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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [_]
CHECK THE APPROPRIATE BOX:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE ARISTOTLE CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] NO FEE REQUIRED
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
- --------------------------------------------------------------------------------
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
- --------------------------------------------------------------------------------
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO
EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):
$21,500,000 - sale price
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$21,500,000
- --------------------------------------------------------------------------------
(5) TOTAL FEE PAID:
$4,300
- --------------------------------------------------------------------------------
[X] FEE PREVIOUSLY PAID WITH PRELIMINARY MATERIALS.
[_] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE
0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) DATE FILED:
- --------------------------------------------------------------------------------
<PAGE>
THE ARISTOTLE CORPORATION
78 Olive Street
New Haven, Connecticut 06511
(203) 867-4090
May 22, 1998
Dear Stockholder,
You are cordially invited to attend a Special Meeting of Stockholders of
The Aristotle Corporation, a Delaware corporation ("Aristotle"), to be held at
2:00 p.m. on June 26, 1998 at the New Haven Lawn Club, 193 Whitney Avenue, New
Haven, Connecticut (including any adjournment or postponement thereof, the
"Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the proposed sale for cash (the "Proposed Sale")
to Sara Lee Corporation, a Maryland Corporation, or its designee ("Sara Lee") of
substantially all of the assets and certain specified liabilities of The Strouse
Adler Company ("Strouse Adler"), a wholly-owned subsidiary of Aristotle which
designs, manufactures and markets specialty bra and shapewear products and to
transact such other business as may properly come before the Special Meeting.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED SALE IS FAIR AND
IN THE BEST INTERESTS OF ARISTOTLE AND ITS STOCKHOLDERS, HAS APPROVED AND
ADOPTED THE PROPOSED SALE (SUBJECT TO STOCKHOLDER APPROVAL) AND RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE PROPOSED SALE. In arriving
at its recommendation, the Board gave careful consideration to a number of
factors, as described in the enclosed Proxy Statement, including the opinion of
its financial advisor, Peter J. Solomon Company ("PJSC") to the effect that the
consideration to be received by Aristotle is fair, from a financial point of
view, to Aristotle. The written opinion of PJSC is attached as Appendix B to
the enclosed Proxy Statement. You are urged to read the opinion in its entirety
for a description of the assumptions made, the matters considered and procedures
followed by PJSC.
Details of the Proposed Sale appear in the accompanying Proxy Statement.
Please give this material your careful attention.
Approval of the Proposed Sale requires the affirmative vote of the holders
of a majority of Aristotle's issued and outstanding shares of common stock, $.01
par value per share (the "Common Stock"), and Aristotle's issued and outstanding
shares of preferred stock, $.01 par value per share (the "Preferred Stock"),
voting as a single class. Each share of Common Stock is entitled to one vote on
each matter to be acted upon or which may properly come before the Special
Meeting. The Preferred Stock is divided into Series E, F, G and H, and each
share is entitled to one vote and to vote with the Common Stock as one class on
all matters other than the election of directors and the appointment of
accountants. The Common Stock and the Preferred Stock constitute the only
outstanding capital stock of Aristotle.
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It is very important that your shares of Common Stock and Preferred Stock
be represented at the Special Meeting. Whether or not you plan to attend the
Special Meeting, please complete, sign and date the enclosed proxy card and mail
it promptly using the enclosed, pre-addressed, postage-paid, return envelope. If
you attend the Special Meeting, you may revoke the proxy given and vote in
person if you wish, even if you have previously returned your proxy card. Your
prompt attention will be greatly appreciated.
Sincerely,
/s/ Paul F. McDonald
-------------------------
Paul F. McDonald
Chief Financial Officer
and Secretary
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
THE ARISTOTLE CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of The
Aristotle Corporation ("Aristotle") will be held at 2:00 p.m. on Friday, June
26, 1998 at the New Haven Lawn Club, 193 Whitney Avenue, New Haven, Connecticut
(including any adjournment or postponement thereof, the "Special Meeting"), for
the following purpose:
1. To consider and vote upon a proposal to approve and adopt the sale for cash
(the "Proposed Sale") to Sara Lee Corporation, or its designee ("Sara Lee") of
substantially all of the assets and certain specified liabilities of The
Strouse, Adler Company ("Strouse Adler"), a wholly-owned subsidiary of
Aristotle, pursuant to an Asset Purchase Agreement dated as of March 3, 1998
among Sara Lee, Aristotle and Strouse Adler, the full text of which is attached
as Appendix A to the accompanying proxy statement; and
2. To transact such other business as may properly come before the Special
Meeting.
The Board has fixed the close of business on May 18, 1998 as the record
date (the "Record Date") for the determination of the Stockholders entitled to
notice of and to vote at the Special Meeting. Accordingly, only holders of
record of Aristotle's common stock, $.01 par value per share (the "Common
Stock"), and the holders of record of Aristotle's preferred stock, $.01 par
value per share (the "Preferred Stock"), at the close of business on the Record
Date will be entitled to vote at the Special Meeting, either by proxy or in
person. Approval of the Proposed Sale requires the affirmative vote of the
holders of a majority of Aristotle's Common Stock and Aristotle's Preferred
Stock, voting as a single class.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY USING THE ENCLOSED PRE-ADDRESSED,
POSTAGE-PAID, RETURN ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE
IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
YOUR PROMPT ATTENTION IS APPRECIATED.
By Order of the Board of Directors,
/s/ Paul McDonald
-----------------------------------
Paul McDonald
Secretary
New Haven, Connecticut
Dated: May 22, 1998
<PAGE>
THE ARISTOTLE CORPORATION
78 Olive Street
New Haven, Connecticut 06511
(203) 867-4090
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is being furnished to stockholders of The Aristotle
Corporation, a Delaware corporation ("Aristotle"), in connection with the
solicitation of proxies by the Board of Directors of Aristotle for use at its
Special Meeting of Stockholders to be held at 2:00 p.m. on June 26, 1998 at the
New Haven Lawn Club, 193 Whitney Avenue, New Haven, Connecticut (including any
adjournment or postponement thereof, the "Special Meeting").
At the Special Meeting, Aristotle stockholders will consider and vote upon
the proposed sale for cash (the "Proposed Sale") to Sara Lee Corporation, a
Maryland Corporation, or its designee ("Sara Lee"), of substantially all of the
assets and certain specified liabilities of The Strouse, Adler Company ("Strouse
Adler"), a wholly-owned subsidiary of Aristotle, pursuant to an Asset Purchase
Agreement among Sara Lee, Aristotle and Strouse Adler dated as of March 3, 1998,
a copy of which is attached hereto as Appendix A (the "Purchase Agreement").
Capitalized terms used in the Proxy Statement but not defined herein shall have
the meaning ascribed to such terms in the Purchase Agreement.
The consideration to be received by Aristotle and Strouse Adler will total
$21,500,000, consisting of (i) a cash payment of $16,500,000 (minus the sum of
the Accrued Bonus Amount and any Potential Successor Taxes) payable at Closing,
subject to an adjustment equal to the amount that the Closing Net Book Value is
less than or more than $15,250,000, and the assumption by Sara Lee of certain
specified liabilities of Strouse Adler, and (ii) a cash payment of $5,000,000 as
consideration for Aristotle agreeing not to compete in the business of
manufacturing, marketing, distributing and selling women's intimate apparel.
See "The Purchase Agreement."
The Board of Directors (the "Board") of Aristotle has approved the Proposed
Sale and the Purchase Agreement and recommends that holders of Aristotle stock
vote FOR the approval and adoption of the Proposed Sale and the Purchase
Agreement.
This Proxy Statement, the accompanying Notice of Special Meeting and the
accompanying form of proxy are first being mailed to Aristotle's stockholders on
or about May 28, 1998. The Board has fixed the close of business on May 18,
1998 as the record date (the "Record Date") for the determination of the
stockholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only holders of record of Aristotle's common stock, $.01 par value
per share (the "Common Stock"), and the holders of record of Aristotle's
preferred stock, $.01 per share (the "Preferred Stock"), at the close of
business on the Record Date will be entitled to vote at the Special Meeting,
either by proxy or in person. As of the Record Date, there were 3,848 holders
of record of Aristotle Common Stock and 8 holders of record of Aristotle
Preferred Stock.
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As an inducement to Sara Lee to enter into the Purchase Agreement, certain
of Aristotle's stockholders representing approximately 37% of the shares of
Aristotle stock authorized to vote at the Special Meeting have entered into a
Stockholders' Agreement dated as of March 3, 1998 (the "Stockholders'
Agreement"). Pursuant to the Stockholders' Agreement, such stockholders have
agreed to vote their respective shares of Aristotle stock in favor of the
Proposed Sale and have granted to Sara Lee an irrevocable proxy with respect to
all shares of Aristotle stock over which such holder has voting control to vote
in favor of the Proposed Sale.
THE SPECIAL MEETING
Time, Date and Place of Special Meeting
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Aristotle for use at the Special Meeting of
Stockholders to be held at 2:00 p.m. on Friday, June 26, 1998 at the New Haven
Lawn Club, 193 Whitney Avenue, New Haven, Connecticut.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of Aristotle's Common Stock and holders of
Aristotle's Preferred Stock will be asked (i) to consider and vote upon the
Proposed Sale to Sara Lee of substantially all of the assets and certain
specified liabilities of Strouse Adler, a wholly-owned subsidiary of Aristotle
which designs, manufactures and markets specialty bra and shapewear products,
pursuant to an Asset Purchase Agreement dated as of March 3, 1998 (the "Purchase
Agreement"), entered into by Sara Lee, Aristotle and Strouse Adler and (ii) to
transact such other business as may properly come before the Special Meeting. A
copy of the executed Purchase Agreement (without exhibits and schedules) is
included in this Proxy Statement as Appendix A.
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED SALE (SUBJECT TO STOCKHOLDER
APPROVAL) AND RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED SALE.
RECORD DATE AND OUTSTANDING SHARES
The Board of Aristotle has fixed the close of business on May 18, 1998 as
the record date (the "Record Date") for the determination of the stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only
holders of record of Aristotle's Common Stock and the holders of record of
Aristotle's Preferred Stock at the close of business on the Record Date will be
entitled to vote at the Special Meeting, either by proxy or in person. As of
the Record Date, there were 1,209,028 shares of Common Stock outstanding held by
3,848 holders of record and 569,630 shares of Preferred Stock outstanding held
by 8 holders of record, or a combined total of 1,778,658 shares outstanding on
the Record Date. This Proxy Statement and the accompanying proxy card are being
mailed to the stockholders of Aristotle on or about May 28, 1998.
INTENTIONS AND AGREEMENTS TO VOTE
Pursuant to the Stockholders' Agreement, certain of Aristotle's Directors
and stockholders have agreed to vote in favor of the Proposed Sale and have
granted Sara Lee an irrevocable proxy with respect to all shares of Aristotle
Common Stock and Preferred Stock over which such holders have voting control to
vote in favor of the Proposed Sale. The total number of shares of Common Stock
and Preferred Stock for which an irrevocable proxy has been granted to Sara Lee
pursuant to the Stockholders' Agreement is 670,411 shares which represents
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approximately 37% of the aggregate outstanding shares of Aristotle Common Stock
and Preferred Stock as of the Record Date. The Aristotle Directors and
stockholders and their affiliates that are a party to the Stockholders'
Agreement are the following: (i) John Crawford - Chairman of the Board and a
Director, (ii) Betsy Henley-Cohn - a Director, (iii) Geneve Corporation and
Chaparral International Re. - affiliates of Edward Netter and Steven Lapin, both
of whom are Directors, (iv) Sharon Oster- a Director and (v) Raymond Fair,
husband of Sharon Oster.
QUORUM AND VOTING OF PROXIES
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of Aristotle's aggregate shares of issued and outstanding Common
Stock and Preferred Stock on the Record Date will constitute a quorum at the
Special Meeting. Votes cast by proxy or in person at the Special Meeting will
be counted by one or more persons appointed by Aristotle to act as the inspector
for the meeting. The presiding officer of the meeting will appoint a
representative of Aristotle's Registrar and Transfer Agent to act as the
independent inspector to count votes at the Special Meeting.
Shares of Common Stock and Preferred Stock which are represented by
properly executed proxy cards received by Aristotle at or prior to the Special
Meeting, and not duly and timely revoked, will be voted according to the
instructions indicated on the proxy card. Unless contrary instructions are
given, the persons named on the proxy card intend to vote the shares of Common
Stock and Preferred Stock so represented FOR the Proposed Sale.
Any holder of Common Stock or Preferred Stock has the power to revoke his
or her proxy at any time before it is voted at the Special Meeting by delivering
a written notice of revocation to the Secretary of Aristotle, by a duly executed
proxy bearing a later date, or by voting by ballot at the Special Meeting.
Shares represented by proxies that reflect abstentions or include "broker
non-votes" will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. In the event that a quorum is
not present at the Special Meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. The persons named as
proxies with respect to the Special Meeting may propose and vote for one or more
adjournments of the Special Meeting to permit further solicitation of proxies in
favor of the proposals; provided, however, that no proxy which is voted against
any of the proposals will be voted in favor of any such adjournment or
postponement.
VOTING RIGHTS
Each share of Common Stock is entitled to one vote on each matter to be
acted upon or which may properly come before the Special Meeting. The Preferred
Stock is divided into Series E, F, G and H and each share of Preferred Stock is
entitled to one vote and to vote with the Common Stock as one class on all
matters other than the election of directors and the appointment of accountants.
Thus, holders of Common Stock and Preferred Stock will vote as one class with
regard to the Proposed Sale. The Common Stock and the Preferred Stock
constitute the only outstanding capital stock of Aristotle.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock and Preferred Stock, voting as a single
class, on the Record Date is required to approve the Proposed Sale. Abstentions
and "broker non-votes" will have the effect of votes against approval of the
Proposed Sale.
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NO DISSENTERS' RIGHTS
Stockholders of Aristotle who do not approve of the Proposed Sale are not
entitled to appraisal or any other rights with respect to the Proposed Sale
under Delaware law or Aristotle's Certificate of Incorporation.
PROXY SOLICITATION AND EXPENSES
The accompanying proxy is being solicited on behalf of the Board of
Directors of Aristotle. All expenses of this solicitation, including the cost
of preparing, assembling, and mailing this proxy soliciting material and Notice
of Special Meeting of Stockholders, will be paid by Aristotle. Additional
solicitation of holders of Common Stock or Preferred Stock by mail, telephone,
telegraph or by personal solicitation may be done by directors, officers and
regular employees of Aristotle, for which they will receive no additional
compensation. Brokerage houses and other nominees, fiduciaries and custodians
nominally holding shares of Common Stock or Preferred Stock as of the Record
Date will be requested to forward proxy soliciting material to the beneficial
owners of such shares, and will be reimbursed by Aristotle for their reasonable
out-of-pocket expenses.
MATTERS TO BE VOTED UPON AT THE SPECIAL MEETING
At the Special Meeting, Aristotle stockholders will be asked to consider
and vote upon the approval and adoption of the Proposed Sale pursuant to the
Purchase Agreement. See "The Proposed Sale." The Board is not currently aware
of any other matters which are to be presented at the Special Meeting. As to
any other business which may properly come before the Special Meeting, the
persons named on the proxy card for the Common Stock and the Preferred Stock
will vote according to their best judgment.
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THE PROPOSED SALE
THE TERMS AND CONDITIONS OF THE PROPOSED SALE ARE CONTAINED IN THE PURCHASE
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND
IS INCORPORATED HEREIN BY REFERENCE. The description in this Proxy Statement of
the terms and conditions of the Proposed Sale is qualified in its entirety by,
and made subject to, the more complete information set forth in the Purchase
Agreement. Capitalized terms used in this Proxy Statement but not defined
herein shall have the meaning ascribed to such terms in the Purchase Agreement.
STOCKHOLDERS OF ARISTOTLE ARE URGED TO, AND SHOULD, CAREFULLY READ THE PURCHASE
AGREEMENT IN ITS ENTIRETY.
GENERAL
The Purchase Agreement, which was executed and delivered by Aristotle,
Strouse Adler and Sara Lee on March 3, 1998, provides, in part, for the sale for
cash of substantially all of the assets of Strouse Adler (the "Strouse Adler
Assets") to Sara Lee and the assumption by Sara Lee of certain liabilities of
Strouse Adler (the "Assumed Liabilities"). Subject to approval by the Aristotle
stockholders, the Aristotle Board of Directors, on behalf of Aristotle, as the
owner of all the issued and outstanding capital stock of Strouse Adler, has
approved the sale of the Strouse Adler Assets to Sara Lee pursuant to the terms
and conditions set forth in the Purchase Agreement. See "The Purchase
Agreement."
The consideration to be received by Aristotle and Strouse Adler from Sara
Lee pursuant to the Purchase Agreement totals $21,500,000 consisting of (i) a
cash payment of $16,500,000 (minus the sum of the Accrued Bonus Amount and any
Potential Successor Taxes) payable at the Closing, subject to an adjustment
equal to the amount that the Closing Net Book Value is less than or more than
$15,250,000 and the assumption of the Assumed Liabilities by Sara Lee and (ii) a
cash payment of $5,000,000 as consideration for agreeing not to engage in the
business of manufacturing, marketing, distributing and/or selling, on a whole-
sale basis, women's intimate apparel and any other product serviced, distributed
or sold by Strouse Adler, not to solicit, induce or attempt to solicit or induce
any supplier, licensee or other business relationship of Sara Lee to cease doing
business with Sara Lee, not to sell or to solicit sales of products from any
customer which was a customer of Strouse Adler, or not to solicit, hire or
attempt to solicit or hire any person who was an employee of Strouse Adler or
any Affiliate. See "The Purchase Agreement."
ARISTOTLE
Aristotle is presently a holding company conducting its operations through
Strouse Adler, its wholly-owned sole subsidiary. If the Proposed Sale is
approved by the stockholders and the sale of the Strouse Adler assets to Sara
Lee is consummated, Aristotle will no longer engage in the manufacturing and
distribution of women's intimate apparel and will, thereafter, focus its efforts
on seeking to acquire one or more businesses operating in industry segments
unrelated to the manufacture or distribution of women's intimate apparel.
THE STROUSE, ADLER COMPANY
Strouse Adler, headquartered in New Haven, Connecticut, was acquired by
Aristotle in April, 1994. Strouse Adler designs, manufactures and markets
specialty bra and shapewear products. Specialty bras are designed to provide
support and figure enhancement for women who wear apparel with backless,
strapless or halter features, such as strapless or low back line dresses and
gowns, halter tops and wedding gowns. Women's shapewear products include so-
called "body briefers" and light, medium and firm control shapers to provide
support and control for a woman in a similar manner as the traditional girdle.
Strouse Adler has three products lines, namely,
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SA, Smoothie and Slimlook \TM\. Each of these three product lines has its own
strategy for product design, consumer focus and market position. These products
are marketed and distributed throughout the United States to retailers by
Strouse Adler's network of full-time sales executives.
SARA LEE
Sara Lee is a global manufacturer and marketer of high-quality, brand-name
products for consumers throughout the world. Sara Lee's principal business and
principal office is located at Three First National Plaza, Chicago, Illinois
60602-4260 and its telephone number is (312) 726-2600.
BACKGROUND FOR THE PROPOSED SALE
In the Fall of 1995, Aristotle received an unsolicited expression of
interest from a major manufacturer of women's apparel for a possible transaction
involving the acquisition of the Strouse Adler business. Throughout November
and December of 1995, Aristotle's Board held a series of meetings to discuss
this expression of interest. During these meetings, the Board evaluated the
strategic direction of both Aristotle and Strouse Adler, including the role of
Strouse Adler in Aristotle's overall business strategy. The Board concluded
that Aristotle should not be sold. The Board also contemplated whether the sale
of Strouse Adler as an ongoing business concern to another operating entity in
the women's intimate apparel industry was an appropriate redirection of
Aristotle's business strategy. The Board concluded Aristotle should maintain
its overall business strategy of acquiring one or more operating companies, but
also decided that Aristotle should simultaneously continue to explore the
possible sale of Strouse Adler as an ongoing business concern.
At the Board's direction, from November 1995 to February 1996, John J.
Crawford, the Chairman of the Board, and Paul McDonald, the Chief Financial
Officer, met with representatives of the interested party to discuss potential
terms and conditions of the sale of Strouse Adler. At Aristotle's Board meeting
on December 21, 1995, Mr. Crawford reported on the preliminary discussions that
had taken place with the interested party. The Board again evaluated the
relative benefits of selling Strouse Adler as compared to retaining Strouse
Adler as an operating subsidiary. Consistent with its overall business
strategy, Aristotle's Directors decided to continue to explore the possible sale
of Strouse Adler as an ongoing business concern and utilize the proceeds from
such sale to acquire other operating companies. On January 2, 1996, in response
to unusually active trading of Aristotle's Common Stock, Aristotle issued a
press release announcing that it had been approached by a large, publicly held
company, and was discussing the possible sale of the Strouse Adler business.
Even though Messrs. Crawford and McDonald, with the assistance of legal counsel,
continued to discuss the potential sale with the interested party, negotiations
terminated in February 1996, and Aristotle issued a press release stating that
discussions had ceased.
Although such discussions ended in February 1996, the receipt of an
unsolicited indication of interest to purchase the assets of Strouse Adler
prompted the Board to continue to evaluate Aristotle's overall business
strategy. The Board decided to continue to pursue Aristotle's business strategy
of acquiring other companies while also continuing to explore the possible sale
of Strouse Adler as an ongoing business concern. In August 1996, the investment
banking firm of Peter J. Solomon Company Limited ("PJSC") was retained to assist
the Board in evaluating its strategic options regarding the Strouse Adler
business and to determine whether a possible sale of Strouse Adler could be
achieved at a favorable price.. In consultation with PJSC, the Board concluded
that a negotiated transaction with a women's apparel manufacturer would likely
result in Aristotle achieving the most favorable offer for Strouse Adler, and
the Board authorized PJSC to approach potential acquirers.
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Throughout the remainder of 1996, PJSC had discussions with several large
manufacturers of women's apparel though no acceptable offers were presented to
Aristotle. While exploring the possible sale of Strouse Adler, Aristotle's
Board continued to evaluate Aristotle's overall business strategy of acquiring
one or more operating companies.
