as practicable following the Effective Time (or
if later, the date of termination of employment of the Covered Executive),
pursuant to the terms of their respective Employment Agreements with the Company
in effect immediately prior to the Effective Time, the Company shall pay to each
Covered Executive payments in the amounts set forth on Section 5.6(a)(i) of the
Company Disclosure Schedule with respect to such Covered Executive (the
"Severance Payments"), in accordance with such Schedule. Notwithstanding
anything in this Agreement to the contrary, the Severance Payments shall be paid
to a Covered Executive only if such Covered Executive is actively employed by
the Company immediately prior to the Effective Time.
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(ii) SAVINGS AND RETIREMENT PLAN
---------------------------
Each Company employee who is (A) covered by the Company's Savings and
Retirement Plan (the "401(k) Plan") and (B) actively employed by the Company
immediately prior to the Effective Time (each, a "401(k) Employee") shall be
eligible to receive benefits under the 401(k) Plan based on the terms of the
401(k) Plan, as modified herein. For each 401(k) Employee, the amount of service
taken into account for purposes of calculating benefits and vesting under the
401(k) Plan shall be equal to the 401(k) Employee's service with the Company
prior to the Effective Time plus, in the case of a Covered Executive, such
Covered Executive's Severance Period. Parent agrees that the 401(k) Plan will be
rolled into Parent's 401(k) Plan.
(iii) LONG TERM INCENTIVE AWARD PLAN
------------------------------
Subject to the payments required by Section 5.6(a)(i), which payments
shall be made as part of the Severance Payments as set forth on Section
5.6(a)(i) of the Company Disclosure Schedule, the Company shall amend its Long
Term Incentive Award Plan to provide that such plan shall terminate and cease as
of the Effective Time.
(iv) 1997 BONUS PROGRAM
------------------
Parent acknowledges that 1997 Bonus Plan Awards (pursuant and subject
to the terms of the Plan described on Section 5.1(c) of the Company's Disclosure
Schedule) shall be earned by any Covered Executive employed by the Company
immediately prior to the Effective Time and further agrees to cause the
Surviving Corporation to make all bonus payments and grants of options on terms
determined as specified in Section 2.3 hereof to employees for 1997 (pursuant
and subject to the terms of such Plan ) on or before April 1, 1998. Parent
further agrees that for purposes of calculating the 1997 Bonus Plan payments,
all adjustments taken and costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be excluded.
(v) EMPLOYMENT AGREEMENTS
---------------------
Concurrent with the execution of this Agreement, the Company shall
cause each of the Covered Executives to execute a Waiver in the form of EXHIBIT
A to this Agreement.
(b) Parent agrees to cause the Surviving Corporation and its
Subsidiaries to provide to all active employees of the Company who continue to
be employed by the Company as of the Effective Time ("Continuing Employees")
employee benefits comparable to those benefits provided to similarly situated
employees of Parent (which benefits may be provided by covering Company
employees under benefit plans maintained by Parent for employees of Parent who
perform similar duties). In addition, with respect to medical benefits provided
to Continuing Employees as of the Effective Time, Parent agrees to cause the
Surviving Corporation and its Subsidiaries to waive waiting periods and
pre-existing condition requirements under such plans, and to give Continuing
Employees credit for any copayments and deductibles actually paid by such
employees under the Company's medical plans during the calendar year in which
the Closing occurs. In addition, service
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with the Company shall be recognized for purposes of eligibility under Parent
welfare plans as well as for purposes of Parent's programs or policies for
vacation pay and sick pay.
Section 5.7 NO SOLICITATION. (a) The Company (and its Subsidiaries and
affiliates over which it exercises control) will not, and the Company (and its
Subsidiaries and affiliates over which it exercises control) will use their best
efforts to ensure that their respective officers, directors, employees,
investment bankers, attorneys, accountants and other agents do not, directly or
indirectly: (i) initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal which constitutes or is reasonably likely
to lead to any Takeover Proposal (as defined below) of the Company or any
Subsidiary or an inquiry with respect thereto, or, (ii) in the event of an
unsolicited Takeover Proposal for the Company or any Subsidiary or affiliate of
the Company, engage in negotiations or discussions with, or provide any
information or data to, any corporation, partnership, person or other entity or
group (other than Parent, any of its affiliates or representatives) (each, a
"Person") relating to any Takeover Proposal, except in the case of clause (ii)
above to the extent that (x) the Takeover Proposal is a bona fide written
proposal submitted to the Company's Board of Directors and (y) the Company's
Board of Directors determines, after having consulted with financial and legal
advisors to the Company, that the failure to engage in such negotiations or
discussions or provide such information would create a reasonable likelihood of
a breach of the Board of Directors' fiduciary duties under applicable law. The
Company shall notify Parent and Sub orally and in writing of any such offers,
proposals, inquiries or Takeover Proposals (including, without limitation, the
material terms and conditions thereof and the identity of the Person making it),
within 24 hours of the receipt thereof, and shall thereafter inform Parent on a
reasonable basis of the status and content of any discussions or negotiations
with such a third party, including any material changes to the terms and
conditions thereof. The Company and its Board of Directors shall afford Parent a
three-day period after any such notification in which to propose alternative
terms for the acquisition by Parent of the Company. The Company shall, and shall
cause its Subsidiaries and affiliates over which it exercises control, and will
use best efforts to ensure their respective officers, directors, employees,
investment bankers, attorneys, accountants and other agents to, immediately
cease and cause to be terminated all discussions and negotiations that have
taken place prior to the date hereof, if any, with any parties conducted
heretofore with respect to any Takeover Proposal relating to the Company.