Beginning in the first half of 1997, with the strengthening of Strouse
Adler's business, both in terms of revenues and earnings, interest in acquiring
Strouse Adler began to increase. During the second half of 1997, PJSC received
indications of interest from two major companies in the women's apparel industry
as well as a financial buyer. After further discussions and preliminary due
diligence, Aristotle received two proposals for the acquisition of Strouse
Adler, one from Sara Lee and one from another major manufacturer of women's
apparel.
At a Board meeting on February 5, 1998, the Board reviewed the terms of
these two initial proposals and continued to evaluate the relative benefits of
selling the business of Strouse Adler as compared to retaining Strouse Adler as
an operating subsidiary, including the potential benefits derived from deploying
the net proceeds to be received from a sale of Strouse Adler as a component of
Aristotle's overall business strategy. During the meeting, PJSC discussed a
comparison of the two proposals received by Aristotle. The Board examined each
proposal and, at the conclusion of the meeting, instructed PJSC to contact both
interested parties to inform each that their respective proposals were
unacceptable, and that Aristotle encouraged each to submit its best proposal.
Both interested parties submitted more favorable proposals. The principal
terms of the Sara Lee proposal consisted of an asset purchase transaction with a
gross purchase price of $21.5 million in cash, subject to adjustment based on
the net book value of Strouse Adler at Closing. Sara Lee's proposal also
included an offer of employment to all current Strouse Adler employees and
assumption of 100% of Strouse Adler's executory lease obligations at its New
Haven facility. Moreover, the Sara Lee proposal did not require that any of the
cash proceeds from the sale be placed in escrow.
The terms of the other revised proposal, which were presented verbally,
were less definitive and less specific than the Sara Lee proposal. The
principal terms consisted of an asset purchase transaction with a gross purchase
price of approximately $20.4 million to be paid in common stock. The terms of
the proposal did not specify whether the common stock consideration would be
based on an average closing price of the potential acquirer's common stock over
a range of days before the closing or whether a fixed number of shares would be
paid. The proposed purchase price was also subject to a working capital
adjustment, although the proposal did not contain a specific framework for
calculating such adjustment. Pursuant to this proposal, the potential acquirer
proposed to offer employment to some of Strouse Adler employees, although it did
not specify which employees would or would not receive offers of employment.
Also, the terms of this proposal provided for the assumption of 100% of Strouse
Adler's executory lease obligations at its New Haven facility for one year but
only 50% of the New Haven lease obligations thereafter. Moreover, this proposal
required that a portion of the common stock paid in consideration for the
Strouse Adler business be placed in escrow as a precaution against uncollectable
receivables and obsolete inventory, although the exact amount of common stock
required to be placed in escrow and the duration of the escrow requirement were
not included in this revised verbal proposal. The potential acquirer's initial
proposal had required an escrow of 10% of the common stock consideration for a
three year period, and, although the potential acquirer had verbally indicated
that a lesser amount of the common stock consideration being placed in escrow
for a shorter period of time may be acceptable, no amount of consideration or
time period was presented in the revised proposal.
On February 17, 1998, the Aristotle Board held a telephonic special meeting
during which PJSC discussed the two proposals. During this meeting, it was the
consensus of the Directors that the Sara Lee proposal was the more attractive
offer, and that Sara Lee was the more promising of the potential acquirers, both
in terms of value and probability of successful consummation of the transaction.
In determining that the Sara Lee proposal was
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more attractive, the Directors focused on Sara Lee's offer of a higher cash
purchase price, its offer of full assumption of Strouse Adler's obligations
under the lease for the New Haven facility, its offer of employment to all
current employees of Strouse Adler and its lack of a requirement of an escrow
for any of the sale proceeds. Furthermore, the Directors determined that Sara
Lee's proposal to pay cash for the assets of Strouse Adler would provide
Aristotle with cash to better achieve its desire to acquire other operating
companies.
In order to more quickly reach a definitive agreement with a more favorable
purchase price, Aristotle advised Sara Lee that Aristotle would, in good faith,
negotiate exclusively with Sara Lee for a six day period. On February 20, 1998,
Aristotle delivered a letter to Sara Lee pursuant to which Aristotle advised
that it would not enter into an agreement with any other party or solicit a
proposal for the purchase of Strouse Adler before February 26, 1998.
On February 23, 1998 and February 24, 1998, Messrs. Crawford and McDonald,
accompanied by legal counsel, traveled to Chicago, Illinois to engage in
negotiations with Sara Lee. Negotiations and due diligence were conducted daily
on a greatly accelerated basis. On February 26, 1998, Aristotle extended until
March 3, 1998 its commitment not to enter into an agreement or solicit a
proposal for the purchase of Strouse Adler with any party other than Sara Lee.
On March 3, 1998, at a special meeting, the Aristotle Board reviewed the
key terms of the Purchase Agreement. Outside legal counsel to Aristotle
reviewed with the Directors their fiduciary duties in considering the Proposed
Sale and reviewed the principal terms of the Purchase Agreement and the
Stockholders' Agreement. Representatives of PJSC then discussed the steps taken
and methods used to arrive at a fairness opinion and concluded by advising the
Board that PJSC was of the opinion that, subject to the assumptions made,
matters considered and limits on its review as stated in its opinion, the
Proposed Sale would be fair, from a financial point of view, to Aristotle.
After extended consideration, the Board concluded that the Proposed Sale was
fair to, and in the best interests of, Aristotle, and approved the Purchase
Agreement. The Directors also agreed to recommend that Aristotle stockholders
approve the Proposed Sale.
On the evening of March 3, 1998, Aristotle, Strouse Adler and Sara Lee
executed the Purchase Agreement.
ARISTOTLE' S REASONS FOR THE PROPOSED SALE; RECOMMENDATION OF THE BOARD OF
DIRECTORS
ARISTOTLE'S BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED SALE IS IN THE
BEST INTERESTS OF ARISTOTLE AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE PROPOSED SALE AND RECOMMENDS THAT ARISTOTLE'S
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSED SALE. The purchase price was
negotiated on an arm's length basis between representatives of Aristotle and
Strouse Adler and representatives of Sara Lee. Aristotle's Board of Directors
based its conclusion, in part, on the factors set forth below.
(i) Aristotle's goals and future business plans;
(ii) the price and terms of the Proposed Sale, as reflected in the Purchase
Agreement;
(iii) the advantages and disadvantages of selling the Strouse Adler business
in a negotiated, arms-length transaction after a limited auction
process without conducting a more rigorous auction, which principal
advantages included the avoidance of instability among employees and
retailers' representatives, the generally shorter time needed to effect
a negotiated transaction and the presence of an industry buyer that
could effect the Proposed Sale without a financing contingency;
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(iv) the opinion of PJSC to the Board of Aristotle that, subject to the
matters set forth therein, the consideration to be received by
Aristotle in connection with the Proposed Sale would be fair, from a
financial point of view, to Aristotle;
(v) the knowledge that the Sara Lee proposal was negotiated in a
competitive environment involving competing bids from another major
manufacturer of women's apparel; and
(vi) the effect of the Proposed Sale on the stockholders of Aristotle, which
included increasing Aristotle's net worth by approximately $800,000,
increasing its cash position by approximately $8,200,000 and being able
to redeploy its assets in the acquisition of one or more operating
companies.
Aristotle's business plan is to use the cash proceeds from the Proposed
Sale (subject to any indemnity obligations and retained liabilities) to acquire
one or more operating companies unrelated to the manufacture or distribution of
women's intimate apparel.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive, but includes all material factors
considered by the Board. The Board did not attempt to quantify or otherwise
assign relative weights to the specific factors it considered or determine that
any factor was of particular importance. A determination of various weightings
would, in the view of the Board, be impractical. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to, and considered by, the Board. In addition, individual members of
the Board may have given different weight to different factors.
OPINION OF ARISTOTLE'S FINANCIAL ADVISOR
PJSC has acted as exclusive financial advisor to Aristotle in connection
with the Proposed Sale. At the March 3, 1998 meeting of Aristotle's Board, PJSC
delivered its oral opinion to the Board, subsequently confirmed in a written
opinion dated March 3, 1998 ("PJSC's Opinion"), to the effect that, based upon
and subject to various considerations set forth in such opinion, as of March 2,
1998, the Closing Payment was fair, from a financial point of view, to
Aristotle. No limitations were imposed by Aristotle's Board upon PJSC with
respect to investigations made or procedures followed by PJSC in rendering
PJSC's Opinion.
THE FULL TEXT OF PJSC'S OPINION, WHICH SETS FORTH ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND THE SCOPE OF THE
REVIEW BY PJSC IN RENDERING SUCH OPINION, IS ATTACHED TO THIS PROXY STATEMENT AS
APPENDIX B AND IS INCORPORATED BY REFERENCE HEREIN. PJSC'S OPINION IS
ADDRESSED TO ARISTOTLE'S BOARD AND ADDRESSES THE FAIRNESS OF THE CLOSING PAYMENT
TO ARISTOTLE FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE PURCHASE AGREEMENT NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF ARISTOTLE'S COMMON STOCK AND ARISTOTLE'S PREFERRED STOCK AS TO HOW TO
VOTE AT THE ARISTOTLE SPECIAL MEETING. THE SUMMARY OF PJSC'S OPINION SET FORTH
IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. HOLDERS OF ARISTOTLE'S COMMON STOCK AND ARISTOTLE'S
PREFERRED STOCK ARE ENCOURAGED TO CAREFULLY READ PJSC'S OPINION IN ITS ENTIRETY.
In connection with PJSC's Opinion, PJSC: (i) reviewed certain internal
financial statements and other financial and operating data pertaining to
Strouse Adler prepared by Strouse Adler management ("Management") including such
information contained in certain publicly available financial statements of
Aristotle; (ii) reviewed
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with Management the balance sheet of Strouse Adler dated December 31, 1997
prepared by Management; (iii) reviewed certain financial assumptions and
forecasts for Strouse Adler prepared by Management; (iv) discussed the past and
current operations, financial condition and prospects of Strouse Adler with
Management; (v) reviewed the reported prices and trading activity of the common
stock of certain publicly traded companies operating in business lines generally
comparable to that of Strouse Adler; (vi) compared the financial performance of
Strouse Adler with that of certain publicly traded companies operating in
business lines PJSC believed to be generally comparable to that of Strouse
Adler; (vii) reviewed publicly available information regarding the financial
terms of certain comparable acquisition transactions; (viii) reviewed the
Purchase Agreement; and (ix) performed such other analyses as PJSC deemed
appropriate.
In rendering PJSC's Opinion, PJSC assumed and relied upon the accuracy and
completeness of the information reviewed by PJSC for the purposes of PJSC's
Opinion and PJSC did not assume any responsibility for independent verification
of such information. PJSC assumed that the financial assumptions and forecasts
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Strouse Adler.
PJSC expresses no view as to, and assumes no responsibility for, such
assumptions and forecasts or the assumptions on which they were based. PJSC did
not assume any responsibility for any independent valuation or appraisal of the
assets or liabilities of Strouse Adler. PJSC did not opine as to the fairness
of the closing adjustment mechanism because Aristotle authorized PJSC to assume
that the adjustments, if any, to the Closing Payment would not be material based
on Strouse Adler's prior operating experience and the Board's beliefs regarding
the potential value of the Closing Net Book Value. Without such an assumption,
the Closing Net Book Value could vary greatly making it theoretically difficult
for any financial advisor to render such an opinion. In connection with the
preparation of PJSC's Opinion, PJSC solicited a limited number of contacts
specifically authorized by Aristotle for third-party indications of interest for
the acquisition of all or a portion of Strouse Adler. PJSC's Opinion was
necessarily based on economic, market and other conditions as in effect on, and
the information made available to PJSC as of, March 2, 1998. Although
subsequent developments may affect PJSC's Opinion, PJSC does not have any
obligation to update, revise or reaffirm its opinion.
The following summarizes the material portions of the financial analyses
performed by PJSC in connection with the delivery of PJSC's Opinion:
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Using publicly
available information, PJSC reviewed and compared selected financial data of
Strouse Adler with similar data of two separate groups of publicly traded
companies, identified as (i) small market capitalization apparel companies
("Small Cap Companies") and (ii) diversified, large market capitalization
intimate apparel companies ("Diversified Large Cap Companies") (collectively,
the "Comparable Companies"). For purposes of its analysis, the Small Cap
Companies were comprised of Active Apparel Group, Inc., Garan, Incorporated,
Hampton Industries, Inc., Jenna Lane, Inc., JLM Couture, Inc., Movie Star, Inc.,
The Sirena Apparel Group, Inc., and Howard B. Wolf, Inc., and the Diversified
Large Cap Companies were comprised of Fruit of the Loom, Inc., Kellwood Company,
Sara Lee Corporation, V.F. Corporation and The Warnaco Group, Inc. Historical
financial information used in connection with this analysis was, in each case,
as of the most recent publicly available financial statements prior to March 2,
1998.
PJSC calculated and compared various financial multiples and ratios,
including, among other things, the enterprise value (which represents total
equity value plus book values of total debt, preferred stock and minority
interests less cash) ("Enterprise Value") as a multiple of net sales for the
latest twelve months (ended December 31, 1997) ("LTM"), LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") and LTM earnings
before interest and taxes ("EBIT"). As of March 2, 1998, this analysis resulted
in (i) a range of Enterprise Value to LTM net sales of 33.1% to 59.1% for the
Small Cap Companies compared to 82.9% for Strouse Adler implied by the Closing
Payment; (ii) a range of Enterprise Value to LTM EBITDA of 4.3x to 6.7x for the
Small
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Cap Companies compared to 8.6x for Strouse Adler implied by the Closing
Payment; (iii) a range of Enterprise Value to LTM EBIT of 4.8x to 7.8x for the
Small Cap Companies compared to 11.0x for Strouse Adler implied by the Closing
Payment; (iv) a range of Enterprise Value to LTM net sales of 61.5% to 119.7%
for the Diversified Large Cap Companies compared to 82.9% for Strouse Adler
implied by the Closing Payment; (v) Enterprise Values to LTM EBITDA of 8.3x for
the Diversified Large Cap Companies compared 8.6x for Strouse Adler implied by
the Closing Payment; and (vi) a range of Enterprise Value to LTM EBIT of 10.4x
to 10.9x for the Diversified Large Cap Companies compared to 11.0x for Strouse
Adler implied by the Closing Payment. The multiples were based on closing stock
prices at March 2, 1998 for all of the Comparable Companies.
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS. Using publicly available
information, PJSC reviewed certain merger and acquisition transactions in the
apparel design, manufacturing and marketing industry and determined that the
only relevant comparable transactions were the acquisition of NCC Industries
Inc. by Maidenform Worldwide Inc., (the "Maidenform/NCC Industries
Transaction"), which was announced on April 13, 1995, and the acquisition of
Halmode Apparel, Inc. by Kellwood Company (the "Kellwood/Halmode Transaction"),
which was announced on August 24, 1994. PJSC calculated the Enterprise Value
price for NCC Industries Inc. and Halmode Apparel, Inc. (collectively, the
"Targets"), as a multiple of LTM net sales, EBITDA and EBIT. This analysis
resulted in (i) a range of Enterprise Value to LTM net sales of 66.7% to 78.8%
for the Targets compared to 82.9% for Strouse Adler implied by the Closing
Payment; (ii) a range of Enterprise Value to LTM EBITDA of 6.1x to 9.0x for the
Targets compared to 8.6x for Strouse Adler implied by the Closing Payment; and
(iii) a range of Enterprise Value to LTM EBIT of 6.3x to 10.4x for the Targets
compared to 11.0x for Strouse Adler implied by the Closing Payment.
DISCOUNTED CASH FLOW ANALYSIS. PJSC performed a discounted cash flow
analysis to calculate the present value of Strouse Adler using financial
projections as prepared by Management for the fiscal years ended June 30, 1998
to 2002. In performing its discounted cash flow analysis, PJSC considered
various assumptions that it deemed appropriate based on a review with Management
of Strouse Adler's prospects and risks. PJSC believed it appropriate to utilize
various discount rates ranging from 11.0% to 15.0% and terminal value EBITDA
multiples ranging from 5.0x to 8.0x to apply to forecasted EBITDA for the fiscal
year 2002. This analysis, at an EBITDA multiple range of 6.0x to 7.0x and a
discount rate of 13%, showed a range of present values from $20.1 million to
$23.5 million in Enterprise Value, equating to a range of equity values from
$9.5 million to $13.0 million for Strouse Adler on a stand-alone basis (i.e.,
assuming no cost savings or synergies and integration or one-time costs).
The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not necessarily susceptible to
a partial analysis or summary description. In arriving at its opinion, PJSC did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to significance and relevance of each
analysis and factor. PJSC believes that its analysis must be considered as a
whole and that selecting portions of its analysis, without considering all
analyses, would create an incomplete view of the process underlying PJSC's
Opinion. In addition, PJSC may have given certain analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should not be taken to be PJSC's view of
the actual value of Strouse Adler.
In performing its analyses, PJSC relied on numerous assumptions made by
Management and made judgments of its own with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Aristotle and Strouse Adler. Actual values will depend
upon several factors, including changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. The analyses performed by PJSC are not
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necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as a part of PJSC's analysis of the fairness of
the Closing Payment to Aristotle from a financial point of view and were
provided to Aristotle's Board in connection with the delivery of PJSC's Opinion.
The analyses do not purport to be appraisals or to reflect prices at which
businesses or securities might actually be sold, which are inherently subject to
uncertainty. Since such estimates are inherently subject to uncertainty, none
of Aristotle, Strouse Adler, PJSC or any other person assumes responsibility for
their accuracy. With regard to the comparable public company analysis and the
comparable transactions analysis summarized above, PJSC selected comparable
public companies on the basis of various factors; however, no public company or
transaction utilized as a comparison is identical to Strouse Adler or the
transactions contemplated by the Purchase Agreement. Accordingly, an analysis
of the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the comparable companies and other factors that could affect the acquisition
or public trading value of the comparable companies and transactions to which
Strouse Adler and the transactions contemplated by the Purchase Agreement are
being compared. In addition, as described above, PJSC's Opinion and the
information provided by PJSC to Aristotle's Board was one of many factors taken
into consideration by the Aristotle Board in making its determination to approve
the Purchase Agreement. Consequently, the PJSC analyses described above should
not be viewed as determinative of the opinion of Aristotle's Board or the view
of Management with respect to the value of Strouse Adler.
As part of its investment banking activities, PJSC is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, restructurings and valuations for corporate or other purposes.
Pursuant to the terms of a letter agreement dated August 20, 1996 (the
"PJSC Engagement Letter"), as amended, PJSC was retained by Aristotle as its
exclusive financial advisor and to render an opinion to the Aristotle Board, if
requested, with respect to the Purchase Agreement. Under the PJSC Engagement
Letter, Aristotle has paid PJSC a fairness opinion fee of $100,000. Upon
consummation of the Purchase Agreement, Aristotle has agreed to pay PJSC a
transaction fee (the "Transaction Fee") equal to the greater of (i) $450,000 or
(ii) the sum of (x) 3.00% of the aggregate consideration up to and including
$18.0 million paid or payable in connection with a transaction plus (y) 5.00% of
the aggregate consideration in excess of $18.0 million paid or payable in
connection with a transaction. Such Transaction Fee will be reduced by the
$50,000 already paid by Aristotle to PJSC upon the execution of the PJSC
Engagement Letter and $100,000 paid in connection with the delivery of the
PJSC's Opinion. For purposes of the PJSC Engagement Letter, "aggregate
consideration" includes the total consideration paid (including amounts paid to
holders of options, warrants and convertible securities), plus the principal
amount of all indebtedness less the cash outstanding as set forth on the most
recent consolidated balance sheet of Strouse Adler prior to the consummation of
the Purchase Agreement. Aristotle has also agreed to reimburse PJSC for its
reasonable out-of-pocket expenses, including fees of its legal counsel, and to
indemnify PJSC and its affiliates, counsel and other professional advisors, and
their respective directors, officers, controlling persons, agents and employees
against certain liabilities, including certain liabilities under the federal
securities law.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE
In considering the recommendations of Aristotle's Board with respect to the
Proposed Sale, stockholders of Aristotle should be aware that holders of the
Series F, G and H Preferred Stock have certain interests on the Proposed Sale
that are in addition to the interests of the holders of Common Stock.
Aristotle's Certificate of Incorporation provides that holders of outstanding
shares of Series F, G, and H Preferred Stock at designated times beginning in
January of 1999, have the right to require Aristotle to repurchase such shares
at $10 per share (the "Put Right"). The Certificate of Incorporation also
provides that the holders of Series F, G and H Preferred Stock may
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require Aristotle to repurchase their stock at anytime upon an Event of
Acceleration. An "Event of Acceleration" is defined to include the sale of
substantially all of Strouse Adler's assets, as is the case of the Proposed
Sale.
Similarly, stockholders of Aristotle should be aware that some Directors of
Aristotle and some stockholders of Aristotle have certain interests in the
Proposed Sale that are in addition to the interests of other Directors and
stockholders generally. As an inducement to Sara Lee to enter into the Purchase
Agreement, some of Aristotle's Directors and stockholders representing
approximately 37% of the combined shares of Aristotle Common Stock and Preferred
Stock authorized to vote at the Special Meeting have entered into a
Stockholders' Agreement dated as of March 3, 1998 (the "Stockholders'
Agreement"). Pursuant to the Stockholders' Agreement, certain Directors and
stockholders of Aristotle have agreed to vote in favor of the Proposed Sale and
have granted to Sara Lee an irrevocable proxy with respect to all shares of
Aristotle Common Stock and Preferred Stock over which such holder has voting
control to vote in favor of the Proposed Sale. The Aristotle Directors and
stockholders and their affiliates that are a party to the Stockholders'
Agreement are the following: (i) John Crawford - Chairman of the Board and a
Director, (ii) Betsy Henley-Cohn - a Director, (iii) Geneve Corporation and
Chaparral International Re. - affiliates of Edward Netter and Steven Lapin, both
of whom are Directors, (iv) Sharon Oster- a Director and (v) Raymond Fair,
husband of Sharon Oster.
The Proposed Sale is not conditioned upon any employment arrangements
between Sara Lee and the current executive officers of Strouse Adler.
Subsequent to the execution of the Purchase Agreement, Mr. Alfred Kniberg,
President and Chief Operating Officer of Strouse Adler, and Ms. Joyce Baran,
Vice President of Merchandising and Design of Strouse Adler, each entered into
negotiations for employment with Sara Lee. Sara Lee's employment arrangements
with Mr. Kniberg and Ms. Baran are not a component of or a condition to the
sale. Moreover, Aristotle's Directors and officers did not participate in the
employment discussions between Sara Lee and Mr. Kniberg or Sara Lee and Ms.
Baran, and do not have knowledge of any terms of Mr. Kniberg's or Ms. Baran's
respective arrangements with Sara Lee. Although Mr. Kniberg and Ms. Baran both
assisted in the due diligence process, neither Mr. Kniberg nor Ms. Baran
participated in the negotiations of the Purchase Agreement. Mr. Kniberg is a
Director but not an officer of Aristotle and owns less than 2% of the voting
stock of Aristotle on a fully converted basis. Ms. Baran is neither a Director
nor an officer of Aristotle and owns less than 1% of the voting stock of
Aristotle on a fully converted basis.
BUSINESS ACTIVITIES FOLLOWING THE PROPOSED SALE
Aristotle is presently a holding company operating through Strouse Adler,
its wholly-owned sole subsidiary. If the Proposed Sale is approved by the
Aristotle stockholders and the sale of the Strouse Adler business to Sara Lee is
consummated, Aristotle will no longer operate in the women's intimate apparel
business. Aristotle's business plan is to use the net cash proceeds from the
Proposed Sale (subject to any indemnity obligations and retained liabilities) to
acquire one or more operating companies unrelated to the manufacture or
distribution of women's intimate apparel.
USE OF PROCEEDS
A portion of the proceeds from the Proposed Sale will be used by Aristotle
to repay amounts then outstanding under Strouse Adler's Credit Agreement with
BankBoston (estimated to be approximately $11.1 million at Closing) and to repay
amounts outstanding under Strouse Adler's loan agreement with Aristotle
(estimated to be approximately $600,000 at Closing).
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A portion of proceeds (estimated to be approximately $315,000 at Closing)
will also be deposited into an account held by Merrill Lynch (the "Merrill Lynch
Account") in order to satisfy Aristotle's obligations under the Put Right and
mandatory redemption obligations set forth in Aristotle's Certificate of
Incorporation relating to outstanding shares of Series F, G, and H Preferred
Stock. Pursuant to a Security Agreement dated as of April 11, 1994, as amended
by a letter dated September 15, 1997 (as amended, the "Security Agreement")
Strouse Adler granted a security interest in all of its assets to David Howell
and Alfred Kniberg (together, the "Pledgees") in their capacity as collateral
agent for Howell Resource Partners, Alfred Kniberg, Joyce Baran, Paul McDonald,
C. David Goldman, Louis Musante, and Graeme Caulfield (collectively, the "Former
Shareholders"). Under the Security Agreement, the Former Shareholders, acting
through the Pledgees, are required to terminate their security interest in
Strouse Adler's assets upon the payment or deposit for payment of funds
sufficient to satisfy Aristotle's obligations under the Put Right and mandatory
redemption obligations set forth in Aristotle's Certificate of Incorporation.
Aristotle's Certificate of Incorporation provides that the holders of Series F,
G and H Preferred Stock may require Aristotle to purchase their stock upon an
Event of Acceleration. The consummation of the Proposed Sale would be an Event
of Acceleration. Aristotle, Strouse Adler and the Former Holders have entered
into an Escrow Agreement dated as of April 3, 1998, pursuant to which the Former
Shareholders have delivered executed documents to an escrow agent which will
release their security interest in the assets of Strouse Adler upon the deposit
of funds in the Merrill Lynch Account.
The remaining proceeds (estimated to be approximately $8.2 million at
Closing), which includes the payment of the above-referenced Aristotle loan to
Strouse Adler, will be principally used by Aristotle in the implementation of
its business plan to acquire one or more unrelated operating companies, subject
to payment of any indemnity obligations under the Purchase Agreement, including
without limitation, for retained liabilities. Currently, Aristotle is exploring
possible acquisition candidates but does not have a specific acquisition
planned.
Pending the ultimate application of the proceeds, such proceeds may be
invested in short-term securities.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), the Proposed Sale may not be consummated until notification
has been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and a
waiting period has expired or been terminated. Pursuant to the HSR Act,
notification and report forms were filed on behalf of Aristotle and Sara Lee
with the FTC and the Antitrust Division on March 17, 1998 and the waiting period
was terminated on March 30, 1998.
At any time before or after the consummation of the Proposed Sale, and
notwithstanding the expiration of the waiting period under the HSR Act, federal
and state antitrust and other governmental authorities may take such action
under the antitrust laws as they deem necessary or desirable in the public
interest. Such action might include seeking to enjoin the consummation of the
Proposed Sale or requiring the divestiture by Sara Lee of all or part of the
assets acquired by Sara Lee pursuant to the Proposed Sale. Private parties also
may seek to take legal action under the antitrust laws under certain
circumstances.
ACCOUNTING TREATMENT/FEDERAL INCOME TAX CONSEQUENCES
The Proposed Sale will be accounted for as a sale of certain assets and a
transfer of certain liabilities. The Proposed Sale will not have any federal
income tax consequences to Aristotle's stockholders. Upon consummation of the
Proposed Sale, Aristotle will recognize a financial reporting gain equal to the
net proceeds
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(the sum of the consideration received less expenses of the Proposed Sale) less
the Closing Net Book Value of the assets sold and liabilities assumed.
For tax purposes, the gain will be equal to the net proceeds of the sale
less the tax basis of the assets sold and the liabilities assumed. In
accordance with the provisions of Section 384 of the Internal Revenue Code of
1986, as amended, a portion of the resulting tax gain will not be offset by
Aristotle's net operating loss carryforwards and, accordingly, a tax expense and
related obligation will be recognized in connection with the Proposed Sale.
THE PURCHASE AGREEMENT
Aristotle, Strouse Adler and Sara Lee are parties to the Purchase
Agreement. The following is a brief summary of certain provisions of the
Purchase Agreement. THIS DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE COMPLETE TEXT OF THE PURCHASE AGREEMENT, A COPY OF WHICH IS ATTACHED TO
THIS PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED HEREIN BY REFERENCE.
Terms which are not otherwise defined in this summary or elsewhere in this Proxy
Statement have the meaning set forth in the Purchase Agreement. All stockholders
are urged to carefully read the Purchase Agreement in its entirety.
PURCHASE PRICE
Upon the terms and subject to the conditions set forth in the Purchase
Agreement, Sara Lee will deliver to Aristotle and Strouse Adler on the Closing
Date a cash payment of $16,500,000 minus the sum of the Accrued Bonus Amount and
any Potential Successor Taxes (the "Closing Payment"). The Closing Payment will
be adjusted, however, by the amount, if any, by which the Closing Net Book Value
is less than or more than $15,250,000.
In addition, Aristotle will receive a cash payment of $5,000,000 as
consideration for agreeing not (i) to engage in the business of manufacturing,
marketing, distributing and/or selling, on a whole-sale basis, women's intimate
apparel and any other product serviced, distributed or sold by Strouse Adler,
(ii) to solicit, induce or attempt to solicit or induce any supplier, licensee
or other business relationship of Sara Lee to cease doing business with Sara
Lee, (iii) to sell or to solicit sales of products from any customer which was a
customer of Strouse Adler, or (iv) to solicit, hire or attempt to solicit or
hire any person who was an employee of Strouse Adler or any Affiliate. See "The
Purchase Agreement."
The term Closing Net Book Value is defined in the Purchase Agreement as an
amount, calculated in a manner consistent with Strouse Adler's historical
accounting principles, by which the assets of Strouse Adler exceed the
liabilities of Strouse Adler, as reflected on the Closing Statement. Within 90
days after the Closing, Sara Lee is required to close the financial books and
records of Strouse Adler and prepare and deliver to Aristotle a balance sheet,
dated as of the effective date of the Closing (the "Closing Date Balance
Sheet"); provided, however, that to the extent the Closing Date Balance Sheet
reflects accrued vacation for employees of Strouse Adler who are not hired by
Sara Lee, the Closing Net Book Value shall be increased by the amount of the
Inapplicable Accrued Vacation. The term "Closing Statement" means the Closing
Date Balance Sheet of the Business, adjusted to delete any items which are not
included in the calculation of the Closing Net Book Value.
As promptly as practicable following the later of June 30, 1998 or the
Closing Date, Sara Lee will calculate the aggregate bonuses owed in accordance
with the terms of The Strouse Adler Bonus Program ("Bonus Plan") to management
employees of Strouse Adler who are hired by Sara Lee immediately following the
Closing
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and who are employed by Sara Lee on June 30, 1998 ("Bonus Recipients"). If
Strouse Adler's Pro Rata Share of the Actual Bonus Amount exceeds the Accrued
Bonus Amount, then Aristotle and Strouse Adler, jointly and severally, are
liable to and will promptly pay such excess to Sara Lee. If the Accrued Bonus
Amount exceeds Strouse Adler's Pro Rata Share of the Actual Bonus Amount, Sara
Lee will promptly pay such excess amount to Strouse Adler. "Strouse Adler's Pro
Rata Share of the Actual Bonus Amount" means the amount of bonus payments due
Bonus Recipients for the twelve-month period ending June 30, 1998 (calculated in
accordance with the Bonus Plan) multiplied by a fraction, the numerator of which
is the number of days from July 1, 1997 through the Closing Date and the
denominator of which is 365. Bonuses owed pursuant to the Bonus Plan shall be
paid by Sara Lee in the ordinary course of business consistent with Strouse
Adler's past practice.
ACQUIRED STROUSE ADLER ASSETS
The Strouse Adler Assets to be purchased by Sara Lee (the "Purchased
Assets") generally include all of the assets constituting the operating assets
of Strouse Adler, including, but not limited to: (a) all cash on hand and in
banks, cash equivalents, marketable securities, bonds and investments of every
kind and nature, (b) all accounts receivable, other receivables, billed and
unbilled, and all negotiable instruments, or other instruments and chattel
paper, that are payable to Strouse Adler, (c) all machinery, equipment, tools,
motor vehicles, rolling stock, furniture, supplies, office equipment,
improvements, parts and other tangible personal property other than Inventory,
(d) all Inventory, including, without limitation, raw materials, work-in-
process, finished goods and packing supplies, (e) all books and records,
customer files, customer lists and records, vendor files, vendor lists and
records, cost files and records, credit information, distribution records,
business records, Tax returns and other Tax records (except that with respect to
income Tax returns and other Tax records, only copies thereof shall be included
as Purchased Assets), studies, surveys, reports, correspondence, sales and
promotional literature and materials, advertising and advertising copy, and
other similar materials, microfilm, microfiche, computer and other records, and
all computer software, and all similar data, documents and items, (f) all
Patents, Trademarks, Trade names, Know-how and proprietary rights in trade dress
and packaging, and shop rights, copyrights, inventions, trade secrets, service
marks and all other intellectual property rights, whether registered or not and
wherever such rights exist throughout the world, and including the right to
recover for any past infringement, (g) all rights and benefits under leases of
personal property, (h) all rights and benefits under real property leases, (i)
all rights and benefits under sale contracts, purchase or supply contracts,
dealer arrangements and distributorship arrangements, whether written or oral,
(j) all rights and benefits under licenses, permits, quotas, authorizations,
franchises, registrations and other approvals from any Governmental Authority or
from any private party, (k) all rights and benefits under contracts, agreements,
commitments of whatever nature or description, whether written or oral,
including, without limitation, confidentiality agreements executed in connection
with the possible sale of Strouse Adler (except that copies of confidentiality
agreements, including the identity of the parties thereto, are not required to
be delivered or otherwise disclosed to Sara Lee prior to the Closing if doing so
would violate or breach such agreements), Personal Property Leases, Sale and
Purchase Contracts, Real Property Leases and Licenses, (l) all claims, causes of
action, choses in action, rights of recovery, rights of set-off and other rights
of every nature and description (including, without limitation, all rights
arising under warranties, representations and guarantees made to Strouse Adler)
and all benefits arising therefrom, (m) all telephone numbers and white and
yellow page listings, (n) all prepaid expenses, advance payments, deposits and
claims for refund (other than refunds pertaining to liabilities which are not
being assumed by Sara Lee), credit and the like other than any prepaid
insurance; and (o) all goodwill associated with Strouse Adler and its business.
EXCLUDED STROUSE ADLER ASSETS
The Strouse Adler Assets specifically exclude, and Strouse Adler will
retain, the following Excluded Assets: (a) any claims (including benefits
arising therefrom) which are related solely to liabilities of Strouse Adler
which are not Assumed Liabilities or which are related solely to Excluded
Assets, (b) all accounts, notes and other
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<PAGE>
receivables due from any Affiliate of Strouse Adler or of Aristotle or from any
stockholders, directors, employees or any other Related Party of either of them,
(c) Strouse Adler's and Aristotle's rights under the Purchase Agreement and any
Additional Documents, (d) the corporate charter, minutes and stock record books
and corporate seal of Strouse Adler, (e) Strouse Adler's rights to claims for
refunds of taxes, (f) subject to certain limitations, all insurance policies
(including the proceeds thereof) owned by Strouse Adler, except that, at Sara
Lee's election, Strouse Adler shall assign to Sara Lee (subject to assignability
provisions) health and medical insurance policies owned by Strouse Adler
covering its employees, (g) any assets held in trust by or for the benefit of
any current or former employees of Strouse Adler under any Employee Plan, other
than assets of the 401(k) Plan in the event the 401(k) Plan is assumed by Sara
Lee or in the event Sara Lee establishes a similar plan and elects to have the
assets of the 401(k) Plan transferred to Sara Lee's new plan, (h) any rights or
benefits under any tax sharing agreements between Strouse Adler and Aristotle
and the original income tax returns and other original income tax records of
Strouse Adler, and (i) all underground storage tanks owned or used by Strouse
Adler and certain other assets defined in the Purchase Agreement.
LIABILITIES TO BE ASSUMED BY SARA LEE
At Closing, Sara Lee will assume Strouse Adler's liability for all trade
and other accounts payable reflected on the Balance Sheet (which have not been
paid or otherwise discharged prior to the Closing Date, but only to the extent
said liabilities are fully reflected or reserved against therein), certain
accrued liabilities to be reflected on the Closing Date Balance Sheet (but only
to the extent that said liabilities and obligations are fully reflected or
reserved against in the Closing Statement) and most contracts of Strouse Adler
(the "Assumed Liabilities"). The Assumed Liabilities include, but are not
limited to, (a) accounts payable, (b) obligations under the capital lease
related to the Jamaica facility, (c) accrued vacation and, subject to certain
limitations, accrued management bonuses for periods prior to July 1, 1998, in
each case, for those employees of Strouse Adler who Sara Lee hires immediately
following the Closing and (d) executory contractual obligations under certain
assumed contracts.
At Closing, Strouse Adler will assign, and Sara Lee will assume, certain
contracts relating to the operation of the business (the "Assumed Contracts").
Sara Lee will perform all post-closing obligations and realize all post-closing
benefits, under the Assumed Contracts, subject to the Purchase Agreement. In
the event that Sara Lee fails to perform under any Assumed Contract, Aristotle
and/or Strouse Adler may be secondarily liable in the event that a contracting
party consents to the assignment of the Assumed Contract but fails to release
Strouse Adler from future liabilities. To date, several contracting parties
have consented to the assignment of the Assumed Contracts and have agreed to
release Strouse Adler from any liabilities under the Assumed Contracts as of the
Closing Date. Pursuant to the Purchase Agreement, Sara Lee has agreed to
perform under the Assumed Contract and Aristotle would seek recourse against
Sara Lee for damages if Aristotle and/or Strouse Adler were found secondarily
liable under those Assumed Contracts, if any, for which Strouse Adler is not
released.
EXCLUDED LIABILITIES
Except as otherwise provided in the Purchase Agreement, Sara Lee will not
assume any other of Strouse Adler's liabilities of any nature, currently
existing or incurred in the future, including without limitation, (a) any
liabilities for legal, accounting and investment banking fees and other expenses
incurred in connection with the preparation of and performance under the
Purchase Agreement and the sale of the Purchased Assets to Sara Lee, (b) any
liabilities for Taxes, including, without limitation, liabilities arising as a
result of the transfer of the Purchased Assets or otherwise by virtue of the
consummation of the Proposed Sale, (c) liabilities of Strouse Adler to the
extent that their existence or magnitude constitutes or results in a breach of a
representation, warranty or covenant made by Strouse Adler or Aristotle under
the Purchase Agreement or any
17
<PAGE>
Additional Document or makes information contained in any representation,
warranty, exhibit or schedule to the Purchase Agreement or any Additional
Document substantively incorrect or incomplete, (d) any liabilities relating to
the operation of the business prior to the Closing, whether for injury to or
death of persons or damage to or destruction of property, for violation of any
Rules, for any matter relating to any past or present Employee Plan, for
consequential damages or for any other matter by virtue of the conduct of the
business prior to the Closing, (e) any liabilities for any breach of a
representation, warranty or covenant, or for any claim for indemnification,
contained in any contract which is an Assumed Liability which Sara Lee has
agreed to perform to the extent that such breach or claim arose out of or by
virtue of performance (or omission) thereunder by Strouse Adler or any agent of
Strouse Adler prior to the Closing, (f) except for accrued vacation and bonuses
as provided in the Purchase Agreement, and in the event Sara Lee elects to
assume the 401(k) Plan, except for contributions arising and relating to periods
after the Closing Date under the 401(k) Plan, any liabilities arising out of or
in connection with any employment agreement, executive compensation agreement,
or any bonus, pension, benefit, welfare, retirement, disability, insurance,
collective bargaining, deferred compensation or other Employee Plan or Labor
Agreement, relating to Strouse Adler's employees, whether oral or written, or
any liabilities arising out of or in connection with the termination of
employment of any employee by Strouse Adler, or any liabilities for medical
disability or similar benefits (both long term and short term) whether insured
or self-insured, which arise by virtue of or in connection with an employment
relationship at any time with Strouse Adler, regardless of when a claim for such
benefits is asserted, or any other obligation relating to Strouse Adler's
employees, (g) any claim, action, suit or proceeding arising from or related to
the presence, generation, emission, storage, treatment, transport or disposal of
any Hazardous Substance from, to, at, in, on or under any facility owned or used
by Strouse Adler on or before the Closing Date and liabilities arising from
violations of Environmental Laws, and (h) any liabilities for retrospective or
similar insurance premium adjustments.
TREATMENT OF STROUSE ADLER EMPLOYEES
Sara Lee has agreed to offer employment to all of Strouse Adler's employees
(other than Paul McDonald) as of the Closing Date, at levels of salary and
benefits which, in the aggregate, are substantially comparable to the salary and
benefits provided to such persons by Strouse Adler.
THE CLOSING
It is anticipated that the closing (the "Closing") of the Proposed Sale
will take place on June 30, 1998, if the Proposed Sale is approved by
Aristotle's stockholders at the Special Meeting.
REPRESENTATIONS AND WARRANTIES OF ARISTOTLE AND STROUSE ADLER
Aristotle and Strouse Adler have made certain representations and
warranties relating to, among other things, (i) their corporate organization and
authority, (ii) their capitalization and subsidiaries, (iii) their authority
relative to the Purchase Agreement, (iv) the absence of conflicts in the
performance of the Purchase Agreement, (v) their books and records, (vi) their
financial statements, (vii) Strouse Adler's accounts receivable, (viii) the
absence of certain changes or events, (ix) their compliance with laws, (x) their
taxes, (xi) Strouse Adler's undisclosed liabilities, (xii) Strouse Adler's title
to assets, (xiii) Strouse Adler's leased real property, (xiv) the structural
defects of Strouse Adler's leased property, (xv) Strouse Adler's equipment,
(xvi) Strouse Adler's personal property leases, (xvii) Strouse Adler's
inventory, (xviii) Strouse Adler's reserves for returns, (xix) Strouse Adler's
intellectual property, (xx) Strouse Adler's licenses, (xxi) Strouse Adler's sale
and purchase contracts, (xxii) Strouse Adler's contracts, (xxiii) the existence
of any litigation, (xxiv) obtaining necessary consents, (xxv) Strouse Adler's
employee plans, (xxvi) Strouse Adler's labor agreements and employment
controversies, (xxvii) Strouse Adler's customers and suppliers, (xxviii) Strouse
Adler's insurance, (xxix) the effect of the Proposed Sale, (xxx) transactions
with related parties, (xxxi) Strouse Adler's bank accounts, (xxxii) the name
Strouse Adler, (xxxiii) Aristotle's reports under the Exchange Act, (xxxiv) the
absence of brokers in connection with the Proposed Sale, (xxxv) the accuracy of
information supplied in the Proxy Statement, (xxxvi)
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<PAGE>
the opinion of financial advisor, (xxxvii) the recommendation of Aristotle's
Board, (xxxviii) the amount of the required vote of Aristotle stockholders,
(xxxix) the absence of rights agreements, (xl) their Year 2000 computer
compliance status and (xli) the accuracy of information supplied by them to Sara
Lee.
REPRESENTATIONS AND WARRANTIES OF SARA LEE
Sara Lee has made certain representations and warranties relating to, among
other things, (i) its corporate organization, (ii) its authority relative to the
Purchase Agreement, (iii) the absence of conflicts in the performance of the
Purchase Agreement, (iv) obtaining necessary consents, (v) the absence of a
broker in connection with the transactions contemplated hereby, (vi) the
recommendation of the Proposed Sale by Sara Lee's management to its Board of
Directors and (vii) the accuracy of information supplied by Sara Lee to
Aristotle and Strouse Adler.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
In the Purchase Agreement, each of the parties made certain representations
and warranties to the other. Aristotle's and Strouse Adler's representations and
warranties regarding corporate organization and authority, capitalization and
subsidiaries, authority relative to the Purchase Agreement and title to assets
(Sections 5.1, 5.2, 5.3, and 5.12, respectively) are not subject to any
contractual limitation on survival. Sara Lee's representations and warranties
regarding corporation organization and authority (Sections 6.1 and 6.2,
respectively) are not subject to any contractual limitation on survival. All
other representations and warranties under the Purchase Agreement survive until
eighteen months after the Closing. The Purchase Agreement attached hereto as
Appendix A sets forth all of the representations and warranties and covenants of
the parties thereto.