Nothing contained in this Section 5.7 shall prohibit the Company or its Board of
Directors from taking and disclosing to its stockholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or making such disclosure as may be required
by applicable law.
(b) Parent (and its Subsidiaries and affiliates over which it exercises
control) will not, and Parent (and its Subsidiaries and affiliates over which it
exercises control) will use their best efforts to ensure that their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents do not, directly or indirectly: (i) initiate, solicit or encourage,
or take any action to facilitate the making of, any offer or proposal which
constitutes or is reasonably likely to lead to any Takeover Proposal (as defined
below) of Parent or any Subsidiary or an inquiry with respect thereto, or, (ii)
in the event of an unsolicited Takeover Proposal for Parent or any Subsidiary or
affiliate of Parent, engage in negotiations or discussions with, or provide any
information or data to, any corporation, partnership, person or other entity or
group (each, a "Person") relating to any Takeover Proposal, except in the case
of clause (ii) above to the extent that (x) the Takeover
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<PAGE> 34
Proposal is a bona fide written proposal submitted to Parent's Board of
Directors and (y) Parent's Board of Directors determines, after having consulted
with financial and legal counsel to Parent, that the failure to engage in such
negotiations or discussions or provide such information would result in a breach
of the Board of Directors' fiduciary duties under applicable law. Parent shall
notify the Company orally and in writing of any such offers, proposals,
inquiries or Takeover Proposals (including, without limitation, the material
terms and conditions thereof and the identity of the Person making it), within
24 hours of the receipt thereof, and shall thereafter inform the Company on a
reasonable basis of the status and content of any discussions or negotiations
with such a third party, including any material changes to the terms and
conditions thereof. Parent shall, and shall cause its Subsidiaries and
affiliates over which it exercises control, and will use best efforts to ensure
their respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be terminated
all discussions and negotiations that have taken place prior to the date hereof,
if any, with any parties conducted heretofore with respect to any Takeover
Proposal relating to Parent. Nothing contained in this Section 5.7 shall
prohibit the Company or its Board of Directors from taking and disclosing to its
stockholders a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or making such
disclosure as may be required by applicable law.
(c) As used in this Agreement, "Takeover Proposal" when used in
connection with any Person shall mean any tender or exchange offer involving the
capital stock of such Person, any proposal for a merger, consolidation or other
business combination involving such Person or any Subsidiary of such Person, any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the business or assets of, such Person or any
Subsidiary of such Person, any proposal or offer with respect to any
recapitalization or restructuring with respect to such Person or any Subsidiary
of such Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any Subsidiary of
such Person other than pursuant to the transactions to be effected pursuant to
this Agreement.
Section 5.8 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided (including, but not limited to, Section 5.5) each of the parties
hereto agrees to use its reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of the Company and Parent shall use their
reasonable efforts to take, or cause to be taken, all such necessary actions;
provided, however, in no event shall Parent or Sub be required to undertake any
further actions under this Section 5.8 which would impose on Parent or Sub any
of the conditions, or effects set forth in Section 6.3(c) hereof.
Section 5.9 PUBLICITY. So long as this Agreement is in effect, neither
the Company nor Parent nor affiliates which either of them control shall issue
or cause the publication of any press release or other public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior consultation of the other party, except as may be
required by
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<PAGE> 35
law or by obligations pursuant to any listing agreement with a national
securities exchange, provided that each party will use its best efforts to
consult with the other party prior to any such issuance.
Section 5.10 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence, or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (b) any material failure of the Company or Parent, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.10 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.11 DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.
Parent agrees that at all times after the Effective Time, it shall cause the
Surviving Corporation and its Subsidiaries to indemnify each person who is now,
or has been at any time prior to the date hereof, an employee, agent, director
or officer of the Company or of any of the Company's Subsidiaries, successors
and assigns (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the fullest extent permitted by law, with respect to
any claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel, (whenever asserted or claimed) ("Indemnified
Liability") based in whole or in part on, or arising in whole or in part out of,
any matter existing or occurring at or prior to the Effective Time whether
commenced, asserted or claimed before or after the Effective Time, including
liability arising under the Securities Act, the Exchange Act or state law.
Parent shall, and shall cause the Surviving Corporation to, maintain in effect
for not less than three years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries on the date hereof (provided that Parent may substitute therefor
policies having at least the same coverage and containing terms and conditions
which are no less advantageous to the persons currently covered by such policies
as insured) with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums for
such insurance during such period shall exceed 200% of the per annum rate of the
aggregate premium currently paid by the Company and its Subsidiaries for such
insurance on the date of this Agreement, then Parent shall cause the Surviving
Corporation to, and the Surviving Corporation shall, provide coverage affording
the same protections as those maintained by Parent as of such date for its
officers and directors. Parent agrees to pay all expenses (including fees and
expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section
5.11. The rights under this Section 5.11 are in addition to rights that an
Indemnified Party may have under the Certificate of Incorporation, By-laws,
other similar organizational documents of the Company or any of its Subsidiaries
or the DGCL. The rights under this Section 5.11 shall survive consummation of
the Merger and are expressly intended to benefit each Indemnified Party. Parent
agrees to cause Surviving Corporation and any of its Subsidiaries (or their
successors) to keep in effect the provisions of its Certificate of Incorporation
or By-laws or similar organizational documents providing for indemnification to
the fullest extent provided by law.