INDEMNIFICATION
The Purchase Agreement provides that Aristotle and Strouse Adler, jointly
and severally, are required to indemnify Sara Lee and its affiliates and their
respective officer, directors, stockholders, agents, successors and assigns for
losses resulting from (a) any incorrect representation or warranty made in the
Purchase Agreement or any Additional Document, (b) any failure by Aristotle,
Strouse Adler, or any stockholder to comply with any of the covenants of the
Purchase Agreement or any Additional Document, (c) any Excluded Liabilities, (d)
the failure to comply with relevant bulk transfer laws, (e) any claim by a
stockholder of Aristotle against Sara Lee in connection with any Aristotle
communication to, or any failure to communicate to, its stockholders, or (f) any
claim relating to the presence, generation, emission, storage, treatment,
transport or disposal of Hazardous Substances from, to, in, on or under any
facility owned or used by Strouse Adler on or before the Closing and any
liabilities arising from violations of Environmental Laws. In addition, Sara
Lee is required to indemnify Aristotle and Strouse Adler for losses resulting
from (a) any incorrect representation or warranty made by Sara Lee in the
Purchase Agreement or any Additional Documents, or (b) any failure by Sara Lee
to comply with any of the covenants of the Purchase Agreement or any Additional
Documents.
CONDITIONS TO THE PROPOSED SALE
Pursuant to the Purchase Agreement, the obligations of Aristotle and
Strouse Adler to effect the Proposed Sale are subject to, among other things,
(i) the representations and warranties of Sara Lee contained in the Purchase
Agreement and the Additional Documents being true and correct in all material
respects on and as of the Closing Date and the Closing, (ii) Sara Lee having
performed all obligations to be performed under the Purchase Agreement and the
Additional Documents, (iii) the Aristotle stockholders having approved the
Proposed Sale, (iv) no action or proceeding pending before any Governmental
Authority seeking to restrain or prohibit the Proposed Sale, (v) the expiration
or termination of the waiting period under the HSR Act and (vi) the execution
and delivery by Sara Lee of the certificates and instruments that Aristotle and
Strouse Adler may require.
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The obligations of Sara Lee to effect the Proposed Sale are subject to,
among other things, (i) the representations and warranties of Aristotle and
Strouse Adler contained in the Purchase Agreement, the Stockholders' Agreement
or the Additional Documents being true and correct in all material respects on
and as of the Closing Date and the Closing, (ii) Aristotle and Strouse Adler
having performed all obligations to be performed under the Purchase Agreement
and the Additional Documents, (iii) all consents, waivers, authorizations and
approvals required in connection with the execution, delivery and performance of
the Purchase Agreement and the transfer to Sara Lee of all of the Purchased
Assets and the assumption by Sara Lee of all the Assumed Liabilities having been
obtained, including, without limitation, the affirmative vote of Aristotle's
stockholders approving the Proposed Sale, (iv) no action or proceeding pending
before any court or Governmental Authority seeking to restrain or prohibit or
obtain damages or other relief in connection with the Purchase Agreement, the
Proposed Sale or the Stockholders' Agreement or the proposed operation of the
business by Sara Lee, (v) the Board of Directors of Sara Lee having approved the
Proposed Sale before March 31, 1998 (Sara Lee's Board of Directors approved the
Proposed Sale on March 26, 1998), (vi) the expiration or termination of the
waiting period under the HRS Act, (vii) during the period from the date of the
Purchase Agreement to the Closing, there having been no Material Adverse Effect,
and (viii) the execution and delivery by Aristotle and Strouse Adler of
certificates, instruments and documents that Sara Lee may require.
NON-SOLICITATION
Under the Purchase Agreement, Aristotle, Strouse Adler or their Affiliates
may not, directly or indirectly, encourage, solicit or initiate inquiries or
proposals from, or provide any confidential information to, or participate in
any discussions or negotiations with, any person or entity (other than Sara Lee
and its Affiliates) concerning any proposed (i) merger, consolidation, share
exchange, business combination or other similar transaction with Strouse Adler
or, except for Permitted Company Transactions, with Aristotle, (ii) sale, lease,
exchange, transfer, or other disposition, directly or indirectly, of all or a
substantial portion of the consolidated assets of either or both of them, or
(iii) a transaction in which any person would acquire beneficial ownership of,
or the right to acquire beneficial ownership, of 5% or more of the outstanding
voting capital stock of either Aristotle or Strouse Adler (all such inquiries
and proposals are referred to as "Acquisition Proposals" and any such
transaction being called a "Significant Transaction"). Aristotle and Strouse
Adler may, however, participate in discussions or negotiations with any person
or entity concerning any Acquisition Proposal which was not encouraged,
solicited or initiated by either Aristotle or Strouse Adler if (x) Aristotle's
Board concludes in good faith, only after receipt of written advice from its
financial advisor, that such person or entity has made a bona fide Acquisition
Proposal for a transaction more favorable to Aristotle's stockholders from a
financial point of view, than the Proposed Sale, provided that such Acquisition
--------
Proposal is not subject to any financing contingency and is reasonably probable
to be consummated, and (y) in the opinion of Aristotle's Board, after receipt of
written advice of outside legal counsel, the failure to provide the information
or access or to engage in discussions or negotiations would cause the Aristotle
Board to violate its fiduciary duties to the Aristotle stockholders under
applicable law. An Acquisition Proposal which satisfies clauses (x) and (y) is
referred to herein as a "Superior Proposal" and the furnishing of information
and/or participation in discussions or negotiations is called "Permitted
Fiduciary Conduct". Aristotle is required to immediately disclose to Sara Lee
the terms of any proposal, discussion, negotiation or inquiry which it receives
and the identity of such party making such proposal or inquiry and keep Sara Lee
appraised of the status of any such proposal, discussion or inquiry.
Aristotle's Board may withdraw or modify its approval or recommendation of
the Purchase Agreement in order to approve or recommend a Superior Proposal if
and only if (x) Aristotle has furnished Sara Lee with written notice specifying
the material terms and conditions of the Superior Proposal and identified the
person or entity making the Superior Proposal (including a written copy of such
proposal) seven business days before the Board intends to take any action
("Designated Period"), and (y) during the Designated Period, Aristotle and its
financial
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and legal advisors negotiate in good faith with Sara Lee to make amendments to
the terms and conditions of the Purchase Agreement so that the Purchase
Agreement, in the view of its financial advisors, is at least as favorable to
Aristotle's stockholders from a financial point of view, as the Superior
Proposal; provided, however, that if Sara Lee makes a proposal to enter
--------
into an agreement at least as favorable to Aristotle's stockholders as the
Superior Proposal, then Aristotle's Board is prohibited from withdrawing or
modifying its approval or recommendation of the Proposed Sale, or from approving
or recommending a Superior Proposal.
TERMINATION
The Purchase Agreement may be terminated at any time prior to the Closing
Date (a) by the mutual consent of the Aristotle, Strouse Adler and Sara Lee, (b)
by Sara Lee, if all of the conditions to Closing have not been satisfied or
waived on or prior to September 15, 1998, provided that Sara Lee's breach is not
the cause of the conditions having not been satisfied, (c) by Aristotle and
Strouse Adler, if all of the conditions to Closing have not been satisfied or
waived on or prior to September 15, 1998, provided, that neither Aristotle's
nor Strouse Adler's breach is the cause for the conditions having not been
satisfied, (d) by either Aristotle or Sara Lee, if Sara Lee's Board has not
approved the Purchase Agreement on or before March 31, 1998 (Sara Lee's Board
approved the Proposed Sale on March 26, 1998), (e) by Sara Lee, if either
Aristotle or Strouse Adler or either Aristotle's or Strouse Adler's Board or any
Representative of either Aristotle or Strouse Adler breaches the Purchase
Agreement, including, without limitation, by entering into, or resolving to
enter into an Acquisition Proposal, (f) by Sara Lee, if Aristotle's stockholders
do not approve the Proposed Sale, (g) by Aristotle and Strouse Adler no sooner
than 14 days after the Special Meeting, if the Aristotle stockholders do not
approve the Proposed Sale, (h) by Sara Lee, if either Aristotle or Strouse Adler
or the Board of either Aristotle or Strouse Adler, or any committee thereof,
directly or indirectly, withdraws or modifies, or proposes to withdraw or
modify, its approval of the Proposed Sale in a manner adverse to Sara Lee or
approves or recommends or proposes to approve or recommend an Acquisition
Proposal.
CONSEQUENCES OF TERMINATION
Sara Lee is entitled to a Termination Fee and Termination Expenses in the
event that (a) the Purchase Agreement is terminated by Sara Lee because either
Aristotle or Strouse Adler or either of their respective Boards withdraws or
modifies its approval of the Proposed Sale in a manner adverse to Sara Lee or
approves or recommends or proposes to approve or recommend an Acquisition
Proposal or (b) an Acquisition Proposal is received which Aristotle's Board
entertains or which, directly or indirectly, is communicated to Aristotle's
stockholders or in any manner becomes public and the Purchase Agreement is
terminated either by Sara Lee because Aristotle's stockholders did not approve
the Proposed Sale or by Aristotle and Strouse Adler no sooner than 14 days after
the Special Meeting because the Aristotle stockholders did not approve the
Proposed Sale.
Sara Lee is also entitled to receive a Termination Fee and Termination
Expenses in the event that (a) the Purchase Agreement is terminated by Sara Lee
because either Aristotle or Strouse Adler or either of their respective Boards
or any Representatives breached the Purchase Agreement, including, without
limitation, by entering into, or resolving to enter into an Acquisition Proposal
or (b) at any time during the twelve-month (12) period following the termination
of the Purchase Agreement and either Aristotle or Strouse Adler enter into any
agreement involving a Significant Transaction and the Purchase Agreement was
terminated either (i) by Sara Lee because all of the conditions to Closing had
not been satisfied or waived on or prior to September 15, 1998 and Sara Lee's
breach was not the cause of the conditions having not been satisfied (and other
than on account of the waiting period required under HSR Act having not expired)
or (ii) by Aristotle and Strouse Adler because all of the conditions to Closing
had not been satisfied or waived on or prior to September 15, 1998 and neither
Aristotle's nor Strouse Adler's breach was the cause for the conditions having
not been satisfied (other than on account of a failure of the waiting period
required under the HRS Act having not expired).
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"Termination Fee" means cash in an amount equal to $995,000. "Termination
Expenses" means Sara Lee's and its Affiliates' out-of-pocket fees and expenses,
not to exceed $500,000 (including, without limitation, legal and investment
banking and commercial banking fees and expenses) actually incurred in
connection with (x) the Purchase Agreement and the transactions contemplated
thereby, (y) due diligence investigation, and (z) the negotiation and execution
of the Purchase Agreement and all Additional Documents. Aristotle and Strouse
Adler are jointly and severally liable for payment of any Termination Fee and
the Termination Expenses.
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STOCK OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 1, 1998, certain information
regarding beneficial ownership of the Common Stock and the Preferred Stock by:
(i) each person who is known to Aristotle to own beneficially more than 5% of
the outstanding shares of either the Common Stock or the Preferred Stock; (ii)
each director of Aristotle; (iii) each executive officer of Aristotle who is a
Named Officer; and (iv) all executive officers and directors of Aristotle as a
group. Unless otherwise indicated, all persons listed below have sole voting and
investment power with respect to their shares and the address for each such
person is The Aristotle Corporation, 78 Olive Street, New Haven, Connecticut. In
preparing the following table, Aristotle has relied on information furnished by
such persons.
<TABLE>
<CAPTION>
Number of Shares
of Capital Stock Percent of Class and
Beneficially Owned Voting Power of Class Total
5% Stockholders, Directors Common Preferred Common Preferred Voting
and Executive Officers Stock\1\ Stock Stock\2\ Stock Power\3\
- -------------------------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
5% Stockholders:
Geneve Corporation/Chaparral 79,000 489,131 6.58% 85.87% 32.08%
International Re.4
Howell Resource Partners5 24,446 50,000 2.02% 8.78% 4.18%
David S. Howell7 25,5216 50,000 2.10% 8.78% 4.24%
Ann-Marie Howell7 25,5218 50,000 2.10% 8.78% 4.24%
Alfred A. Kniberg9 18,832 13,617 1.56% 2.39% 1.82%
Paul McDonald10 7,397 5,702 * 1.00% *
Directors:
John J. Crawford 76,32711 0 6.19% * 4.23%
Barry R. Banducci 10,34412 0 * * *
Robert L. Fiscus 11,64413 0 * * *
Betsy Henley-Cohn 32,68414 0 2.71% * 1.84%
Daniel J. Miglio 11,44415 0 * * *
Sharon M. Oster 38,16416 0 3.17% * 2.15%
John C. Warfel 8,73717 0 * * *
Steven Lapin18 0 0 * * *
Edward Netter19 0 0 * * *
Named Officers (excluding Messrs.
Crawford, Kniberg and McDonald)
Joyce Baran\20\ 3,302 1,724 * * *
Barry Topf\21\ 3,000 0 * * *
All Executive Officers and
Directors as a group
(13 persons) 216,875 19,319 17.02% 3.39% 12.81%
</TABLE>
_______________________
* Less than 1%
1 Includes as part of the total number of issued and outstanding shares of
Common Stock those stock options which are currently exercisable by the
individual whose share ownership percentage is being calculated, in
accordance with the applicable securities regulations.
2 Percentages are calculated by including as part of the total number of
issued and outstanding shares of Common Stock those stock options which are
currently exercisable by the individual whose share ownership percentage is
being calculated, in accordance with the applicable securities regulations.
3 Percentages are calculated based on the total number of shares of Common
Stock and Preferred Stock (on a fully converted basis) outstanding. Includes
part of the total number of issued and outstanding shares of Common Stock
those stock options which are currently exercisable by the individual whose
share ownership percentage is being calculated, in accordance with the
applicable securities regulations.
4 Chaparral International Re. is a subsidiary of Geneve Corporation. The
address of Geneve Corporation is 96 Cummings Point Road, Stamford,
Connecticut. Director Steven Lapin is the President of Geneve Corporation
and Director Edward Netter is the Chief Executive Officer of Geneve
Corporation.
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5 Howell Resource Partners ("HRP") is a general partnership whose general
partners are David S. Howell and Ann-Marie Howell. Includes 12,639 shares
held by HRP directly; stock options, which are currently exercisable, to
purchase 11,807 shares; and 50,000 shares of preferred stock. The address of
HRP and Mr. and Mrs. Howell is 151 River Road, Essex, Connecticut.
6 Includes 1,000 shares held by Mr. Howell jointly with his wife, Ann-Marie
Howell; and 75 shares held by Mr. Howell's step-son, Eric M. Hines. Mr.
Howell disclaims beneficial ownership of the 75 shares held by his step-son.
7 Mr. Howell and Mrs. Howell are the general partners of HRP (discussed in
footnote 3 above), and have the power to vote the 74,446 shares. Mr. Howell
and Mrs. Howell therefore share voting and dispositive power with respect to
the 74,446 shares and are indirect beneficial owners of such shares.
8 Includes 1,000 shares held by Mrs. Howell jointly with her husband, David S.
Howell; and 75 shares held by Mrs. Howell's son, Eric M. Hines. Mrs. Howell
disclaims beneficial ownership of the 75 shares held by her son.
9 Includes 9,318 shares held by Mr. Kniberg directly; stock options, which are
currently exercisable, to purchase 9,514 shares; and 13,617 shares of
preferred stock.
10 Includes 2,806 shares held by Mr. McDonald directly; stock options, which
are currently exercisable, to purchase 3,781 shares; 5,702 shares of
preferred stock; 452 shares held by Janney Montgomery Scott, Inc. under a
custodial agreement for Mr. McDonald's benefit; and stock options, which are
currently exercisable, to purchase 358 shares. Mr. McDonald disclaims
beneficial ownership of the 810 shares held by Janney Montgomery Scott, Inc.
11 Includes 34,197 shares held by Mr. Crawford directly; 5,000 shares held in
trust for which Mr. Crawford serves as custodian with power to vote the
shares; 4,580 shares held in his wife's name; 50 shares held in the name of
his daughter; and stock options, which are currently exercisable, to
purchase 32,500 shares.
12 Includes 6,886 shares held by Mr. Banducci directly; and stock options,
which are currently exercisable, to purchase 3,458 shares. 13 Includes 7,707
shares held by Mr. Fiscus directly; and stock options, which are currently
exercisable, to purchase 3,937 shares.
14 Includes 6,886 shares held by Ms. Henley-Cohn directly; 14,340 shares held
in trusts in which Mrs. Henley-Cohn has the power to vote the shares; 8,000
shares held equally by Ms. Henley-Cohn's son and daughter, 5,000 of which
are disclosed in footnote 9 above as part of Mr. Crawford's shares held in
trust for which Mr. Crawford serves as custodian with power to vote the
shares; and stock options, which are currently exercisable, to purchase
3,458 shares.
15 Includes 7,507 shares held by Mr. Miglio directly; and stock options, which
are currently exercisable, to purchase 3,937 shares.
16 Includes 8,327 shares held by Ms. Oster directly and 25,900 held by Ms.
Oster's husband; and stock options, which are currently exercisable, to
purchase 3,937 shares. Ms. Oster declines control over shares owned by her
husband.
17 Includes 5,758 shares held by Mr. Warfel directly; and stock options, which
are currently exercisable, to purchase 2,979 shares.
18 Does not include any shares owned by Chaparral International Re., a
subsidiary of Geneve Corporation. Mr. Lapin is the President of Geneve
Corporation.
19 Does not include any shares owned by Chaparral International Re., a
subsidiary of Geneve Corporation. Mr. Netter is the Chief Executive Officer
of Geneve Corporation.
20 Includes 799 shares held by Ms. Baran directly; stock options, which are
currently exercisable, to purchase 2,503 shares; and 1,724 shares of
preferred stock.
21 Includes stock options, which are currently exercisable, to purchase 3,000
shares.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following are selected consolidated financial data of Aristotle, Aristotle
Sub, Inc. ("ASI") and Strouse Adler on a consolidated basis for the fiscal years
ended June 30, 1994, 1995, 1996 and 1997, and the nine-month periods ended March
31, 1997 and 1998. Aristotle formed ASI in 1993 and acquired Strouse Adler in
1994, and subsequently, ASI was merged into Aristotle in January of 1998. ASI
was Accordingly, the selected consolidated data for the fiscal year ended
December 31, 1992, and the six-month periods ended June 30, 1992 and 1993 are
for Aristotle only. The selected consolidated financial data presented below
should be read in conjunction with the Consolidated Financial Statements of
Aristotle, together with the Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in Aristotle's 1997 Form 10K/A and Aristotle's
Form 10-Q for the quarter ended March 31, 1998.
<TABLE>
<CAPTION>
NINE FISCAL SIX
MONTHS YEAR MONTHS
ENDED ENDED ENDED
MARCH DECEMBER JUNE 3
31, 31, (UNAUDITED)
------------------------------------------------
1998 1997 1992(1) 1992
------------------------------------------------
CONSOLIDATED STATEMENTS OF (Unaudited)
OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net sales....................... $20,176 $15,352 $ - $ -
------- ------- --------- ---------
Costs and expenses:
Cost of goods sold............. 14,792 11,093 - -
Operating expenses............. 5,077 3,868 1,484 444
Reserve for subsidiary
litigation.................. - - (1,510) -
Other income (expense)......... (476) (389) 1,292 1,096
------- ------- --------- ---------
Income (loss) from continuing
operations before income
taxes and minority interest...
(169) 2 1,318 652
Income tax expense
(benefit) (3)............. (1,199) 28 (1,481) (1,609)
Minority interest.............. (92) (139) - -
------- ------- --------- ---------
Income (loss) from
continuing operations...... 938 (165) 2,799 2,261
Loss from discontinued
------- - --------- ---------
operations............... - ------- (59,727) (34,278)
------- --------- ---------
Net income (loss).............. 938 (165) (56,928) (32,017)
Preferred dividends......... (62) - - -
Net income (loss) available ____ _____ _____ _____
to common shareholders $ 876 ($165) ($56,928) ($32,017)
======= ======= ========= =========
Basic net income (loss)
per share:
Continuing operations.......... $ 0.77 ($0.15) $ 2.55 $ 2.06
Discontinued operations........ - - (54.51) (31.28)
------- ------- --------- ---------
Net............................ $ 0.77 ($0.15) ($51.96) ($29.22)
======= ======= ========= =========
Diluted net income (loss)
per share:
Continuing operations.......... $ 0.67 ($0.15) $ 2.55 $ 2.06
Discontinued operations........ - - (54.51) (31.28)
------- ------- --------- ---------
Net............................ $ 0.67 ($0.15) ($51.96) ($29.22)
======= ======= ========= =========
Consolidated balance sheet data:
Total assets.................... $25,413 $20,238 $ 11,371 $ 37,618
Long-term debt.................. 1,539 1,770 - -
Redeemable Preferred Stock...... 3,055 1,975 - -
Stockholders' equity............ 7,867 6,333 10,897 35,810
</TABLE>
<TABLE>
SIX
MONTHS
ENDED FISCAL YEARS ENDED
JUNE 30, JUNE 30,
(UNAUDITED)
--------------------------------------------
1993(2) 1994 1995 1996 1997
--------------------------------------------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales....................... $ - $ 5,538 $21,701 $24,062 $21,847
-------- ------- ------- ------- -------
Costs and expenses:
Cost of goods sold............. - 3,859 16,447 18,393 15,826
Operating expenses............. 651 1,977 5,481 5,043 5,245
Reserve for subsidiary
litigation.................. - - - - -
Other income (expense)......... 174 159 (435) (553) (544)
-------- ------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes and minority interest... (477) (139) (662) 73 232
Income tax expense
(benefit) (3)............. 4,287 (20) 25 (1,626) 32
Minority interest.............. - (60) (211) (231) (187)
-------- ------- ------- ------- -------
Income (loss) from
continuing operations...... (4,764) (179) (898) 1,468 13
Loss from discontinued
-------- ------- ------- ------- -------
operations............... - - - - -
-------- ------- ------- ------- -------
Net income (loss).............. (4,764) (179) (898) 1,468 13
Preferred dividends......... - - - - -
Net income (loss) available _____ _____ _____ _____ _____
to common shareholders ($4,764) ($179) ($898)$ 1,468 $ 13
======== ======= ======= ======= =======
Basic net income (loss)
per share:
Continuing operations.......... ($4.35) ($0.17) ($0.83)$ 1.34 $ 0.01
Discontinued operations........ - - - - -
-------- ------- ------- ------- -------
Net............................ ($4.35) ($0.17) ($0.83)$ 1.34 $ 0.01
======== ======= ======= ======= =======
Diluted net income (loss)
per share:
Continuing operations.......... ($4.35) ($0.17) ($0.83)$ 1.17 $ 0.01
Discontinued operations........ - - - - -
-------- ------- ------- ------- -------
Net............................ ($4.35) ($0.17) ($0.83)$ 1.17 $ 0.01
======== ======= ======= ======= =======
Consolidated balance sheet data:
Total assets.................... $ 10,454 $23,162 $26,820 $23,795 $20,381
Long-term debt.................. - 251 10,274 2,097 1,670
Redeemable Preferred Stock...... - 2,454 2,454 2,247 1,705
Stockholders' equity............ 6,159 5,805 4,996 6,530 6,511
</TABLE>
25
<PAGE>
FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) In October 1992, the Federal Deposit Insurance Corporation (the "FDIC")
was appointed receiver for Aristotle's former subsidiary, First
Constitution Bank (the "Bank"). Substantially all the Bank's operations
have been shown as discontinued. The Company's accountants for the fiscal
year ended December 31, 1992, KPMG Peat Marwick, declined to express an
opinion as to the financial statements for fiscal 1992 because of
uncertainties with respect to the certain stockholder litigation and the
Federal Deposit Insurance Corporation claims. The Company has settled
these disputes.