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Section 5.12 COMPLIANCE WITH THE SECURITIES ACT. (a) At least 60 days
prior to the Closing Date, the Company shall deliver to Parent a letter
identifying, to the best of the Company's knowledge, all persons who are, at the
time of the Company Special Meeting, deemed to be "affiliates" of the Company
for purposes of Rule 145 under the Securities Act ("Company Affiliates").
(b) The Company shall use its reasonable best efforts to cause each
Person who is identified as a Company Affiliate to deliver to Parent at least 30
days prior to the Closing Date an agreement substantially in the form of EXHIBIT
B to this Agreement. The Company shall use its reasonable best efforts to
deliver to Parent, on or prior to the earlier of (i) the mailing of the Proxy
Statement/Prospectus or (ii) the thirtieth day prior to the Effective Time, a
written agreement from each Person who is identified as a Company Affiliate, in
a form to be approved by the parties hereto, that such Company Affiliate will
not thereafter sell or in any other way reduce such Company Affiliate's risk
relative to any Parent Common Stock received in the Merger (within the meaning
of the Commission's Financial Reporting Release No. 1, "Codification of
Financing Reporting Policies," ss. 201.01 (47 F.R. 21030) (April 15, 1982)),
until such time as financial results (including combined sales and net income)
covering at least 30 days of post-merger operations have been published, except
as permitted by Staff Accounting Bulletin No. 76 issued by the Commission. As
soon as is reasonably practicable but in no event later than 15 business days
after the end of the first fiscal month of Parent ending at least 30 days after
the Effective Time, Parent will publish results including at least 30 days of
combined operations of Parent and the Company as referred to in the written
agreements provided for by this Section 5.12(b).
Section 5.13 COOPERATION. Parent and the Company shall together, or
pursuant to an allocation of responsibility to be agreed upon between them,
coordinate and cooperate (a) with respect to the timing of the Special Meetings,
(b) in determining whether any action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement, (c) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
and timely seeking to obtain any such actions, consents, approvals or waivers.
As soon as possible following the execution of this Agreement, the Company shall
cooperate with Parent in the preparation and filing of the Proxy
Statement/Prospectus with the Commission, including, but not limited to
providing legal, financial, and accounting information concerning the Company
and assisting in the preparation of all financial and pro forma financial
information required to be included in such Proxy Statement/Prospectus. Subject
to the terms and conditions of this Agreement, Parent and the Company will each
use its reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after the
Registration Statement is filed, and Parent and the Company shall, subject to
applicable law, confer on a regular and frequent basis with one or more
representatives of one another to report operational matters of significance to
the Merger and the general status of ongoing operations insofar as relevant to
the Merger, provided that the parties will not confer on any matter to the
extent inconsistent with law.
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Section 5.14 PROXY STATEMENT/PROSPECTUS. As soon as practicable
following the execution of this Agreement, Parent and the Company shall prepare
and file with the SEC the Proxy Statement/Prospectus and each shall use its
reasonable best efforts to have the Proxy Statement/Prospectus filed on or
before November 11, 1997 and to be cleared by the SEC as promptly as practicable
thereafter. As soon as practicable following such clearance Parent shall prepare
and file with the SEC the Registration Statement, of which the Proxy
Statement/Prospectus will form a part, and shall use its best efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable thereafter. Parent and the Company shall cooperate with each other
in the preparation of the Proxy Statement/Prospectus, and each will provide to
the other promptly copies of all correspondence between it or any of its
representatives and the SEC. Each of the Company and Parent shall furnish all
information concerning it required to be included in the Registration Statement
and the Proxy Statement/Prospectus, and as promptly as practicable after the
effectiveness of the Registration Statement, the Proxy Statement/Prospectus will
be mailed to the stockholders of the Company and Parent. No amendment or
supplement to the Registration Statement or the Proxy Statement/Prospectus will
be made without the approval of each of the Company and Parent, which approval
will not be unreasonably withheld or delayed. Each of the Company and Parent
will advise the other promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any amendment thereto or
any supplement or amendment to the Proxy Statement/Prospectus has been filed, or
the issuance of any stop order, or the suspension of the qualification of the
Parent Common Stock to be issued in the Merger for offering or sale in any
jurisdiction, or of any request by the SEC or the NYSE for amendment of the
Registration Statement or the Proxy Statement/Prospectus.
Section 5.15 STOCK EXCHANGE LISTING. Parent shall use its reasonable
best efforts to list prior to the Effective Time on the NYSE, subject to
official notice of issuance, the shares of Parent Common Stock to be issued in
the Merger.
Section 5.16 CONFIDENTIALITY AGREEMENTS. The parties hereto agree that
the Confidentiality Agreements between the parties dated October 27, 1997 shall
be hereby amended to provide that any provision therein which in any manner
would be inconsistent with the Agreement or the transactions contemplated hereby
shall terminate as of the date hereof.
Section 5.17 TAX MATTERS. Parent and Sub agree to report the Merger as
a tax-free reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(E) of
the Code for federal income tax purposes. Parent and Sub agree that after the
Closing they will take all actions necessary to qualify the Merger, and will
refrain from taking any action that may adversely affect the qualification of
the Merger, as a tax-free reorganization under Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
ARTICLE VI
----------
CONDITIONS
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, on the one hand, and Parent and Sub, on the other
hand, to consummate the Merger
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are subject to the satisfaction (or, if permissible, waiver by the party for
whose benefit such conditions exist) of the following conditions:
(a) (i) this Agreement and the Merger shall have been adopted by
the stockholders of the Company and (ii) the issuance of
Parent Company Stock shall have been approved by the
stockholders of Parent, in accordance with the DGCL;
(b) no court, arbitrator or governmental body, agency or official
shall have issued any order, decree or ruling which remains in
force and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the
Merger;
(c) the Registration Statement shall have become effective under
the Securities Act and no stop order suspending effectiveness
of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or
threatened by the SEC;
(d) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated
and all material approvals necessary for the consummation of
the transactions contemplated by this Agreement shall have
been obtained and any such approvals shall be in full force
and effect; and
(e) The Parent Common Stock issuable in the Merger shall have been
authorized for listing on the NYSE, subject to official notice
of issuance.
Section 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to consummate the Merger shall be subject
to the satisfaction of the following additional conditions, unless waived (if
permissible) by the Company:
(a) Parent and Sub shall have performed in all material respects
their agreements contained in this Agreement required to be
performed on or prior to the Effective Time, and except as
contemplated or permitted by this Agreement, the
representations and warranties of Parent and Sub contained in
this Agreement (except to the extent such representations and
warranties speak as of an earlier date in which case as of
such earlier date) shall be true and correct when made and on
and as of the Effective Time as if made on and as of such
date;
(b) The Company shall have received a certificate, dated the
Effective Time, signed by the President or Chief Executive
Officer or a Senior Vice President of Parent and Sub,
certifying that the conditions specified in Section 6.2(a)
have been fulfilled;
(c) The Company shall have received a letter from Deloitte &
Touche LLP, Parent's independent auditors, dated a date within
two business days before the date on which the Registration
Statement shall become effective and addressed to the Company,
in form and substance reasonably satisfactory to the Company
and customary in scope and substance for letters delivered by
independent public accountants in connection with registration
statements similar to the Registration Statement (including,
among
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other things, that the Merger will be treated as a pooling of
interests under Accounting Principles Board Opinion No. 16;
(d) The Company shall have received an opinion from Gibson, Dunn &
Crutcher LLP, the Company's legal counsel, that the Merger
will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) and
Section 368(a)(2)(E) of the Code; and
(e) On or prior to the mailing date of the Proxy
Statement/Prospectus referred to in Section 5.14, the Company
shall have received an updated opinion addressed to it from
Montgomery Securities to the effect that the Exchange Rate is
fair from a financial point of view to the Company and its
stockholders.
Section 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to consummate the Merger shall be
subject to the satisfaction of the following additional conditions, unless
waived (if permissible) by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be
performed on or prior to the Effective Time, and except as
contemplated or permitted by this Agreement, the
representations and warranties of the Company contained in
this Agreement (except to the extent such representations and
warranties speak as of an earlier date in which case as of
such earlier date) shall be true and correct when made and on
and as of the Effective Time as if made on and as of such
date;
(b) Parent and Sub shall have received a certificate, dated the
Effective Time, signed by the President or Chief Executive
Officer or a Vice President of the Company, certifying that
the conditions specified in Section 6.3(a) have been
fulfilled;
(c) In connection with the receipt of the approvals referred to in
Section 5.5, no approval shall impose on Parent or Sub any
conditions or other requirements that would (i) cause Parent
or Sub any material additional costs, or (ii) materially
interfere with the continued operations of the Company and the
Subsidiaries, taken as a whole, or Parent or its subsidiaries;
and
(d) Parent shall have received a letter from Deloitte & Touche
LLP, Parent's independent auditors, dated a date within two
business days before the date on which the Registration
Statement shall become effective and addressed to Parent, in
form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by
independent public accountants in connection with registration
statements similar to the Registration Statement (including,
among other things, that the Merger will be treated as a
pooling of interests under Accounting Principles Board Opinion
No. 16).
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ARTICLE VII
-----------
TERMINATION
Section 7.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after stockholder approval hereof (unless otherwise specified herein):
(a) By the mutual consent of the Board of Directors of Parent and
the Board of Directors of the Company.
(b) By either of the Board of Directors of the Company or the
Board of Directors of Parent:
(i) if any court of competent jurisdiction or
Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which
order, decree, ruling or other action the parties
hereto shall use their reasonable best efforts to
lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order,
decree, ruling or other action shall have become
final and non-appealable;
(ii) if the Merger shall not have been consummated on or
before April 30, 1998; provided, however, that the
rights to terminate this Agreement under this Section
7.1(b)(ii) shall not be available to any party whose
failure to fulfill any obligations under this
Agreement has been the cause of, or resulted in, the
failure to satisfy the conditions to the Merger;
(iii) provided that the terminating party is not then in
material breach of any representation, warranty,
covenant or other agreement contained herein, if the
other party shall have breached (i) any of the
covenants or agreements made by such other party
herein or (ii) any of the representations or
warranties made by such other party herein, and in
either case, (x) such breach is not cured within 30
days following written notice to the party committing
such breach, or which breach, by its nature, cannot
be cured prior to the Closing and (y) such breach
would entitle the non-breaching party not to
consummate the transactions contemplated hereby under
Article VI hereof;
(iv) if any approval of the stockholders of Parent or the
Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders
or at any adjournment or postponement thereof; or
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(v) if the Board of Directors of the other party shall
have withdrawn, or modified or changed in a manner
adverse to the terminating party, its approval or
recommendation of this Agreement and the transactions
contemplated hereby.