(2) Effective June 30, 1993, Aristotle changed its fiscal year end from
December 31 to June 30.
(3) Income tax expense for the six-months ended June 30, 1993 includes a
reserve of $4,300 for a potential tax claim by the FDIC. Income tax
benefit for the year ended June 30, 1996 reflects a $1,650 benefit
related to the settlement of the Federal Deposit Insurance Corporation's
claims. Income tax benefit for the nine-months ended March 31, 1998
reflects a net tax refund of $1,199 resulting from a tax loss carryback
claim related to the 1996 tax year.
26
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
The following unaudited pro forma selected financial data for the three fiscal
years ended June 30, 1995, 1996 and 1997, and the nine-month period ended March
31, 1998 and as of March 31, 1998 were derived from the unaudited pro forma
statements of operations and the unaudited pro forma balance sheet included
elsewhere in this Proxy Statement. The pro forma financial data for the nine-
month period ended March 31, 1997 is not included in this Proxy Statement. This
pro forma selected financial data should be read in conjunction with the
description of the Proposed Sale contained in this Proxy Statement and the pro
forma statements appearing elsewhere herein.
<TABLE>
<CAPTION>
Nine-Months Ended
March 31 Year ended June 30
----------------- ---------------------------------------
1998 1997 1997 1996 1995
---------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS DATA
NET REVENUES.................................... $ - $ - $ - $ - $ -
NET INCOME (LOSS) FROM CONTINUING OPERATIONS.... 281 (513) (719) 1,110 (512)
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS................................. 219 (513) (719) 1,110 (512)
NET INCOME (LOSS) PER SHARE:
BASIC........................................ $0.19 ($0.47) ($0.65) $ 1.01 ($0.47)
DILUTED...................................... $0.19 ($0.47) ($0.65) $ .92 ($0.47)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET DATA AS OF MARCH 31, 1998
--------------------
<S> <C>
CURRENT ASSETS.................................. $ 1,668
TOTAL ASSETS.................................... 3,169
LONG-TERM DEBT.................................. -
REDEEMABLE PREFERRED STOCK...................... 3,055
STOCKHOLDERS' EQUITY............................ 8,627
</TABLE>
27
<PAGE>
STOCK PERFORMANCE DATA
HISTORICAL MARKET PRICE
Aristotle's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol "ARTL." The following table sets forth, for the periods indicated, the
high and low sales prices per share of Aristotle's Common Stock, as reported by
the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year ended June 30, 1996
September 30, 1995 $5 $2 3/4
December 31, 1995 5 1/4 2
March 31, 1996 6 2 1/8
June 30, 1996 4 1/4 2 1/8
Fiscal Year ended June 30, 1997
September 30, 1996 4 3/4 3
December 31, 1996 4 3/8 2 1/8
March 31, 1997 3 1/8 1 7/8
June 30, 1997 4 2
Fiscal Year ended June 30, 1998
September 30, 1997 4 7/8 2 7/8
December 31, 1997 7 1/4 3 1/8
March 31, 1998 8 1/4 3 3/4
</TABLE>
RECENT MARKET PRICE
The following table sets forth the closing price and the high and low sales
prices per share of Aristotle's Common Stock on the Nasdaq SmallCap Market on
March 3, 1998, the last trading day preceding the public announcement of the
Proposed Sale and on May 21, 1998, the latest practicable trading day before the
printing of this Proxy Statement.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
March 3, 1998 $6 3/8 $5 3/4
May 21, 1998 $6 $5 15/16
</TABLE>
NUMBER OF HOLDERS
As of the Record Date, there were 3,848 holders of record of Aristotle
Common Stock and 8 holders of record of Aristotle Preferred Stock.
28
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following tabulation reflects the historical net income (loss) per
share from continuing operations in comparison with the pro forma net income
(loss) per share from continuing operations after giving effect to the Proposed
Sale and discontinued operations resulting therefrom. The information presented
in this tabulation should be read in conjunction with the description of the
Proposed Sale contained in this Proxy Statement and the pro forma financial
statements appearing elsewhere herein and Aristotle's consolidated financial
statements included in Aristotle's 1997 Annual Report on Form 10-K/A and
Aristotle's Quarterly Report on Form 10-Q for the nine-month period ended March
31, 1998, previously filed with the Securities and Exchange Commission, copies
of which accompany this Proxy Statement.
<TABLE>
<CAPTION>
Nine-Months
Ended March 31, Year Ended June 30,
--------------- -----------------------------
1998 1997 1996 1995
--------------- ------- --------- ----------
<S> <C> <C> <C> <C>
Basic net income (loss) per share -
continuing operations:
Historical............................. $0.77 $ 0.01 $1.34 ($0.83)
Pro Forma.............................. 0.19 (0.65) 1.01 (0.47)
Diluted net income (loss) per share -
continuing operations:
Historical............................. $0.67 $ 0.01 $1.17 $ (0.83)
Pro Forma.............................. 0.19 (0.65) 0.92 (0.47)
</TABLE>
BOOK VALUE PER SHARE
(UNAUDITED)
The following tabulation reflects the historical net book value per share
of Aristotle's Common Stock from continuing operations in comparison with the
pro forma net book value per share of Aristotle's Common Stock from continuing
operations after giving effect to the Proposed Sale and discontinued operations
resulting therefrom at March 31, 1998 based on 1,201,118 basic shares
outstanding and 1,782,352 diluted shares outstanding for the historical net book
value and 1,201,118 basic shares and 1,916,517 diluted shares outstanding for
the pro forma net book value. The information presented in this tabulation
should be read in conjunction with the description of the Proposed Sale
contained in this Proxy Statement and the pro forma financial statements
appearing elsewhere herein and Aristotle's consolidated financial statements
included in Aristotle's 1997 Annual Report on Form 10-K/A and Aristotle's
Quarterly Report on Form 10-Q for the nine-month period ended March 31, 1998,
previously filed with the Securities and Exchange Commission, copies of which
accompany this Proxy Statement.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------
Historical Pro Forma
---------- ---------
<S> <C> <C>
Book Value Per Share
Basic.......................... $6.55 $7.18
Diluted........................ 5.95 6.35
</TABLE>
29
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma statements of operations for the nine-
months ended March 31, 1998 and the three years ended June 30, 1997, 1996 and
1995 reflect the historical accounts of Aristotle for those periods, adjusted to
give pro forma effect to the Proposed Sale as if the transaction had occurred at
the beginning of each period presented.
The following unaudited pro forma balance sheet as of March 31, 1998
reflects the historical accounts of Aristotle as of that date adjusted to give
pro forma effect to the Proposed Sale as if the transaction had occurred as of
March 31, 1998.
The pro forma financial data and accompanying notes should be read in
conjunction with the description of the Proposed Sale contained in this Proxy
Statement, the Consolidated Financial Statements and related notes included in
Aristotle's 1997 Annual Report on Form 10-K/A previously filed with the
Securities and Exchange Commission (the "Commission"), and the Form 10-Q for the
quarter ended March 31, 1998 previously filed with the Commission, copies of
which accompany this Proxy Statement. Aristotle believes that the assumptions
used in the following statements provide a reasonable basis on which to present
the pro forma financial data. The pro forma financial data is provided for
informational purposes only and should not be construed to be indicative of
Aristotle's financial condition or results of operations had the Proposed Sale
been consummated on the dates assumed and are not intended to project
Aristotle's financial condition on any future date or results of operations for
any future period.
30
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> C>
Net sales.................. $ 20,176 (20,176) 1 $ -
Cost of goods sold......... 14,792 (14,792) 1 -
---------- ---------- ----------
Gross profit............. 5,384 (5,384) -
---------- ---------- ----------
Operating expenses:
Selling.................. 2,559 (2,559) 1 -
General and
administrative.......... 1,557 (1,087) 1 470
Non-recurring tax claim
contingency fee......... 480 - 480
Product development...... 481 (481) 1 -
---------- ---------- ----------
Operating income (loss).. 307 (1,257) (950)
---------- ---------- ----------
Other income (expense):
Investment and interest
income.................. 109 - 109
Interest expense......... (585) (580) 2 (5)
---------- ---------- ----------
Income (loss) before
income
taxes and minority
interest............... (169) (677) (846)
Income tax benefit......... 1,199 - 1,199
---------- ---------- ----------
Income (loss) before
minority
interest................ 1,030 (677) 353
Minority interest.......... 92 (20) 3 72
---------- ---------- ----------
Net income (loss).......... 938 (657) 281
Preferred dividends........ (62) - (62)
---------- ---------- ----------
Net income (loss) available
to common shareholders... $ 876 (657) $ 219
========== ========= ==========
Net income (loss) per
share:....................
Basic...................... $0.77 $ 0.19
========== ==========
Diluted.................... $0.67 $ 0.19
========== ==========
Weighted average shares:
Basic...................... 1,134,772 1,134,772
========== ==========
Diluted.................... 1,474,107 1,157,339
========== ==========
</TABLE>
- ---------------------------
(1) Elimination of sales, cost of sales and operating expenses related to
Strouse Adler. and resulting from the operations of
(2) Elimination of interest expense related to the Strouse Adler bank loan.
(3) Elimination of minority interest expense resulting minority interest
expense relates to the from Strouse Adler operating results. The
remaining dividends on the minority interest preferred stock.
31
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ -----------
<S> <C> <C> <C>
Net sales......................... $ 21,847 $(21,847) 1 $ -
Cost of goods sold................ 15,826 (15,826) 1 -
---------- ----------- ----------
Gross profit.................... 6,021 (6,021) -
---------- ----------- ----------
Operating expenses:
Selling......................... 2,830 (2,830) 1 -
General and administrative...... 1,831 (1,182) 1 649
Product development............. 584 (584) 1 -
---------- ----------- ----------
Operating income (loss)......... 776 (1,425) (649)
---------- ----------- ----------
Other income (expense):
Investment and interest income.. 146 - 146
Interest expense................ (690) 681 2 (9)
---------- ----------- ----------
Income (loss) before income
taxes and minority interest.... 232 (744) (512)
Income tax expense................ (32) - (32)
---------- ----------- ----------
Income (loss) before minority
interest....................... 200 (744) (544)
Minority interest................. 187 (12) 3 175
---------- ----------- ----------
Net income (loss)................. $ 13 $ (732) $ (719)
========== =========== ==========
Net income (loss) per share:......
Basic............................. $0.01 $(0.65)
========== ==========
Diluted........................... $0.01 $(0.65)
========== ==========
Weighted average shares:
Basic............................. 1,100,700 1,100,700
========== ==========
Diluted........................... 1,134,126 1,100,700
========== ==========
</TABLE>
_________________________
(1) Elimination of sales, cost of sales and operating expenses related to and
resulting from the operations of Strouse Adler.
(2) Elimination of interest expense related to the Strouse Adler bank loan.
(3) Elimination of minority interest expense resulting from Strouse Adler
operating results. The remaining minority interest expense relates to the
dividends on the minority interest preferred stock.
32
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ -----------
<S> <C> <C> <C>
Net sales......................... $ 24,062 $(24,062) 1 $ -
Cost of goods sold................ 18,393 (18,393) 1 -
---------- ----------- ----------
Gross profit.................... 5,669 (5,669) -
---------- ----------- ----------
Operating expenses:
Selling......................... 2,660 (2,660) 1 -
General and administrative...... 1,860 (1,251) 1 609
Product development............. 523 (523) 1 -
---------- ----------- ----------
Operating income (loss)......... 626 (1,235) (609)
---------- ----------- ----------
Other income (expense):
Investment and interest income.. 312 - 312
Interest expense................ (865) 861 2 (4)
---------- ----------- ----------
Income (loss) before income
taxes and minority interest.... 73 (374) (301)
Income tax benefit................ 1,626 - 1,626
---------- ----------- ----------
Income (loss) before minority
interest....................... 1,699 (374) 1,325
Minority interest................. 231 (16) 3 215
---------- ----------- ----------
Net income........................ $ 1,468 $ (358) $ 1,110
========== =========== ==========
Net income per share:.............
Basic............................. $1.34 $1.01
========== ==========
Diluted........................... $1.17 $0.92
========== ==========
Weighted average shares:
Basic............................. 1,097,301 1,097,301
========== ==========
Diluted........................... 1,440,274 1,440,274
========== ==========
</TABLE>
_______________________________
(1) Elimination of sales, cost of sales and operating expenses related to and
resulting from the operations of Strouse Adler.
(2) Elimination of interest expense related to the Strouse Adler bank loan.
(3) Elimination of minority interest expense resulting from Strouse Adler
operating results. The remaining minority interest expense relates to the
dividends on the minority interest preferred stock.
33
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ -----------
<S> <C> <C> <C>
Net sales......................... $ 21,701 $(21,701) 1 $ -
Cost of goods sold................ 16,447 (16,447) 1 -
---------- ----------- ----------
Gross profit.................... 5,254 (5,254) -
---------- ----------- ----------
Operating expenses:
Selling......................... 2,826 (2,826) 1 -
General and administrative...... 1,951 (1,362) 1 589
Product development............. 485 (485) 1 -
Restructuring charges........... 219 (219) 1 -
---------- ----------- ----------
Operating income (loss)......... (227) (362) (589)
---------- ----------- ----------
Other income (expense):
Investment and interest income.. 321 - 321
Interest expense................ (756) 756 2 -
---------- ----------- ----------
Income (loss) before income
Taxes and minority interest.... (662) 394 (268)
Income tax expense................ (25) - (25)
---------- ----------- ----------
Income (loss) before minority
interest....................... (687) 394 (293)
Minority interest................. 211 8 3 219
---------- ----------- ----------
Net income (loss)................. $ (898) $ 386 $ (512)
========== =========== ==========
Net income (loss) per share:......
Basic............................. $(0.83) $(0.47)
========== ==========
Diluted........................... $(0.83) $(0.47)
========== ==========
Weighted average shares:
Basic............................. 1,085,757 1,085,757
========== ==========
Diluted........................... 1,085,757 1,085,757
========== ==========
</TABLE>
_______________________________
(1) Elimination of sales, cost of sales and operating expenses related to and
resulting from the operations of Strouse Adler.
(2) Elimination of interest expense related to the Strouse Adler bank loan.
(3) Elimination of minority interest expense resulting from Strouse Adler
operating results. The remaining minority interest expense relates to the
dividends on the minority interest preferred stock.
34
<PAGE>
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ------------ ----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................... $ 2,434 $ 8,158 1 $ 10,592
Marketable securities held in escrow, at market value....... 200 415 2 615
Accounts receivable, net of reserves........................ 3,548 (3,548)3 -
Current maturities of employee notes receivable............. 104 104 2 208
Inventories................................................. 13,469 (13,469)3 -
Other current assets........................................ 335 (82)3 253
---------- ---------- ----------
Total current assets..................................... 20,090 (8,422) 11,668
---------- ---------- ----------
Property and equipment, net................................... 1,667 (1667) -
---------- ---------- ----------
Other assets:
Marketable securities held in escrow, at market value....... 100 (100) 2 -
Employee notes receivable, less current maturities.......... 104 (104) 2
Long-term investments....................................... 871 - 871
Goodwill, net............................................... 1,745 (1,745) 3 -
Deferred tax asset.......................................... 630 - 630
Other noncurrent assets..................................... 206 (206) 3 -
---------- ---------- ----------
Total other assets....................................... 3,656 (2,155) 1,501
---------- ---------- ----------
TOTAL $ 25,413 $ (12,244) $ 13,169
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt............................................. $ 9,016 $(9,016) 3 $ -
Current maturities of series F, G and H
preferred stock............................................ 402 403 2 805
Accounts payable............................................ 2,008 (2,008) 3 -
Accrued expenses............................................ 1,298 (441) 3 857
Deferred tax liability...................................... 630 - 630
---------- ---------- ----------
Total current liabilities................................ 13,354 (11,062) 2,292
---------- ---------- ----------
Long-term debt, less current maturities....................... 1,539 (1,539) 3 -
---------- ---------- ----------
Total liabilities............................................. 14,893 (12,601) 2,292
---------- ---------- ----------
Series E preferred stock,..................................... 2,250 -2 2,250
---------- ---------- ----------
Series F, G and H preferred stock, net of current maturities.. 403 (403) -
---------- ---------- ----------
Stockholders' equity.......................................... 7,867 760 4 8,627
---------- ---------- ----------
TOTAL $ 25,413 $ (12,244) $ 13,169
========== ========== ==========
Book value per share:
Basic......................................................... $6.55 $7.18
========== ==========
Diluted....................................................... $5.95 $6.35
========== ==========
Shares at end of period:
Basic......................................................... 1,201,118 1,201,118
========== ==========
Diluted....................................................... 1,782,352 1,916,517
========== ==========
</TABLE>
35
<PAGE>
FOOTNOTES TO PRO FORMA BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
(1) To reflect the net proceeds resulting from and related to the proposed sale
<S> <C>
Proceeds:
Cash from sale of net assets.................................. $ 16,500
Cash from covenant not to compete............................. 5,000
--------
Gross proceeds..................................... 21,500
Purchase price adjustment based on assumed
net assets, as defined................................... 318
Payment of Strouse Adler obligations not
assumed by Sara Lee...................................... (10,801)
Payment of estimated taxes and transaction costs
resulting from the Proposed Sale......................... (2,544)
Transfer of funds into marketable securities escrow
held in an account resulting from the series F, G and H
preferred stock.......................................... (315) 2
--------
Net proceeds.................................... $ 8,158
--------
(2) As a result of the Proposed Sale, the Series F, G and H preferred
stock becomes a current obligation, the employee notes receivable
become due and payable and aristotle is required to escrow $615 of
funds which, when combined with $208 of related employee notes
receivable, adequately secures the $805 preferred stock obligation and
$18 of related accrued dividends which are included in accrued
expenses in the accompanying balance sheet.
(3) Elimination of assets, liabilities and debt related to and resulting
from the operations of Strouse Adler.
(4) Estimated book gain resulting from the Proposed Sale calculated as
follows:
Gross proceeds................................................ $ 1,500 1
Purchase price adjustment..................................... 318 1
Net book value of acquired assets and liabilities related to
and resulting from the operations of Strouse Adler...... (18,514)
Taxes and transaction costs................................... (2,544)
--------
Book gain....................................... $ 760
--------
</TABLE>
36
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Aristotle's Board has selected Arthur Andersen LLP ("Arthur Andersen") as
independent accountants to audit the books, records and accounts of Aristotle
for fiscal year 1998. Arthur Andersen has served as Aristotle's independent
accountants since fiscal 1995, and is therefore familiar with the affairs and
financial procedures of Aristotle and Strouse Adler. To the knowledge of
management of Aristotle, neither such firm nor any of its members has any direct
or material indirect financial interest in Aristotle, nor any connection with
Aristotle in any capacity other than as independent accountants.
Audit and audit related services were performed by Arthur Andersen during
the fiscal year ended June 30, 1997 and included the audit of the annual
financial statements included in Aristotle's 1997 Annual Report on Form 10-K and
Aristotle's 1997 Annual Report on Form 10-K/A.
A representative of Arthur Andersen is expected to be present at the
Special Meeting to answer questions and will be afforded an opportunity to make
any statement such representative wishes to make regarding the financial
statements of Aristotle.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by Aristotle with the
Commission (File No. 0-14669) pursuant to the Exchange Act is incorporated by
reference in this Proxy Statement:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
2. Annual Report on Form 10-K/A for the fiscal year ended June 30, 1997
which amends and restates document 1 above.
3. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
4. Current Report on Form 8-K filed March 6, 1998.
DEADLINE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS TO BE PRESENTED AT 1998
ANNUAL MEETING OF STOCKHOLDERS
Any proposal intended to be presented by any stockholder for action at the
1998 Annual Meeting of stockholders of Aristotle must be received by the
Secretary of Aristotle at 78 Olive Street, New Haven, Connecticut 06511, not
later than June 3, 1998, in order for the proposal to be considered for
inclusion in the proxy statement and proxy relating to the 1998 Annual Meeting.
In addition, Aristotle's Amended Bylaws require that notice of stockholder
proposals and nominations for director be delivered to the Secretary of
Aristotle not less than thirty (30) days nor more than ninety (90) days prior to
the date of an annual meeting, unless notice or public disclosure of the date of
the meeting occurs less than forty-five (45) days prior to the date of such
meeting, in which event stockholders may deliver such notice not later than the
fifteenth (15th) day following the day on which notice of the date of the
meeting was mailed or public disclosure thereof was made. Nothing in this
paragraph shall be deemed to require Aristotle to include in its
37
<PAGE>
proxy statement and proxy relating to the 1998 Annual Meeting any stockholder
proposal that does not meet all of the requirements for inclusion established by
the Securities and Exchange Commission in effect at the time such proposal is
received.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of Aristotle
does not know of any other matters to be presented for action by the
stockholders at the Special Meeting. If, however, any other matters not now
known are properly brought before the meeting, the persons named in the
accompanying proxy will vote such proxy in their discretion.