(c) By the Board of Directors of the Company:
(i) if prior to the approval of this Agreement by the
requisite vote of the Company's stockholders, there
exists at such time a Takeover Proposal (as defined
in Section 5.7(c)) for the Company, and the Company's
Board of Directors, after having consulted with and
considered the advice of outside legal counsel,
reasonably determines in good faith that such action
is necessary in the exercise of its fiduciary duties
under applicable laws, and the Company has paid to
Parent the termination fee as required by Section 7.3
hereof; or
(ii) if the Company would not to be obligated consummate
the transactions contemplated hereby under Section
2.1(c)(i).
(d) By the Board of Directors of Parent:
(i) if prior to the approval of this Agreement by the
requisite vote of Parent's stockholders, there exists
at such time a Takeover Proposal (as defined in
Section 5.7(c)) for Parent, and Parent's Board of
Directors, after having consulted with and considered
the advice of outside legal counsel, reasonably
determines in good faith that such action is
necessary in the exercise of its fiduciary duties
under applicable laws, and Parent has paid to the
Company the termination fee required by Section 7.3
hereof; or
(ii) if Parent would not be obligated to consummate the
transactions contemplated hereby under Section 6.3(c)
hereof.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, and there shall be no liability on the part of Parent, Sub
or the Company except (A) for fraud or for material breach of this Agreement and
(B) as set forth in Sections 7.3, 8.1 and 8.2 hereof.
Section 7.3 TERMINATION FEE. (a) If (i) the Board of Directors of the
Company shall terminate this Agreement pursuant to Section 7.1(c)(i) hereof; or
(ii) the Board of Directors of Parent shall terminate this Agreement pursuant to
Section 7.1(b)(v) hereof, then in any such case as described in clause (i) or
(ii), the Company shall pay to Parent (not later than the date of termination of
this Agreement in the case of clause (i) above and the date one business day
after the date of termination of this Agreement in the case of clause (ii)
above) by wire transfer of immediately
37
<PAGE> 42
available funds an amount equal to $26 million inclusive of Parent's reasonable
out-of-pocket expenses incurred in connection with the transactions contemplated
by this Agreement. If the Board of Directors of the Company shall terminate this
Agreement pursuant to Section 7.1(b)(iv) hereof, the Company shall pay to Parent
(not later than the date of termination of this Agreement) by wire transfer of
immediately available funds an amount equal to $5 million to cover Parent's
expenses incurred in connection with the transactions contemplated by this
Agreement.
(b) If (i) the Board of Directors of Parent shall terminate this
Agreement pursuant to Section 7.1(d)(i) hereof; or (ii) the Board of Directors
of the Company shall terminate this Agreement pursuant to Section 7.1(b)(v)
hereof, then in any such case as described in clause (i) or (ii), Parent shall
pay to the Company (not later than the date of termination of this Agreement in
the case of clause (i) above and the date one business day after the date of
termination of this Agreement in the case of clause (ii) above) by wire transfer
of immediately available funds an amount equal to $26 million inclusive of the
Company's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement. If the Board of Directors of Parent
shall terminate this Agreement pursuant to Section 7.1(b)(iv) hereof, Parent
shall pay to the Company (not later than the date of termination of this
Agreement) by wire transfer of immediately available funds an amount equal to $5
million to cover the Company's expenses incurred in connection with the
transactions contemplated by this Agreement.
(c) Any amounts due under this Section 7.3 shall be in the nature of
liquidated damages and not in the nature of a penalty.
Section 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 FEES AND EXPENSES. Except as otherwise provided in Section
7.3 hereof and except for expenses incurred in connection with printing the
Proxy Statement/Prospectus and the Registration Statement, as well as the filing
fees relating thereto and relating to the filing under the HSR Act, which costs
shall be shared equally by Parent and the Company, all costs (other than the
filing fee for registration of the Parent Common Stock which will be paid by
Parent) and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby and thereby shall be paid
by the party incurring such expenses.
38
<PAGE> 43
Section 8.2 FINDERS' FEES. (a) Except for Batchelder & Partners and
Montgomery Securities, copies of whose engagement agreements have been provided
to Parent and whose fees will be paid by the Company, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or any of its Subsidiaries who might
be entitled to any fee or commission from the Company or any of its Subsidiaries
upon consummation of the transactions contemplated by this Agreement.
(b) Except for Merrill Lynch, a copy of whose engagement agreement has
been provided to the Company and whose fees will be paid by Parent, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of Parent or any of its Subsidiaries who
might be entitled to any fee or commission from Parent or any of its
Subsidiaries upon consummation of the transactions contemplated by this
Agreement.
Section 8.3 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto, pursuant to action taken by
their respective Boards of Directors, at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce or change the consideration
to be received by the Company's stockholders in the Merger.
Section 8.4 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
FedEx, to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Consolidated Stores Corporation
300 Phillipi Road
Columbus, Ohio 43228-8707
Attention: General Counsel
Telephone No.: (614) 278-6762
Telecopy No.: (614) 278-6763
with a copy to:
Michael Wager, Esq.
Benesch, Friedlander, Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
39
<PAGE> 44
Cleveland, Ohio 44114-2378
Telephone No.: (216) 363-4500
Telecopy No.: (216) 363-4588
and
(b) if to the Company, to:
Mac Frugal's Bargains - Close-outs Inc.
2430 East Del Amo Boulevard
Dominguez, California 90020-6306
Attention: Chief Executive Officer
Telephone No.: (310) 761-4167
Telecopy No.: (310) 631-4106
with a copy to:
Robert K. Montgomery, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Telephone No.: (310) 557-8022
Telecopy No.: (310) 551-8741
Section 8.6 INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to November 4, 1997. As used in this Agreement, the term "affiliate(s)"
shall have the meaning set forth in Rule l2b-2 of the Exchange Act.
Section 8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement and the Confidentiality Agreements dated October 27,
1997 between the parties (including the exhibits hereto and the documents and
the instruments referred to herein and therein): (a) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and (b)
except as provided in Sections 5.6 and 5.11 with respect to the obligations of
the Company or the Surviving Corporation thereunder, is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
40
<PAGE> 45
Section 8.9 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to the remedy of specific performance of the terms hereof, in addition
to any other remedy at law or equity.
Section 8.11 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
Section 8.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent; provided,
however, that no such assignment shall relieve Parent from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 8.13 JOINT AND SEVERAL LIABILITY. Parent and Sub hereby agree
that they will be jointly and severally liable for all covenants, agreements,
obligations and representations and warranties made by either of them in this
Agreement.
41
<PAGE> 46
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
CONSOLIDATED STORES CORPORATION
By: /s/ Michael J. Potter
------------------------------------------------
Name: Michael J. Potter
Title: Senior Vice President and Chief
Financial Officer
MBC CONSOLIDATED ACQUISITION
CORPORATION
By: /s/ Albert J. Bell
------------------------------------------------
Name: Albert J. Bell
Title: Secretary
MAC FRUGAL'S BARGAINS -
CLOSE-OUTS INC.
By: /s/ Philip L. Carter
-----------------------------------------------
Name: Philip L. Carter
Title: President and Chief Executive Officer
42
<PAGE> 47
EXHIBIT A
FORM OF WAIVER
WAIVER
------
This Waiver ("Waiver") is executed and delivered as of this ___ day of
November, 1997 by Mac Frugal's Bargains - Close-Outs, Inc. (the "Company"), a
Delaware corporation, and ______________ (the "Executive") in respect of that
certain Employment Agreement dated __________, 199___ between the Company and
Executive (the "Employment Agreement"). Capitalized terms used without
definition herein have the meanings ascribed to them in the Employment
Agreement.
Recitals
--------
A. The Company, Consolidated Stores Corporation, a Delaware corporation
("CNS"), and MBC Consolidated Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of CNS ("MBC") have entered into an Agreement and
Plan of Merger (the "Merger Agreement") dated as of the date hereof providing
for the merger of MBC with and into the Company with the Company as the
surviving corporation (the "Merger").
B. Section 5.6(a)(v) of the Merger Agreement requires that, concurrent
with the execution of the Merger Agreement, the Company shall cause Executive to
execute this Waiver. Section 5.12(b) of the Merger Agreement requires that the
Company seek to obtain an Affiliate Letter from Executive in substantially the
form of Exhibit A attached hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions
herein set forth, the parties agree as follows:
Agreement
---------
1. WAIVER OF CERTAIN RIGHTS UNDER THE EMPLOYMENT AGREEMENT. Section 9
of the Employment Agreement provides in pertinent part that in the event
Executive's employment is terminated within two months after the Merger,
Executive is entitled to certain payments including the following:
. . . the greater of (A) the closing price of the Company's Common
Stock on the day before the date Executive's employment terminates or
(B) the highest price per share actually paid in connection with the
Change of Control of the Company, exceeds the per share exercise price
of each vested and exercisable stock option held by Executive on the
day before the date Executive's employment terminates, multiplied by
the number of shares covered by each such option. Executive will
surrender all such options to the Company without exercising them.
A-43
<PAGE> 48
To facilitate the proposed accounting treatment of the Merger, the Company has
asked Executive to waive, and Executive hereby waives, the operation of the
above provision in connection with any termination of his employment within two
months following the closing of the Merger, such waiver to be entirely
contingent upon the closing of the Merger.
2. AFFILIATE LETTER. Executive hereby agrees that at such time as the
Company requests, he will execute and deliver the Affiliate Letter in
substantially the form attached hereto as Exhibit A.
3. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive acknowledges
that he has freely executed this Waiver and has had an opportunity to consult
with counsel of his choice as regards his rights under the Employment Agreement
being waived hereunder and as to the contents of the Affiliate Letter. There are
no conditions to the waiver and agreement to execute an Affiliate Letter other
than as expressly set forth herein.
4. EMPLOYMENT AGREEMENT UNMODIFIED. Except as otherwise expressly set
forth herein, the terms of the Employment Agreement and any option award
agreement referenced therein or herein shall remain in full force and effect and
are unaffected hereby. In the event the Merger is not consummated, this Waiver
shall be null and void.