By Order of the Board of Directors
/s/ Paul McDonald
-----------------------------------
Paul McDonald
Secretary
May 22, 1998
38
<PAGE>
APPENDIX A
----------
==========================================
ASSET PURCHASE AGREEMENT
By and Among
SARA LEE CORPORATION,
a Maryland corporation
THE ARISTOTLE CORPORATION,
a Delaware corporation
AND
THE STROUSE, ADLER COMPANY,
a Delaware corporation
Dated March 3, 1998
==========================================
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedules and Exhibits ............................................................ A-vi
ARTICLE I PURCHASE AND SALE OF ASSETS ............................................. A-1
1.1 Purchased Assets.......................................................... A-1
1.1.1 Cash and Investments .............................................. A-2
1.1.2 Accounts Receivable ............................................... A-2
1.1.3 Equipment ......................................................... A-2
1.1.4 Inventory ......................................................... A-2
1.1.5 Records ........................................................... A-2
1.1.6 Intellectual Property ............................................. A-2
1.1.7 Personal Property Leases .......................................... A-2
1.1.8 Real Property Leases .............................................. A-2
1.1.9 Sale and Purchase Contracts ....................................... A-3
1.1.10 Licenses ......................................................... A-3
1.1.11 Contracts ........................................................ A-3
1.1.12 Claims ........................................................... A-3
1.1.13 Telephone Numbers ................................................ A-3
1.1.14 Prepaid Expenses ................................................. A-3
1.1.15 Goodwill ......................................................... A-3
1.2 Limitations on Assignability ............................................. A-3
1.3 Excluded Assets .......................................................... A-4
1.3.1 Claims ............................................................ A-4
1.3.2 Receivables ....................................................... A-4
1.3.3 Agreement Rights .................................................. A-4
1.3.4 Corporate Records ................................................. A-4
1.3.5 Tax Refunds ....................................................... A-4
1.3.6 Insurance ......................................................... A-4
1.3.7 Plan Assets ....................................................... A-4
1.3.8 Tax Sharing Agreement; Tax Records ................................ A-4
1.3.9 Other Excluded Assets ............................................. A-5
ARTICLE II LIABILITIES ............................................................ A-5
2.1 Assumption of Liabilities ................................................ A-5
2.1.1 Balance Sheet Liabilities ......................................... A-5
2.1.2 Ordinary Course Liabilities ....................................... A-5
2.1.3 Executory Liabilities ............................................. A-5
2.2 Excluded Liabilities ..................................................... A-5
2.2.1 Transaction Expenses .............................................. A-6
2.2.2 Taxes ............................................................. A-6
2.2.3 Breach of This Agreement .......................................... A-6
2.2.4 Liability Claims .................................................. A-6
2.2.5 Breach of Contract ................................................ A-6
2.2.6 Employee Plans and Obligations .................................... A-7
2.2.7 Environmental Claims .............................................. A-7
2.2.8 Insurance ......................................................... A-7
2.2.9 Performance ....................................................... A-7
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
2.2.10 Unassumed Executory Liabilities .................................. A-7
2.2.11 Related Party Obligations ........................................ A-7
2.2.12 General Provision ................................................ A-7
2.3 No Expansion of Third Party Rights ....................................... A-8
ARTICLE III PURCHASE PRICE ........................................................ A-8
3.1 Consideration; Payment at Closing ......................................... A-8
3.2 Closing Date Balance Sheet; Closing Statement; Bonus Adjustment ........... A-8
3.2.1 Closing Reports .................................................... A-8
3.2.2 Accrued Management Bonus ........................................... A-9
3.3 Closing Net Book Value .................................................... A-10
3.4 Allocation ................................................................ A-10
ARTICLE IV CLOSING ................................................................ A-10
4.1 The Closing .............................................................. A-10
4.2 Sellers' Deliveries ...................................................... A-10
4.2.1 Corporate Resolutions ............................................. A-10
4.2.2 Closing Certificate ............................................... A-11
4.2.3 Instruments of Transfer ........................................... A-11
4.2.4 UCC Releases ...................................................... A-11
4.2.5 Permits ........................................................... A-11
4.2.6 Cash; Negotiable Instruments ...................................... A-11
4.2.7 Name Change ....................................................... A-11
4.2.8 Payoff Letters .................................................... A-11
4.2.9 Tax Compliance .................................................... A-11
4.2.10 Additional Agreements ............................................ A-11
4.3 Purchaser's Deliveries ................................................... A-12
4.3.1 Corporate Resolutions ............................................. A-12
4.3.2 Closing Certificate ............................................... A-12
4.3.3 Closing Payment ................................................... A-12
4.3.4 Assumption Agreement .............................................. A-12
4.3.5 Additional Agreements ............................................. A-12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS .............................. A-12
5.1 Corporate Organization and Authority ..................................... A-12
5.2 Capitalization and Subsidiaries .......................................... A-13
5.3 Authority Relative to Agreement .......................................... A-13
5.4 Absence of Conflicts ..................................................... A-14
5.5 Books and Records ........................................................ A-14
5.6 Financial Statements ..................................................... A-14
5.7 Accounts Receivable ...................................................... A-15
5.8 Absence of Certain Changes or Events ..................................... A-15
5.8.1 Material Adverse Changes .......................................... A-15
5.8.2 Certain Events .................................................... A-16
5.9 Compliance with Laws ..................................................... A-18
5.9.1 General ........................................................... A-18
5.9.2 Hazardous Substances .............................................. A-18
5.10 Taxes ................................................................... A-20
5.11 Undisclosed Liabilities ................................................. A-20
5.12 Title to Assets ......................................................... A-21
5.13 Leased Real Property .................................................... A-21
5.14 Structural Defects ...................................................... A-21
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C>
5.15 Equipment ............................................................... A-21
5.16 Personal Property Leases ................................................ A-21
5.17 Inventory ............................................................... A-22
5.18 Reserve for Returns ..................................................... A-22
5.19 Intellectual Property ................................................... A-22
5.20 Licenses ................................................................ A-23
5.21 Sale and Purchase Contracts ............................................. A-23
5.22 Contracts ............................................................... A-23
5.23 Litigation .............................................................. A-24
5.24 Consents ................................................................ A-24
5.25 Employee Plans .......................................................... A-25
5.25.1 Identification ................................................... A-25
5.25.2 Documentation .................................................... A-25
5.25.3 Code and ERISA ................................................... A-25
5.25.4 Contributions and Accrual ........................................ A-25
5.25.5 Reportable Events ................................................ A-26
5.25.6 Termination Benefits ............................................. A-26
5.25.7 Withdrawal Liability ............................................. A-26
5.25.8 Employee Plan Grievances ......................................... A-27
5.26 Labor and Employee Matters .............................................. A-27
5.26.1 Labor Agreements ................................................. A-27
5.26.2 Labor/Employment Controversies ................................... A-27
5.26.3 Employee Matters ................................................. A-28
5.27 Customers and Suppliers ................................................. A-28
5.28 Insurance ............................................................... A-28
5.29 Effect of Transaction ................................................... A-29
5.30 Transactions with Related Parties ....................................... A-29
5.31 Bank Accounts, Etc. ..................................................... A-29
5.32 Name .................................................................... A-29
5.33 Reports ................................................................. A-29
5.34 Brokers ................................................................. A-30
5.35 Information Supplied .................................................... A-30
5.36 Opinion of Financial Advisor ............................................ A-30
5.37 Company Board Recommendation ............................................ A-30
5.38 Required Company Vote ................................................... A-31
5.39 Rights Agreement ........................................................ A-31
5.40 Year 2000 Compliance .................................................... A-31
5.41 Accuracy of Information ................................................. A-31
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER ............................ A-31
6.1 Corporate Organization ................................................... A-31
6.2 Authority ................................................................ A-32
6.3 Absence of Conflicts ..................................................... A-32
6.4 Consents ................................................................. A-32
6.5 Brokers .................................................................. A-32
6.6 Recommendation ............................................................ A-32
6.7 Information Supplied ...................................................... A-32
ARTICLE VII COVENANTS ............................................................. A-33
7.1 Conduct of Business of Strouse Adler Prior to the Closing Date ........... A-33
7.2 Preparation of Proxy Statement; Stockholders Meeting ..................... A-34
7.2.1 Proxy Statement ................................................... A-34
7.2.2 Comments .......................................................... A-34
</TABLE>
A-iii
<PAGE>
<TABLE>
<S> <C>
7.2.3 Stockholders Meeting .............................................. A-34
7.3 Non-Solicitation ......................................................... A-35
7.4 Confidentiality; Public Announcements .................................... A-37
7.5 Hart-Scott-Rodino Filings ................................................ A-37
7.6 Bulk Sales Compliance .................................................... A-37
7.7 Employees; 401(k) Plan ................................................... A-38
7.8 Access to Information .................................................... A-38
7.9 All Reasonable Efforts ................................................... A-39
7.10 Consents and Approvals .................................................. A-39
7.11 Supplements to Schedules ................................................ A-39
7.12 Attorney-in-Fact ........................................................ A-40
7.13 Potential Successor Taxes ............................................... A-40
7.14 5500 Filings ............................................................ A-40
ARTICLE VIII RESTRICTIVE COVENANTS ............................................... A-40
8.1 Restrictions ............................................................. A-40
8.2 Non-competition .......................................................... A-41
8.3 Non Interference with Business Relations ................................. A-41
8.4 Solicitation of Customers and Employees .................................. A-41
8.5 Confidential Information ................................................. A-41
8.6 Scope .................................................................... A-42
8.7 Remedies ................................................................. A-42
8.8 Dissolution .............................................................. A-42
ARTICLE IX INDEMNIFICATION ........................................................ A-43
9.1 Survival of Representations, Warranties and Covenants .................... A-43
9.2 Sellers' Indemnification ................................................. A-43
9.3 Purchaser's Indemnification .............................................. A-44
9.4 Cooperation .............................................................. A-45
9.5 Indemnification Procedure for Third Party Claims Against
Indemnified Parties .................................................... A-45
9.6 Nature of Other Liabilities .............................................. A-47
9.7 Basket; Cap .............................................................. A-47
ARTICLE X CONDITIONS TO CLOSING ................................................... A-47
10.1 Conditions to Obligations of Purchaser .................................. A-47
10.1.1 Representations and Warranties of Sellers ........................ A-47
10.1.2 Performance of Sellers' and Stockholders' Obligations ............ A-47
10.1.3 Consents and Approvals ........................................... A-47
10.1.4 Pending Proceedings .............................................. A-48
10.1.5 Board Approval ................................................... A-48
10.1.6 Expiration of Waiting Period ..................................... A-48
10.1.7 No Material Adverse Change ....................................... A-48
10.1.8 Other Closing Documents .......................................... A-48
10.2 Conditions to Obligations of Sellers .................................... A-48
10.2.1 Representations and Warranties of Purchaser ...................... A-48
10.2.2 Performance of Purchaser's Obligations ........................... A-48
10.2.3 Consents and Approvals ........................................... A-49
10.2.4 Pending Proceedings .............................................. A-49
10.2.5 Expiration of Waiting Period ..................................... A-49
10.2.6 Other Closing Documents .......................................... A-49
</TABLE>
A-iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI POST-CLOSING OBLIGATIONS ............................................... A-49
11.1 Subrogation ............................................................. A-49
11.2 Use of Marks ............................................................ A-49
11.3 Collection of Accounts ............................................. A-49
11.4 Further Assurances ................................................. A-50
ARTICLE XII TERMINATION AND ABANDONMENT ........................................... A-50
12.1 Methods of Termination .................................................. A-50
12.2 INTENTIONALLY OMITTED ................................................... A-51
12.3 Procedure Upon Termination .............................................. A-51
12.4 Termination Expenses and Fees ........................................... A-51
ARTICLE XIII MISCELLANEOUS PROVISIONS ............................................. A-52
13.1 Successors and Assigns .................................................. A-52
13.2 Expenses ................................................................ A-52
13.3 Title; Risk of Loss ..................................................... A-52
13.4 Notices ................................................................. A-52
13.5 Entire Agreement ........................................................ A-53
13.6 Waivers, Amendments and Remedies ........................................ A-53
13.7 Severability ............................................................ A-54
13.8 Section Headings ........................................................ A-54
13.9 Counterparts; Terms ..................................................... A-54
13.10 Governing Law; Consent to Jurisdiction; Venue .......................... A-54
13.11 Documentation .......................................................... A-55
13.12 Exhibits and Schedules ................................................. A-55
13.13 Waivers of Trial by Jury ............................................... A-55
EXHIBIT A ......................................................................... A-57
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
Schedules and Exhibits
----------------------
<S> <C>
Schedules Description
- --------- -----------
1.1 Permitted Liens
1.3.9 Other Excluded Assets
2.1.3 Executory Liabilities
3.3 Closing Net Book Value
5.1 Qualifications
5.2(a) Securities
5.2(b) Equity Owners
5.4 Violations
5.5 Variations from GAAP re: Books and Records
5.7 Liens on Accounts Receivable
5.8.1 Material Adverse Changes Since June 30, 1997
5.8.2 Certain Events Since June 30, 1997
5.9.1 Compliance With Laws
5.9.2 Hazardous Substances
5.12 Liens
5.13 Real Property Leases
5.14 Structural Defects
5.15 Condition and Ownership of Equipment
5.16 Personal Property Leases
5.18 Reserves for Returns
5.19 Intellectual Property
5.20 Licenses
5.21 Sale and Purchase Contracts
5.22 Contracts
5.23 Litigation
5.24 Consents
5.25 Employee Plans
5.26 Labor Agreements and Employee Matters
5.27 Customers and Suppliers
5.28 Insurance
5.30 Transactions with Related Parties
5.31 Bank Accounts
5.40 Year 2000 Compliance
Exhibits Description
- -------- -----------
A Definitions
</TABLE>
A-vi
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (the "Agreement"), dated March 3, 1998, by and among
SARA LEE CORPORATION, a Maryland corporation ("Sara Lee"), The Aristotle
Corporation, a Delaware corporation (the "Company"), and The Strouse, Adler
Company, a Delaware corporation ("Strouse Adler") (the Company and Strouse Adler
sometimes being individually and collectively called "Seller" or "Sellers").
R E C I T A L S:
- - - - - - - -
A. The Company owns 100% of the outstanding capital stock of Strouse Adler.
Strouse Adler is engaged in the manufacture, marketing, distribution and sale of
certain lines of women's intimate apparel (the "Business"). Sellers desire that
Strouse Adler sell to Sara Lee or its designee ("Purchaser"), and Sara Lee
desires to purchase from Strouse Adler, substantially all of Strouse Adler's
assets, and assume certain specified liabilities of Strouse Adler, all on the
terms and subject to the conditions hereinafter set forth.
B. Concurrent with the execution hereof, certain stockholders of the Company
(the "Stockholders") are entering into a Stockholders' Agreement with Purchaser
(the "Stockholders' Agreement") as a condition to Purchaser's execution,
delivery and performance of this Agreement.
Accordingly, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties intending to be legally bound,
hereby agree as follows. Capitalized terms used herein have the definitions
referred to, or set forth in, Exhibit A hereto.
---------
ARTICLE I PURCHASE AND SALE OF ASSETS.
----------------------------
1.1 Purchased Assets. At the Closing and in reliance upon the
----------------
representations, warranties and agreements and subject to the conditions set
forth in this Agreement, Strouse Adler shall sell, assign, transfer, convey and
deliver to Purchaser, free and clear of all liens, claims, options, charges,
security interests, pledges, mortgages or other encumbrances whatsoever
(collectively "Liens"), other than Liens listed on Schedule 1.1 (collectively
------------
"Permitted Liens"), and Purchaser shall purchase from Strouse Adler, for the
purchase price set forth in Article III hereof, all of the assets and properties
of every kind and nature, real and personal, tangible and intangible, wherever
situated, whether or not carried or reflected on the books and records of
Strouse Adler, which are owned by Strouse Adler or in which Strouse Adler has
any right, title or interest as of the Closing Date, except for the Excluded
Assets (all of the assets, properties, rights and interests being acquired
hereby are collectively called the "Purchased Assets").
<PAGE>
The Purchased Assets shall include, without limitation, the following
items, including all proceeds therefrom, but shall not include any Excluded
Assets:
1.1.1 Cash and Investments. All cash on hand and in banks, cash
--------------------
equivalents, marketable securities, bonds and investments of every kind and
nature (collectively, "Cash and Cash Equivalents");
1.1.2 Accounts Receivable. All accounts receivable and other
-------------------
receivables, billed and unbilled, and all negotiable instruments, or other
instruments and chattel paper, as are payable to Strouse Adler ("Accounts
Receivable");
1.1.3 Equipment. All machinery, equipment, tools, motor vehicles,
---------
rolling stock, furniture, supplies, office equipment, improvements, parts and
other tangible personal property other than Inventory (collectively, the
"Equipment");
1.1.4 Inventory. All inventory, including, without limitation, raw
---------
materials, work-in-process, finished goods and packing supplies (collectively,
the "Inventory");
1.1.5 Records. All books and records, customer files, customer lists
-------
and records, vendor files, vendor lists and records, cost files and records,
credit information, distribution records, business records and plans, Tax
returns and other Tax records (except that with respect to income Tax returns
and other Tax records, only copies thereof shall be included as Purchased
Assets), studies, surveys, reports, correspondence, sales and promotional
literature and materials, advertising and advertising copy, and other similar
materials, microfilm, microfiche, computer and other records, and all computer
software, and all similar data, documents and items, wherever located
(collectively, the "Books and Records");
1.1.6 Intellectual Property. All (i) Patents, (ii) Trademarks, (iii)
---------------------
Trade Names, (iv) Know-how, (v) proprietary rights in trade dress and packaging,
and (vi) shop rights, copyrights, inventions, trade secrets, service marks and
all other intellectual property rights, in each case whether registered or not
and in each case wherever such rights exist throughout the world, and including
the right to recover for any past infringement (collectively, the "Intellectual
Property");
1.1.7 Personal Property Leases. All rights and benefits under leases
------------------------
of personal property (collectively, the "Personal Property Leases");
1.1.8 Real Property Leases. All rights and benefits under Real
--------------------
Property Leases;
A-2
<PAGE>
1.1.9 Sale and Purchase Contracts. All rights and benefits under sale
---------------------------
contracts, purchase or supply contracts, dealer arrangements and distributorship
arrangements, whether oral or written (collectively, the "Sale and Purchase
Contracts");
1.1.10 Licenses. All rights and benefits under licenses, permits,
--------
quotas, authorizations, franchises, registrations and other approvals from any
Governmental Authority or from any private party (collectively, the "Licenses");
1.1.11 Contracts. All rights and benefits under contracts,
---------
agreements, commitments of whatever nature or description, whether oral or
written (including, without limitation, confidentiality agreements executed in
connection with the possible sale of the Business or Strouse Adler (regardless
of form) (except that copies of confidentiality agreements, including the
identity of the parties thereto, will not be delivered or otherwise disclosed to
Purchaser prior to Closing if doing so would violate or breach such agreements),
Personal Property Leases, Sale and Purchase Contracts, Real Property Leases and
Licenses) (collectively, the "Contracts");
1.1.12 Claims. All claims, causes of action, choses in action, rights
------
of recovery, rights of set-off and other rights of every nature and description
(including, without limitation, all rights arising under warranties,
representations and guarantees made to Strouse Adler) and all benefits arising
therefrom (collectively, the "Claims");
1.1.13 Telephone Numbers. All telephone numbers and white and yellow-
-----------------
page listings;
1.1.14 Prepaid Expenses. All prepaid expenses, advance payments,
----------------
deposits and claims for refund (other than refunds pertaining to liabilities
which are not being assumed by Purchaser), credit and the like, other than any
prepaid insurance; and
1.1.15 Goodwill. All goodwill associated with Strouse Adler and its
--------
business.
1.2 Limitations on Assignability. Notwithstanding anything in this
----------------------------
Agreement to the contrary, to the extent that any of the Purchased Assets are
not assignable without the consent of a third party, neither this Agreement, nor
any of the instruments or documents executed and delivered in connection
herewith or contemplated hereby, shall constitute an assignment or assumption
thereof, or attempted assignment or attempted assumption thereof, if such
assignment or attempted assignment, or assumption or attempted assumption, would
constitute a breach thereof. If, prior to the Closing, Strouse Adler has not
obtained a consent or approval necessary for the assignment and assumption of
any of the Purchased Assets, then it shall use its best efforts where requested
by Purchaser to obtain such consents and approvals after the Closing, or, at
Purchaser's request, shall cooperate in any reasonable arrangement requested by
Purchaser to provide to Purchaser the benefits thereof subject to the
performance by Purchaser of Strouse Adler's obligations arising or to be
performed after the Closing thereunder. Nothing contained in
A-3
<PAGE>
this Section 1.2 shall require Purchaser to enter into, or to accept as a
substitute for performance by Strouse Adler hereunder, any arrangement that
would impose any additional cost, expense or liability on Purchaser, or that
would deprive Purchaser of any benefits contemplated by this Agreement;
provided, however, that nothing herein shall require Purchaser to close the
transactions contemplated hereby in the event the failure to deliver any of the
Purchased Assets would constitute a failure to satisfy any of the conditions
contained in Section 10.1.