IN WITNESS WHEREOF, the undersigned have executed this Waiver as of the
date first above written.
Mac Frugal's Bargains - Close-Outs, Inc. Executive
By:
----------------------------- ------------------------------
Name:
----------------------------
Title:
---------------------------
A-44
<PAGE> 49
EXHIBIT B
FORM OF AFFILIATE AGREEMENT
Consolidated Stores Corporation
300 Phillipi Road
P.O. Box 28512
Columbus, Ohio 43228-0512
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value
$.02778 per share (the "Company Common Stock"), of Mac Frugal's Bargains -
Close-outs Inc., a Delaware corporation (the "Company"). The undersigned may
receive shares of Common Stock, par value $.01 per share (the "Parent Common
Stock"), of Consolidated Stores Corporation, a Delaware corporation ("Parent"),
in connection with the merger of MBC Consolidated Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), with and
into the Company, with the Company continuing as the surviving corporation (the
"Merger").
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of the Company as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 ("Rule 145") of the rules and regulations
under the Securities Act of 1933, as amended (the "Act"). Execution of this
Agreement by the undersigned should not be construed as an admission of
"affiliate" status or as a waiver of any rights the undersigned may have to
object to any claim that the undersigned is such an affiliate on or after the
date of this Agreement.
If in fact the undersigned were an affiliate of the Company under the
Act, the undersigned's ability to sell, transfer or otherwise dispose of any
Parent Common Stock received by the undersigned in exchange for any shares of
Company Common Stock pursuant to the Merger may be restricted unless such
transaction is registered under the Act or an exemption from such registration
is available. The undersigned understands that such exemptions are limited and
the undersigned has obtained advice of counsel as to the nature and conditions
of such exemptions, including information with respect to the applicability to
the sale of such securities of Rules 144 and 145(d) promulgated under the Act.
A. The undersigned hereby represents to and covenants with Parent that
the undersigned will not sell, transfer or otherwise dispose of any Parent
Common Stock received by the undersigned in exchange for shares of Company
Common Stock pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) by a sale made in conformity with the
provisions of Rule 145 (and otherwise in accordance with Rule 144 under the Act
if the undersigned is an affiliate of Parent and if so required at the time) or
(iii) in a transaction which, in the opinion of independent counsel reasonably
satisfactory to Parent or as described in a "no-action" or
B-1
<PAGE> 50
interpretive letter from the Staff of the Securities and Exchange Commission
(the "Commission"), is not required to be registered under the Act.
B. The undersigned understands that Parent is under no obligation to
register the sale, transfer or other disposition of Parent Common Stock by the
undersigned or on behalf of the undersigned under the Act or, except as provided
in paragraph F.1 below, to take any other action necessary in order to make
compliance with an exemption from such registration available.
C. The undersigned also understands that stop transfer instructions
will be given to Parent's transfer agents with respect to the Parent Common
Stock issued to the undersigned and that there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES.
D. The undersigned also understands that unless a sale or transfer is
made in conformity with the provisions of Rule 145, or pursuant to a
registration statement, Parent reserves the right to put the following legend on
the certificates issued to the undersigned's transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
E. In the event of a sale of Parent Common Stock pursuant to Rule 145,
the undersigned will supply Parent with evidence of compliance with such Rule,
in the form of customary seller's and broker's Rule 145 representation letters
or as Parent may otherwise reasonably request. The undersigned understands that
Parent may instruct its transfer agent to withhold the transfer of any Parent
Common Stock disposed of by the undersigned in a manner inconsistent with this
letter.
F. I have made no sale, disposition or other transfer of, or otherwise
reduced my investment risk with respect to, Parent Common Stock during the
thirty (30) days preceding the date of this letter and agree to make no such
sale, disposition or other transfer, or otherwise reduce my investment risk with
respect to, Parent Common Stock until such time as financial results (including
combined sales and net income) covering at least thirty (30) days of post-Merger
operations have been published, except as permitted by Staff Accounting Bulletin
No. 76 issued by the Commission.
B-2
<PAGE> 51
G. By Parent's acceptance of this Agreement, Parent hereby agrees with
the undersigned as follows:
1. For so long as to the extent necessary to permit the
undersigned to sell the Parent Common Stock pursuant to Rule 145 and,
to the extent applicable, Rule 144 under the Act, Parent shall (a) use
its reasonable best efforts to (i) file, on a timely basis, all reports
and data required to be filed with the Commission by it pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the
"1934 Act") and (ii) furnish to the undersigned upon request a written
statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of Parent
Common Stock by the undersigned under Rule 145 and Rule 144. Parent has
filed all reports required to be filed with the Commission under
Section 13 of the 1934 Act during the preceding 12 months.
2. It is understood and agreed that the legends set forth in
paragraph C and D above shall be removed by delivery of substitute
certificates without such legend if such legend is not required for
purposes of the Act or this Agreement. It is understood and agreed that
such legends and the stop orders referred to above will be removed if
(i) one year shall have elapsed from the date the undersigned acquired
Parent Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned, (ii) two years shall
have elapsed from the date the undersigned acquired the Parent Common
Stock received in the Merger and the provisions of Rule 145(d)(3) are
then applicable to the undersigned, or (iii) in the event of a sale of
Parent Common Stock received by the undersigned in the Merger which has
been registered under the Act or made in conformity with the provisions
of Rule 145; and, in the case of (i) and (ii) above, Parent has
received either an opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to Parent, or a "no action" letter obtained
from the staff of the Commission, to the effect that the restrictions
imposed by Rule 145 under the Act no longer apply to the undersigned.
3. As soon as reasonably practicable, but in no event later
than fifteen (15) business days after the end of the first fiscal month
of Parent ending at least thirty (30) days after the effective date of
the Merger, Parent will publish combined results as referred to in
paragraph F above.
4. Parent will, and will cause its Transfer Agent to, promptly
process all transfers of Parent Company Stock permitted by this letter
and as to which all appropriate documentation has been submitted by the
undersigned.
B-3
<PAGE> 52
The undersigned acknowledges that it has carefully reviewed this letter
and understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Parent Common Stock
received by the undersigned in the Merger.
Very truly yours,
----------------------------
[Name]
Accepted this ____ day of _____________ 199___, by:
CONSOLIDATED STORES CORPORATION
By:
------------------------
Name:
----------------------
Title:
---------------------
B-4
<PAGE> 1
Exhibit 2
PRESS RELEASE
For Immediate Release Contact: Michael J. Potter
Senior Vice President
and Chief Financial Officer
(614) 278-6622
CONSOLIDATED STORES CORPORATION AND
-----------------------------------
MAC FRUGAL'S BARGAINS CLOSE-OUTS INC.
-------------------------------------
ANNOUNCE MERGER AGREEMENT
-------------------------
Columbus, Ohio - November 5, 1997 - Consolidated Stores Corporation (NYSE: CNS),
the nation's largest closeout retailer, and Mac Frugal's Bargains Close-Outs
Inc. (NYSE: MFI), a leading closeout retailer, today announced a definitive
agreement to merge the two companies.
Under the terms of the agreement, Consolidated Stores will issue between 0.88
and 1.00 share of its stock for each Mac Frugal's share. The final exchange
ratio will be based on the average closing price per share of Consolidated
Stores stock during a twenty day period prior to the effective time of the
merger. Based on Consolidated Stores twenty day average closing price through
November 4, 1997, the exchange ratio would be 0.99. Using this exchange ratio,
Consolidated would issue approximately 24.2 million shares, which would have a
value of approximately $995 million based upon Consolidated's closing price of
$41.13 on November 4. The transaction is expected to close in January 1998.
The merger is expected to be accretive to Consolidated Stores earnings, before
synergies or any onetime charges associated with the merger. The
stock-for-stock transaction will be accounted for as a pooling-of-interests and
will be tax-free to both companies and their respective shareholders. The
transaction is subject to customary conditions, including approval by both
companies' shareholders and regulatory agencies.
Commenting on the merger, Mr. William G. Kelley, Chairman and Chief Executive
Officer stated, "We are very excited about combining these two leading closeout
retailers. This transaction will create a closeout store presence from coast to
coast, with over 1,000 closeout store locations and minimal market overlap. This
will introduce Consolidated Stores closeout business to some of the premier
growth markets in the Western United States. Mac Frugal's stores are comparable
to Consolidated's Odd Lots and Big Lots Stores in size. The closeout merchandise
strategies of the two companies are very similar and will work very well
together. The combined company is expected to have over $4 billion in revenue in
the fiscal year ending January 1998."
Mr. Kelley concluded, "This transaction is accretive to our shareholders
without any assumptions for synergies. Additionally, we are energized by what
appear to be meaningful synergy opportunities between the two businesses over
the coming years that will further add to the accretive nature of this
transaction. Most importantly, the ultimate benefactor of the combination will
be our customers, who will continue to depend upon our closeout stores for low
prices and great value."
Merrill Lynch & Co. acted as exclusive financial advisor to Consolidated Stores
Corporation.
<PAGE> 2
PRESS RELEASE Page 2
Consolidated Stores Corporation, a leading value retailer specializing in toys
and close-out merchandise, operates a total of 1,946 stores in all 50 states and
Puerto Rico. Stores by division consist of: 1,269 toy and close-out toy stores
operating as K-B TOYS, K-B TOY WORKS and K-B TOY OUTLET and 677 closeout stores
operating as ODD LOTS and BIG LOTS. Wholesale operations are conducted through
CONSOLIDATED INTERNATIONAL and WISCONSIN TOY. Consolidated Stores Corporation,
headquartered in Columbus, Ohio, had sales and income from continuing operations
of $2,648 million and $113 million, respectively, for the fiscal year ended
February 1, 1997.
Mac Frugal's operates a chain of 321 closeout retail stores in 18 states. These
stores do business as PIC 'N' SAVE and MAC FRUGAL'S BARGAINS CLOSE-OUTS. Mac
Frugal's, headquartered in Dominguez, California, had sales and net income of
$773 million and $43 million, respectively, for the fiscal year ended February
2, 1997
With the exception of historical information, statements contained in this news
release are forward-looking statements that are subject to risks and
uncertainties, including, but not limited to, competitive pressures, inflation,
consumer debt levels, currency fluctuations, trade restrictions, capital market
conditions and other risks indicated in the Company's filings with the
Securities and Exchange Commission. Actual results may materially differ from
anticipated results described in such statements.