1.3 Excluded Assets. The Excluded Assets shall consist solely of the
---------------
following:
1.3.1 Claims. Any claims (including benefits arising therefrom) which
------
are related solely to liabilities of Strouse Adler which are not Assumed
Liabilities or which are related solely to Excluded Assets;
1.3.2 Receivables. All accounts, notes and other receivables due from
-----------
any Affiliate of Strouse Adler or of the Company or from any stockholders,
directors, employees or any other Related Party of either of them;
1.3.3 Agreement Rights. Sellers' rights under this Agreement and any
----------------
Additional Documents;
1.3.4 Corporate Records. The corporate charter, minute and stock
-----------------
record books and corporate seal of Strouse Adler;
1.3.5 Tax Refunds. Strouse Adler's rights to claims for refunds of
-----------
Taxes;
1.3.6 Insurance. Subject to Section 11.1, all insurance policies
---------
(including the proceeds thereof) owned by Strouse Adler, except that, at
Purchaser's election, Strouse Adler shall assign to Purchaser (subject to the
assignability provisions therein) health and medical insurance policies owned by
Strouse Adler covering its employees;
1.3.7 Plan Assets. Any assets held in trust by or for the benefit of
-----------
any current or former employees of Strouse Adler under any Employee Plan, other
than assets of The Strouse, Adler Company Cash or Deferred Profit Sharing Plan
("401(k) Plan") in the event such 401(k) Plan is assumed by Purchaser at
Purchaser's election in accordance with Section 7.7.2 or in the event Purchaser
establishes a similar plan and elects to have the assets of the 401(k) Plan
transferred to Purchaser's new plan for such employees;
1.3.8 Tax Sharing Agreement; Tax Records. Any rights or benefits
----------------------------------
under any tax sharing agreements between Sellers and the original income tax
returns and other original income tax records of Strouse Adler; and
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<PAGE>
1.3.9 Other Excluded Assets. All underground storage tanks owned or
---------------------
used by Strouse Adler and all such other assets as are listed in Schedule 1.3.9.
--------------
ARTICLE II LIABILITIES.
------------
2.1 Assumption of Liabilities. At the Closing, Purchaser shall assume and
-------------------------
agree to discharge and perform when due only the following liabilities and
obligations of Strouse Adler as the same shall exist on the Closing Date
(collectively, the "Assumed Liabilities"):
2.1.1 Balance Sheet Liabilities. The following liabilities of Strouse
-------------------------
Adler which are reflected on the Balance Sheet, and which have not been paid or
otherwise discharged prior to the Closing Date, but only to the extent said
liabilities are fully reflected or reserved against therein: (a) accounts
payable, (b) obligations under the capital lease described in item 1 of Schedule
-------
2.1.3, and (c) accrued vacation and, subject to Section 3.2.2, accrued
- -----
management bonuses for periods prior to July 1, 1998, in each case, for those
employees of Strouse Adler who Purchaser hires immediately following the
Closing;
2.1.2 Ordinary Course Liabilities. Liabilities and obligations of
---------------------------
Strouse Adler of the type set forth in the Balance Sheet and assumed pursuant to
Section 2.1.1 above which are incurred between December 31, 1997 and the Closing
Date in the usual and ordinary course of business of Strouse Adler and
consistent with its past practice (other than management bonuses accrued for any
period after June 30, 1998), provided and only to the extent that said
liabilities and obligations are fully reflected or reserved against in the
Closing Statement; and
2.1.3 Executory Liabilities. Liabilities and obligations of Strouse
---------------------
Adler, after the Closing Date, under the executory portion of each of the
Contracts listed in Schedule 2.1.3 to the extent Strouse Adler has provided to
--------------
Purchaser true and complete copies thereof and is bound thereunder on the
Closing Date and provided each such Contract is part of the Purchased Assets
assigned to Purchaser pursuant to this Agreement; provided, however, that
Purchaser shall not assume any liability or obligation under any such Contract
described in Section 2.2.5; and further, provided that for purposes of this
Agreement, the executory portion of any Contract which is an Assumed Liability
shall not include any obligation, regardless of the fact that payment may be due
after the Closing, for taxes, expenses, or any other matter which relates to any
period prior to the Closing Date.
2.2 Excluded Liabilities. Notwithstanding Section 2.1 (and without
--------------------
implication that Purchaser is assuming any liability not expressly excluded in
this Section 2.2 and, where applicable, without implication that any of the
following would constitute Assumed Liabilities but for the provisions of this
Section 2.2), the following liabilities of Strouse Adler are excluded and shall
not be assumed or discharged by Purchaser:
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<PAGE>
2.2.1 Transaction Expenses. Any liabilities for legal, accounting and
--------------------
investment banking fees and other expenses incurred in connection with the
preparation of and performance under this Agreement and the sale of the
Purchased Assets to Purchaser, as described in Section 13.2 ("Transaction
Expenses");
2.2.2 Taxes. Any liabilities for Taxes, including, without
-----
limitation, liabilities arising as a result of the transfer of the Purchased
Assets or otherwise by virtue of the consummation of the transactions
contemplated hereby;
2.2.3 Breach of This Agreement. Any liabilities of Strouse Adler to
------------------------
the extent that their existence or magnitude constitutes or results in a breach
of a representation, warranty or covenant made by either Seller herein or in any
agreement, instrument or document executed and/or delivered by either Seller in
connection herewith or contemplated hereby, including, without limitation, the
Stockholders' Agreement, or makes information contained in any representations,
warranties, Exhibit or Schedule hereto or thereto substantively incorrect or
incomplete (all such additional agreements, instruments and documents executed
or delivered by any party in connection with this Agreement being called the
"Additional Documents");
2.2.4 Liability Claims. Any liabilities relating to the operation of
----------------
the Business prior to the Closing, whether for injury to or death of persons or
damage to or destruction of property (including, without limitation, any
worker's compensation claim), for violation of any Rules, for any matter
relating to any past or present Employee Plan, including any annuity contract or
guarantee relating thereto or for any other matter regardless of when said claim
or liability is asserted, including, without limitation, any claim for
consequential damages in connection with the foregoing; it being understood and
agreed that any claim or liability asserted after the Closing Date which arises
out of or by virtue of the conduct of the Business prior to the Closing (and
does not result principally from Purchaser's conduct following the Closing)
shall be considered to be a claim against or a liability of Strouse Adler
(whether for injury to or death of persons or damage to or destruction of
property or otherwise) and, therefore, not assumed hereunder by Purchaser;
2.2.5 Breach of Contract. Any liabilities (whether asserted before or
------------------
after Closing) for any breach of a representation, warranty or covenant, or for
any claim for indemnification, contained in any Contract which is an Assumed
Liability which Purchaser has agreed to perform to the extent that such breach
or claim arose out of or by virtue of performance (or omission) thereunder by
Strouse Adler or any agent of Strouse Adler prior to the Closing, it being
understood that, as between Strouse Adler and Purchaser, this Section 2.2.5
shall apply notwithstanding any provisions which may be contained in any form of
consent to the assignment of any such Purchased Asset which, by its terms,
imposes such liabilities upon Purchaser and which assignment is accepted by
Purchaser notwithstanding the presence of such a provision, and that Strouse
Adler's failure to discharge any such liability shall entitle Purchaser to
indemnification in accordance with the provisions of Article IX;
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2.2.6 Employee Plans and Obligations. Except for accrued vacation and
------------------------------
bonus described in Section 2.1.1, and, in the event Purchaser elects to assume
the 401(k) Plan pursuant to Section 7.7.2, except for contributions arising and
relating to periods after the Closing Date under the 401(k) Plan, any
liabilities arising out of or in connection with any employment agreement,
executive compensation agreement, or any bonus, pension, benefit, welfare,
retirement, disability, insurance, collective bargaining, deferred compensation
or other Employee Plan or Labor Agreement, relating to Strouse Adler's
employees, whether oral or written, or any liabilities arising out of or in
connection with the termination of employment of any employee by Strouse Adler,
or any liabilities for medical disability or similar benefits (both long term
and short term), whether insured or self-insured, which arise by virtue of or in
connection with an employment relationship at any time with Strouse Adler,
regardless of when a claim for such benefits is asserted, or any other
obligation relating to Strouse Adler's employees;
2.2.7 Environmental Claims. Any claim, action, suit or proceeding
--------------------
arising from or related to the presence, generation, emission, storage,
treatment, transport or disposal of any Hazardous Substance from, to, at, in, on
or under any facility owned or used by Strouse Adler on or before the Closing
Date and liabilities arising from violations of Environmental Laws;
2.2.8 Insurance. Any liabilities for retrospective or similar
---------
insurance premium adjustments;
2.2.9 Performance. Any liabilities or obligations of Strouse Adler
-----------
arising out of or relating to its performance under this Agreement (regardless
of whether such performance is required prior to or after the Closing Date),
including, without limitation, any liability or obligation arising under
Sellers' indemnification obligations under Article IX;
2.2.10 Unassumed Executory Liabilities. Any liabilities under or
-------------------------------
associated with Contracts or other properties which are not listed in Schedule
--------
2.1.3 or, if listed, which were not properly assigned to Purchaser as
- -----
contemplated by Section 1.2 above unless Purchaser notifies Strouse Adler of its
election to retain the rights and benefits under such Contracts notwithstanding
any such improper assignment;
2.2.11 Related Party Obligations. Any obligations of either Seller
-------------------------
under any promissory note payable to a Related Party or any guaranty or surety
obligation or agreement for the benefit of a Related Party; and
2.2.12 General Provision. Without limitation by the specific
-----------------
enumeration of the foregoing, any debt, liability or other obligation of Strouse
Adler or the Company, whether now or hereafter existing, known or unknown,
accrued or contingent, not expressly assumed by
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<PAGE>
Purchaser pursuant to the provisions of Section 2.1, including, without
limitation, all liabilities of the type set forth on the Balance Sheet except as
expressly set forth in Section 2.1.1.
2.3 No Expansion of Third Party Rights. The assumption by Purchaser of the
----------------------------------
Assumed Liabilities shall in no way expand the rights or remedies of any third
party against Purchaser or Strouse Adler as compared to the rights and remedies,
which such third party would have had against Strouse Adler had Purchaser not
assumed such liabilities. Without limiting the foregoing, the assumption by
Purchaser of the Assumed Liabilities shall not create any third party
beneficiary rights. Strouse Adler shall pay and discharge when due (unless
payment is subject to a bona fide dispute) or, as contemplated by Section 9.2,
reimburse Purchaser for, all liabilities of Strouse Adler which Purchaser has
not specifically agreed to assume under this Article II.
ARTICLE III PURCHASE PRICE
--------------
3.1 Consideration; Payment at Closing. The aggregate consideration to be
---------------------------------
paid by Purchaser for the Purchased Assets shall be the Purchase Price plus the
assumption of the Assumed Liabilities. The purchase price (the "Purchase Price")
shall be $16,500,000.00 minus the sum of the Accrued Bonus Amount and any
Potential Successor Taxes (the "Closing Payment"), reduced by the amount, if
any, by which the Closing Net Book Value is less than $15,250,000.00 and
increased by the amount, if any, by which the Closing Net Book Value exceeds
$15,250,000.00. The Closing Payment shall be payable in full at the Closing by
means of a wire transfer of immediately available funds.
3.2 Closing Date Balance Sheet; Closing Statement; Bonus Adjustment.
---------------------------------------------------------------
3.2.1 Closing Reports. No later than 90 days after the Closing, Sara
---------------
Lee, at its cost and expense, shall prepare and close the financial books and
records of the Business as of the close of business, Connecticut time, on the
Closing Date, and, based on the Books and Records, shall prepare and deliver, or
cause to be prepared and delivered, to the Company, a balance sheet, dated as of
the effective date of the Closing (the "Closing Date Balance Sheet"). Subject to
Schedule 3.3, the Closing Date Balance Sheet shall be prepared in accordance
- ------------
with generally accepted accounting principles, consistently applied in
accordance with past practices of Strouse Adler ("GAAP"), shall present fairly
the financial condition of the Business as of the effective date of the Closing.
In order that Purchaser may cause the preparation of the Closing Date Balance
Sheet and Closing Statement, Purchaser and Sellers shall cause a physical count
of Strouse Adler's Inventory on hand as of the Closing Date and Strouse Adler
shall cooperate and provide Purchaser, its representatives and agents with
access to the Inventory for this purpose. Representatives of Strouse Adler and
its agents, including auditors, may be present during the Inventory count. As
used herein, the term "Closing Statement" shall mean the Closing Date Balance
Sheet of the Business, adjusted to delete any items which are not included in
the calculation of Closing Net Book Value.
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<PAGE>
Purchaser shall deliver to the Company the Closing Date Balance Sheet and the
Closing Statement, and if the Company objects to either, then within 30 calendar
days of its receipt of the Closing Date Balance Sheet and Closing Statement, the
Company shall give written notice (the "Notice") of its objections to Purchaser.
During such 30-day period, Purchaser and Purchaser's accountants shall give the
Company and its accountants access, upon reasonable notice and during normal
business hours, to all books, records and work papers of Purchaser and its
accountants related to the preparation or review audit of the Closing Date
Balance Sheet and Closing Statement. If Purchaser has not received the Notice
within such 30-day period, Sellers shall be deemed to have no objection to the
Closing Statement and the Closing Statement shall become final and binding on
the parties hereto for all purposes of this Agreement. The parties shall
negotiate in good faith to resolve any disputes as promptly as practicable. If
the parties are unable to resolve all disputes within twenty calendar days of
receipt by Purchaser of the Notice, then only the unresolved disputes shall be
submitted to the New York office of Coopers & Lybrand or if that firm declines
such engagement, another independent certified public accounting firm mutually
agreed to by the parties (the "Independent Accountant"). The parties shall be
entitled to provide the Independent Accountant with supporting documentation in
connection with resolution of such disputes. The Independent Accountant shall,
within 30 calendar days of its engagement, provide a final and conclusive
resolution of all unresolved disputes and shall conform the Closing Statement
accordingly. All references in this Agreement to the Closing Statement shall
mean the Closing Statement as modified pursuant to this resolution procedure, as
the case may be, and the resolution of the Independent Accountant shall be
binding on the parties hereto. The fees and expenses of the Independent
Accountant shall be borne equally by Purchaser and the Company. If the Closing
Payment exceeds the Purchase Price based on the Closing Statement as finally
determined pursuant to this Section 3.2, then Sellers shall be jointly and
severally liable to promptly pay the amount of such excess to Purchaser; if the
Purchase Price as so determined exceeds the Closing Payment, Purchaser shall
promptly pay the amount of such excess to Strouse Adler. All sums payable under
this Section 3.2.1 and 3.2.2 below shall be paid by wire transfer of immediately
available funds on the first business day following such final determination.
3.2.2 Accrued Management Bonus. As promptly as practicable following June
------------------------
30, 1998 or the Closing Date, whichever is later, Purchaser shall calculate the
bonuses owed in accordance with the terms of The Strouse, Adler Bonus Program
("Bonus Plan") to management employees of Strouse Adler who were hired by
Purchaser immediately following the Closing and who are employed by Purchaser on
June 30, 1998 ("Bonus Recipients"). If Strouse Adler's Pro Rata Share of the
Actual Bonus Amount exceeds the Accrued Bonus Amount, then Sellers shall be
jointly and severally liable to and shall promptly pay such excess to Purchaser;
and if the Accrued Bonus Amount exceeds Strouse Adler's Pro Rata Share of the
Actual Bonus Amount, Purchaser shall promptly pay such excess amount to Strouse
Adler. As used herein, the term "Strouse Adler's Pro Rata Share of the Actual
Bonus Amount" means the amount of bonus payments due Bonus Recipients for the
twelve-month period ending June 30, 1998 (calculated in accordance with the
Bonus Plan) multiplied by a fraction, the numerator of which is the number
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<PAGE>
of days from July 1, 1997 through the Closing Date and the denominator of which
is 365. Bonuses owed pursuant to the Bonus Plan shall be paid by Purchaser in
the ordinary course of business consistent with Strouse Adler's past practice.
3.3 Closing Net Book Value. As used herein, the term "Closing Net Book
----------------------
Value" shall mean an amount, calculated, as of the close of business,
Connecticut time, on the Closing Date, in the manner set forth in Schedule 3.3,
by which the assets of Strouse Adler exceed the liabilities of Strouse Adler, as
reflected on the Closing Statement; provided, however, that to the extent the
Closing Date Balance Sheet reflects accrued vacation for employees of Strouse
Adler who are not hired by Purchaser ("Inapplicable Accrued Vacation"), the
Closing Net Book Value shall be increased by the amount of the Inapplicable
Accrued Vacation.
3.4 Allocation. Within 30 days of the final determination of the Closing
----------
Net Book Value, Purchaser shall provide Sellers with an allocation of the
Purchase Price among the Purchased Assets which allocation shall be mutually
agreeable to the parties hereto. The parties shall file a Form 8594 with the
Internal Revenue Service ("IRS") reflecting such allocation in accordance with
Section 1060 of the Internal Revenue Code, as amended (the "Code").
ARTICLE IV CLOSING.
--------
4.1 The Closing. Subject to Article XII, the closing of the transactions
-----------
contemplated hereby (the "Closing") shall take place at 10:00 A.M., Chicago
time, on May 30, 1998 (or if the conditions to the Closing shall not have been
satisfied or waived by such date then as soon as practicable thereafter, but in
no event later than September 15, 1998 (the "Closing Date")), at the offices of
Sonnenschein Nath & Rosenthal, 8000 Sears Tower, Chicago, Illinois, or at such
other time or place as the parties hereto shall agree in writing. The Closing
shall be deemed effective at the start of business on the date of the Closing.
4.2 Sellers' Deliveries. Subject to the conditions set forth in this
-------------------
Agreement, at the Closing, simultaneous with Purchaser's deliveries hereunder,
Sellers shall deliver to Purchaser all of the following documents and
instruments, all in form and substance reasonably satisfactory to Purchaser and
its counsel:
4.2.1 Corporate Resolutions. A copy of directors' and stockholders'
---------------------
resolutions for each Seller, all certified as of the Closing Date by such
Seller's corporate secretary or assistant secretary as having been duly and
validly adopted and as being in full force and effect on the Closing Date,
authorizing the execution and delivery by such Seller of this Agreement, the
Additional Documents and the performance by such Seller of the transactions
contemplated hereby and thereby;
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<PAGE>
4.2.2 Closing Certificate. A certificate executed on behalf of each
-------------------
Seller by its chief executive officer, to the effect that (i) the
representations and warranties of Sellers contained herein were true on the date
hereof, and are true on the Closing Date with the same effect as though made on
and as of the Closing Date; and (ii) Sellers have performed and complied with
all of the agreements and covenants to be performed or complied with by each of
them under this Agreement prior to and as of the Closing Date;
4.2.3 Instruments of Transfer. Duly-executed Warranty Bills of Sale,
-----------------------
Warranty Deeds, Assignments of Trademarks and Patents and all such other
instruments of sale, assignment and transfer as are necessary or appropriate to
sell, assign and transfer to Purchaser and to vest in Purchaser good and
marketable title to the Purchased Assets (in recordable form, where
appropriate), including, without limitation, certificates of title or origin (or
like documents) with respect to all vehicles and other Equipment included in the
Purchased Assets for which a certificate of title or origin is required in order
for title thereto to be transferred to Purchaser;
4.2.4 UCC Releases. UCC termination statements releasing each of the
------------
Liens upon the Purchased Assets other than Permitted Liens;
4.2.5 Permits. All special permits or licenses issued by the
-------
municipality in which each parcel of Leased Real Property is located which are
required in connection with the operation of the Business (including any and all
environmental protection permits);
4.2.6 Cash; Negotiable Instruments. All Cash and Cash Equivalents and
----------------------------
notes, checks, drafts, chattel paper, and other instruments included in the
Purchased Assets of which Strouse Adler is the payee, holder or assignee, all
duly endorsed by Strouse Adler, to the order of Purchaser;
4.2.7 Name Change. Evidence that Strouse Adler shall have changed its
-----------
corporate name to a name bearing no resemblance to its present corporate name
effective as of the Closing Date; and
4.2.8 Payoff Letters. Letter from Bank Boston, if applicable, setting
--------------
forth, as of the Closing Date, the amount of principal and interest necessary to
pay in full all indebtedness of each Seller to such person or entity.
4.2.9 Tax Compliance. Evidence of compliance with Section 7.13 and
--------------
all certificates, clearances, correspondence and the like relating to Sellers'
notices and request pursuant to such Section.
4.2.10 Additional Agreements. All such other documents and
---------------------
instruments as Purchaser or its counsel shall reasonably request in connection
with the consummation of the transactions contemplated by this Agreement.
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<PAGE>
4.3 Purchaser's Deliveries. Subject to the conditions set forth in this
----------------------
Agreement, at the Closing, simultaneous with the deliveries of Sellers
hereunder, Purchaser shall deliver all of the following documents and
instruments, all in form and substance reasonably satisfactory to Sellers and
their counsel:
4.3.1 Corporate Resolutions. A copy of directors' resolutions for
---------------------
Purchaser, certified as of the Closing Date by Purchaser's corporate secretary
or assistant secretary as having been duly and validly adopted and as being in
full force and effect on the Closing Date, authorizing the execution and
delivery by Purchaser of this Agreement, the Additional Documents and the
performance by Purchaser of the transactions contemplated hereby and thereby;
4.3.2 Closing Certificate. A certificate executed on behalf of
-------------------
Purchaser by an officer, dated the Closing Date, to the effect that (i) the
representations and warranties of Purchaser contained herein were true when made
on the date hereof, and are true on the Closing Date with the same effect as
though made on and as of the Closing Date; and (ii) Purchaser has performed and
complied with all of the agreements and covenants to be performed or complied
with by it under this Agreement prior to and as of the Closing Date;
4.3.3 Closing Payment. The Closing Payment as provided in Article
---------------
III; and
4.3.4 Assumption Agreement. A duly-executed assumption agreement
--------------------
pursuant to which Purchaser assumes the Assumed Liabilities in accordance with
Section 2.1.
4.3.5 Additional Agreements. All such other documents and instruments
---------------------
as Sellers or their counsel shall reasonably request in connection with the
consummation of the transactions contemplated by this Agreement.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers hereby jointly and
-----------------------------------------
severally represent, warrant and covenant to Purchaser as follows:
5.1 Corporate Organization and Authority. Each Seller is a corporation
------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority (corporate and
other) to own, lease and operate its properties and assets and to conduct its
business as now being conducted. Each Seller has qualified as a foreign
corporation and is in good standing under the laws of all jurisdictions where
the nature of the Business or the nature and location of its assets requires
such qualification, all as set forth in Schedule 5.1, except in those
------------
jurisdictions where the failure to qualify would not have a Material Adverse
Effect.
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5.2 Capitalization and Subsidiaries.
-------------------------------
(a) All of the issued and outstanding capital stock of Strouse Adler
is owned beneficially and of record by the Company. The Company owns no
subsidiary other than Strouse Adler and Strouse Adler owns no subsidiaries.
Schedule 5.2(a) sets forth all of the securities (marketable or otherwise) and
- ---------------
other instruments, if any (as those terms are defined in the Uniform Commercial
Code as enacted in the State of Connecticut), owned by Strouse Adler.
(b) The Stockholders own, of record and beneficially, the shares of
capital stock of the Company set forth in Schedule 5.2(b), which shares
---------------
represent 36.7% of the Company's outstanding voting securities as of the date
hereof and the percentage of the Company's voting securities on a Fully-Diluted
Basis as of the date hereof, as of June 30, 1998 and as of September 15, 1998,
all as set forth in Schedule 5.2(b). Further, the Stockholders own, of record
---------------
and beneficially, the rights to acquire capital stock of the Company, whether
pursuant to the exercise of warrants, conversion of securities, exercise of
stock options or otherwise (collectively, "Common Stock Equivalents") as set
forth in Schedule 5.2(b), which Schedule identifies the terms of such Common
---------------
Stock Equivalents, including, without limitation, (i) the time and price at
which the Common Stock Equivalents may be exercised, converted or exchanged to
acquire capital stock of the Company and (ii) the voting rights and powers of
all capital stock issuable upon such exercise, conversion or exchange. Assuming
that no Stockholder acquires capital stock of the Company after the date hereof
pursuant to the exercise, conversion or exchange of Common Stock Equivalents or
otherwise, the Stockholders own, of record and beneficially, on a Fully-Diluted
Basis, 34.88% of the Company's outstanding voting securities as of the date
hereof and would own as of June 30, 1998 and as of September 15, 1998 the
percentage of the Company's outstanding voting securities set forth in Schedule
5.2(b). Schedule 5.2(b) further sets forth all outstanding capital stock and
---------------
Common Stock Equivalents of the Company (and the terms of such Common Stock
Equivalents) as of the date hereof. No voting securities of the Company are
entitled to vote by class or have any voting right or preference different, on a
per share basis, than shares of the Company's common stock, par value $0.1 per
share, with respect to the matters described in the last sentence of this
Section 5.2(b). There are no voting trusts or other agreements (other than the
Stockholders' Agreement) or understandings to which either Seller is a party or
of which either Seller has knowledge with respect to the capital stock of either
Seller. No Seller is required to redeem, repurchase or otherwise acquire shares
of capital stock of either Seller at any time prior to September 16, 1998. For
purposes of this Section 5.2(b), all references to voting securities means
--------------
shares of capital stock of the Company having the voting power and rights with
respect to Significant Transactions, including, without limitation, matters
described in Section 271 of the Delaware General Corporation Law, as amended
(the "DGCL").
5.3 Authority Relative to Agreement. Each Seller has the corporate power
-------------------------------
and authority to enter into this Agreement and the Additional Documents, and to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the
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<PAGE>
Additional Documents and the performance by each Seller of its respective
obligations hereunder and thereunder have been duly authorized by its Board of
Directors and, in the case of Strouse Adler, its sole stockholder, and no other
corporate proceedings on the part of either Seller are necessary to authorize
such execution, delivery and performance other than the approval of the
stockholders of the Company. This Agreement and the Additional Documents have
been duly executed by each Seller and to Sellers' knowledge, the Stockholders'
Agreement has been duly executed by each Stockholder, and, assuming the due
authorization, execution and delivery by Sara Lee, are the valid and legally
binding obligations of each of them (limited, in the case of the Stockholders,
to the Stockholders' Agreement), and are enforceable against each of them in
accordance with their terms.
5.4 Absence of Conflicts. Except as disclosed in Schedule 5.4, the
-------------------- ------------
execution, delivery and performance by each Seller of this Agreement and the
Additional Documents, and, to Sellers' knowledge, the execution, delivery and
performance by the Stockholders of the Stockholders' Agreement, and the
transactions contemplated hereby and thereby, do not and will not conflict with
or result in any violation of or constitute a breach or default under any term
of the charter documents or by-laws of either Seller, of any agreement, permit
or other instrument to which either Seller or, to Seller's knowledge, any
Stockholder is a party, or by which either Seller or, to Seller's knowledge, any
Stockholder is bound or to which any of the Purchased Assets or the Business is
subject, or any order, judgment or decree of any court or other Governmental
Authority to which either Seller, the Purchased Assets or the Business is bound
or subject, or any law, statute or regulation of any Governmental Authority, and
will not result in the creation of any Lien upon any of the Purchased Assets.
5.5 Books and Records. Except as set forth in Schedule 5.5, the Books and
-----------------
Records are true and complete, and have been maintained in each Seller's usual,
regular and ordinary manner, in accordance with GAAP, and all transactions of
Strouse Adler are properly reflected therein. All Books and Records are (and at
the Closing will be) located at 78 Olive Street, New Haven, Connecticut.
5.6 Financial Statements. Sellers have delivered to Purchaser true and
--------------------
complete (i) copies of the audited consolidated balance sheets of the Company
and its subsidiaries as of the last day of each of the three fiscal years of the
Company for the periods ended June 30, 1997, 1996 and 1995, respectively,
together with the related audited consolidated statements of income,
stockholders' equity and changes in cash flows for such fiscal years, and the
notes thereto, accompanied by the reports thereon of the Company's independent
public accountants ("Audited Statements"), and (ii) copies of the unaudited
balance sheet of Strouse Adler as of December 31, 1997 (the "Balance Sheet"),
together with the related unaudited consolidated statements of income,
stockholders' equity and changes in cash flows for the six-month period ended on
such date, certified by the President of Strouse Adler ("Unaudited Statements").
The Audited Statements, including the notes thereto, (a) were prepared in
accordance with GAAP, (b) present fairly the financial position, results of
operations and changes in cash flows of the Company and its subsidiaries as of
such dates and for the periods then ended, (c) are accurate, correct and
complete and in accordance with the books and records of the Company and its
subsidiaries, and
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(d) can be reconciled with the financial statements and the financial records
maintained and the accounting methods applied by the Company and its
subsidiaries for federal income tax purposes.
The Unaudited Statements, (w) were prepared in accordance with GAAP (except
for immaterial year-end adjustments and the absence of notes thereto), (x)
present fairly the financial position, results of operations and changes in cash
flows of Strouse Adler as of such date and for the period then ended, (y) are
accurate, correct and complete and in accordance with the books and records of
Strouse Adler, and (z) can be reconciled with the books and records, financial
statements and the financial records maintained and the accounting methods
applied by the Company and its subsidiaries for federal income tax purposes.
5.7 Accounts Receivable. All outstanding Accounts Receivable reflected on
-------------------
the Balance Sheet (and which will be reflected on the Closing Date Balance
Sheet) (i) have arisen (and will arise) in bona fide transactions, (ii) are (and
will be) valid claims against account debtors for goods or services delivered or
rendered, subject to no defenses, offsets or counterclaims, except as reserved
against on the applicable Balance Sheet in accordance with GAAP (the
"Reserves"), and (iii) are collectible in the ordinary course of Strouse Adler's
business. All receivables arose (and will have arisen prior to the Closing Date)
in the ordinary course of business and none of the obligors of such receivables
have refused or given notice that it refuses to pay the full amount thereof. No
receivables are subject to prior assignment, claim or other Lien, other than as
described in Schedule 5.7. Strouse Adler has no liability for any refunds,
------------
allowances, returns or discounts in respect of products manufactured, processed,
distributed, shipped or sold by it or for its account except to the extent of
the reserves and liabilities therefor reflected on the applicable Balance Sheet
in accordance with GAAP and except as otherwise incurred in the ordinary course
of business. Where receivables arose out of secured transactions, all financing
statements and other instruments required to be filed or recorded to perfect the
title or security interest of Strouse Adler have been properly filed and
recorded. After the Closing Date, Purchaser will not have any obligation
(whether in bankruptcy or insolvency proceedings or otherwise) to repay any
receivables collected by Strouse Adler prior to the Closing Date or any
receivables reflected on the Closing Date Balance Sheet which Purchaser collects
after the Closing Date.
5.8 Absence of Certain Changes or Events.
------------------------------------
5.8.1 Material Adverse Changes. Except as set forth in Schedule
------------------------ --------
5.8.1, since June 30, 1997, there has not been, nor does either Seller have
- -----
reason to know of, any development (including, without limitation, consummation
of the transactions contemplated hereby) or threatened development (other than
general economic conditions) of a nature which may cause any material adverse
change in the financial condition, net worth, assets, liabilities, personnel,
prospects or operations (including, without limitation, Strouse Adler's
relationship with suppliers, employees, customers and others) of the Business or
the ability of either Seller to
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<PAGE>
perform this Agreement and the Additional Documents or, to Sellers' knowledge,
the ability of any Stockholder to perform the Additional Documents
(collectively, "Material Adverse Effect").
5.8.2 Certain Events. Except as set forth in Schedule 5.8.2, since
-------------- --------------
June 30, 1997, Strouse Adler has conducted (and from the date hereof through the
Closing, will conduct) the Business only in the ordinary course using its best
efforts to maintain and enhance the Business and, without limiting the
foregoing, neither Seller has (and from the date hereof through the Closing,
neither Seller will have):
(a) created or suffered to exist any Liens or restrictions with
respect to any of the Purchased Assets;
(b) sold, leased to others, licensed to others, disposed of, or
otherwise transferred any of Strouse Adler's assets or properties which, but for
such sale, lease, license, disposal or transfer, would constitute a Purchased
Asset, except for sales of Inventory in the usual and ordinary course of the
Business;
(c) suffered any material loss, or material interruption in use, of
any material asset or property of the Business (whether or not covered by
insurance) on account of fire, flood, riot, strike or other hazard or Act of
God;
(d) purchased, called, redeemed or otherwise acquired, or declared or
paid any dividends or other distributions on or with respect to, any shares of
capital stock or other securities of either Seller, except that the foregoing
shall not apply to (i) payments made by Strouse Adler to the Company pursuant to
that certain tax sharing agreement between them, (ii) payments of interest or
principal made by Strouse Adler to the Company (which principal and interest
payments will not exceed $500,000.00 from March 3, 1998 to Closing, or (iii)
payments by the Company of dividends on preferred stock of the Company in
accordance with the terms of such preferred stock;
(e) increased, other than in the ordinary course of business
consistent with past practices of Strouse Adler, the compensation, commission,
bonus, or other direct or indirect remuneration (or the rate thereof) payable or
to become payable to any officers, employees, directors or agents of the
Business or adopted any Employee Plan or Labor Agreement or amended any Employee
Plan or Labor Agreement to increase remuneration or other benefits payable
thereunder;
(f) made any material change in the conduct or nature of any aspect
of the Business whether made in the ordinary course of business or not and
whether or not the change had a Material Adverse Effect;
(g) waived any material rights relating to the Business or arising
under or in connection with any of the Purchased Assets;
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<PAGE>
(h) acquired any assets or properties other than in the ordinary
course of the Business;
(i) entered into any merger, consolidation, recapitalization, or
other business combination or reorganization, except, in the case of the
Company, the merger of ASI Sub, Inc. into the Company or a Permitted Company
Transaction;
(j) made any loans, advances or capital contributions to or
investments in any person or entity, except that the foregoing shall not
prohibit the Company from doing any of the foregoing so long as the Company is
in full compliance with the other provisions of this Section 5.8.2 and of this
Agreement before and after such action;
(k) induced any key employee of Strouse Adler to leave his or her
employment, or acted to otherwise adversely affect the relations of Strouse
Adler with any key employee;
(l) accelerated collection of receivables, prepaid or accelerated
payment of Indebtedness for Borrowed Funds, delayed payment of payables in a
manner inconsistent with past practices, changed credit practices or done
anything to materially and adversely affect the relationship of Strouse Adler to
any of its customers or suppliers;
(m) failed to replenish its inventories and supplies in a normal and
customary manner consistent with its prior practice and any prudent business
practices prevailing in the industry, or made any purchase commitment in excess
of the normal ordinary and usual requirements of the Business or at any price in
excess of the then- current market price or upon terms and conditions more
onerous than those usual and customary in the industry or made any change in its
selling, pricing, advertising or personnel practices inconsistent with its prior
practice and prudent business practices prevailing in the industry;
(n) made any change in any method of accounting or accounting
practice, except as may be required by law and after written notice to
Purchaser;
(o) discharged or satisfied any Lien other than those then required
to be discharged or satisfied, or paid any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, other than
current liabilities for trade or business obligations shown on the Balance Sheet
and current liabilities for trade or business obligations incurred since the
date of the Balance Sheet in the ordinary course of the Business and consistent
with prior practices;
(p) entered into any transaction, agreement, contract or
understanding with any Related Party affecting the Business other than in the
ordinary course of business or
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<PAGE>
altered the terms of any transaction, agreement, contract or understanding with
any Related Party;
(q) taken any action or omitted to take any action which action or
omission could dilute, reduce or adversely affect the aggregate voting power or
rights, on a Fully-Diluted Basis, of the shares of capital stock held of record
or owned beneficially by the Stockholders as of the date hereof;
(r) without limiting the foregoing, entered into any material
transaction (except as contemplated by this Agreement) affecting any of the
Purchased Assets or the Business, operations, prospects or financial condition
of either Seller, other than in the usual and ordinary course of business; or
(s) except for this Agreement, entered into any oral or written
agreement, contract, commitment, arrangement or understanding with respect to
any of the matters described in clauses (a) through (r) above.
5.9 Compliance with Laws.
--------------------
5.9.1 General. Except as set forth in Schedule 5.9.1, Strouse Adler
--------------
is not and has not been in violation of, and the Business has been and is being
conducted in accordance with, all federal, state, municipal, foreign and other
laws, regulations, orders and other legal requirements applicable thereto
(including, without limitation, laws and regulations relating to occupational
health and safety, equal employment opportunities, fair employment practices and
the environment) (collectively, "Rules"), the failure to comply with which could
have a Material Adverse Effect, and neither Seller has knowledge or reason to
know of, nor has either Seller received notice of, any violation or alleged
violation by either Seller of any Rule or that either Seller is in default with
respect to any order, judgment, award, injunction or decree of any court or
Governmental Authority or arbitrator, applicable, in any such case, to either
Seller, the Business or any of the Purchased Assets.
5.9.2 Hazardous Substances. Without limiting Section 5.9.1, and
--------------------
notwithstanding any matters disclosed in Schedule 5.9.2:
--------------
(a) Strouse Adler has been at all times and is in compliance with the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorizing Act of 1986, the Federal Water Pollution Control
Act, the Clean Air Act, as amended, and all other applicable federal, state and
local laws relating to pollution or protection of public health, welfare and the
environment, including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of toxic or hazardous substances or
hazardous wastes or other pollutants, contaminants, petroleum products or
chemicals (collectively, "Hazardous Substances") into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or
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<PAGE>
sub-surface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances (collectively the "Environmental Laws").
(b) Strouse Adler has obtained and is in compliance with all permits,
licenses and other authorizations which it is required to obtain and maintain
with respect to the operation of the Business under the Environmental Laws, all
of which are listed in Schedule 5.9.2, including, without limitation, those
--------------
which are required of Strouse Adler (i) to operate or install any equipment or
facilities operated or installed by Strouse Adler, and (ii) to generate, store,
handle, transport, discharge, emit or dispose of Hazardous Substances used or
generated by the Business and its assets (the "Environmental Permits"), and a
true and complete list of such Environmental Permits is set forth in Schedule
--------
5.9.2 hereto.
- -----
(c) There are no polychlorinated biphenyls or asbestos generated,
treated, stored, disposed of, or otherwise deposited in or located on any of the
Leased Real Property and there are no above ground or underground storage tanks
located on any of the Leased Real Property, except as shown on Schedule 5.9.2
--------------
hereto.
(d) There has been no "release" pursuant to the Environmental Laws,
including but not limited to 42 U.S.C. Section 9603(a) or 40 C.F.R. Section 264,
Subpart F or, from or under any of the Leased Real Property or any other
property from which the Business has been or is being conducted.
(e) Neither Seller has received any notice or other information that
it has any potential liability with respect to the cleanup of any site at which
Hazardous Substances have been generated, treated, stored, discharged, emitted
or disposed of, and there are no past or present events, conditions or
circumstances which may interfere with or prevent compliance or continued
compliance by Strouse Adler, or by Purchaser conducting, after the Closing, the
Business in a manner similar to that of Strouse Adler in accordance with
applicable current Environmental Laws or with any order, decree, judgment,
injunction, notice or demand issued, entered, promulgated or approved
thereunder, or which may give rise to any common law or other legal liability,
including, without limitation, liability under any current Environmental Laws or
which otherwise form the basis under the current law of any meritorious claim,
action, demand, suit, proceeding, hearing, notice of violation or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, of Hazardous Substances by
either Seller or as a result of any act or omission of either Seller.
(f) Strouse Adler has made available, and Purchaser has had access
to, a materially correct summary of all available information on Hazardous
Substances used by Strouse Adler in the conduct of the Business.
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<PAGE>
(g) Strouse Adler's current and past disposal practices are in
compliance with all applicable Environmental Laws.
(h) All environmental assessment or impact reports on the Leased Real
Property done for or on behalf of or received by Strouse Adler within the last
five years of the date of this Agreement are listed on Schedule 5.9.2 hereto.
--------------
5.10 Taxes. Each Seller has properly completed and filed on a timely basis
-----
and in correct form all tax returns (federal, provincial, state, county, local
and other) relating to all excise, payroll, real estate, capital stock,
intangible, value-added, income, sales, use, service, employment, property and,
without limitation of the foregoing, all other taxes of every kind and nature
which such Seller has been required to file. No claim with respect to the
Business or the Purchased Assets has ever been made by an authority in a
jurisdiction where Sellers do not file Tax returns that either Seller is or may
be subject to taxation by that jurisdiction. All taxes of the type herein
referred to (whether or not requiring the filing of returns), including all
deficiency assessments, additions to tax, penalties and interest (collectively,
"Taxes"), have been paid to the extent due or are being contested in the manner
permitted by applicable law, and to the extent not due or not paid because of
such contest, have been properly accrued on such Seller's books and records and
segregated to the extent required by sound accounting practice. No federal,
provincial, state, county, local or other Tax return of either Seller is being
audited. Neither Seller has received any notice of and neither Seller has any
knowledge or reason to know of any tax deficiency proposed or threatened against
either Seller. No Tax Liens exist (or at any time could exist) on or as to any
of the Purchased Assets on account of any Taxes due or to become due at any time
from either Seller.
5.11 Undisclosed Liabilities. Strouse Adler has no obligation or
-----------------------
liability, absolute or contingent, known or unknown, liquidated or unliquidated,
whether due or to become due and regardless of when or by whom asserted, not
shown or provided for in the Balance Sheet, except for (i) liabilities which are
immaterial (individually and in the aggregate) to the Business, its financial
condition, net worth, assets, liabilities, personnel, prospects or operations,
and arose in the ordinary course of business, (ii) the Transaction Expenses,
(iii) current liabilities incurred in the usual and ordinary course of business
subsequent to December 31, 1997, and (iv) liabilities comprising Assumed
Liabilities. As of the Closing Date, Strouse Adler shall have no obligation or
liability, absolute or contingent, known or unknown, not shown or provided for
in the Closing Date Balance Sheet, except for the Transaction Expenses, and
except for liabilities under the executory portion of any Contract by which
Strouse Adler is bound on the Closing Date and (a) which was made in the usual
and ordinary course of business of Strouse Adler, (b) which is part of the
Purchased Assets assigned to Purchaser pursuant to this Agreement, (c) which, if
required by this Agreement, is disclosed in a Schedule hereto, and (d) the
existence of which does not otherwise constitute or result from a breach of any
representation, warranty or covenant of this Agreement.
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<PAGE>
5.12 Title to Assets. Strouse Adler has good and marketable title to all
---------------
of the Purchased Assets, in each case free and clear of all Liens except Liens
set forth in Schedule 5.12. Upon transfer of the Purchased Assets to Purchaser
-------------
at Closing, Purchaser will have good and marketable title to all of the
Purchased Assets, free and clear of all Liens other than Permitted Liens.
5.13 Leased Real Property. Strouse Adler owns no real property. Schedule
-------------------- --------
5.13 sets forth a true and complete list of all real property leased or
- ----
subleased by Strouse Adler (the "Leased Real Property"), including
identification of the lease or sublease, street address and list of contracts,
agreements, leases, subleases, options and commitments, oral or written,
affecting such real estate or any interest therein to which Strouse Adler is a
party or by which any of its interests in real property is bound (the "Real
Property Leases"). Strouse Adler is in peaceable possession of the Leased Real
Property and has performed all obligations required to be performed by it under
each Real Property Lease which is a Purchased Asset and has performed in all
material respects all obligations required to be performed by it under any other
Real Property Leases. Except as disclosed on Schedule 5.13, neither the Real
-------------
Property Leases nor the leasehold interest of Strouse Adler with respect to the
Leased Real Property is subject to any Liens which have arisen out of any action
or omission taken by Strouse Adler; and none of such Leased Real Property is
subject to any easements, rights of way, licenses, grants, building or use
restrictions, exceptions, reservations, limitations or other impediments which
materially and adversely affect the value to Strouse Adler of the leasehold
interest therein or which materially interfere with or impair the present and
continued use thereof in the usual and normal conduct of the Business as
presently conducted.
5.14 Structural Defects. To the best knowledge of Sellers, except as set
------------------
forth in Schedule 5.14, there are no structural or other material physical
-------------
defects or deficiencies in the condition of any Leased Real Property or
improvements thereon, or in any portion of any of the foregoing, which have not
been corrected.
5.15 Equipment. Except for Equipment which has been fully depreciated on
---------
the Balance Sheet, the Equipment is (and will be as of the Closing) in working
condition and repair, ordinary wear, tear and maintenance excepted. Other than
property subject to the Personal Property Leases, Strouse Adler does not hold or
use any machinery, equipment, inventory, motor vehicles, furniture, fixtures, or
other tangible personal property in the Business which is owned by any person or
entity, other than Strouse Adler. All Equipment comprising part of the Purchased
Assets is (and will be as of the Closing) physically located as set forth on
Schedule 5.15. No Equipment (other than a motor vehicle) has been removed from
- -------------
the Leased Real Property since December 31, 1997. Strouse Adler owns no motor
vehicles or other Equipment for which a certificate of title or origin is
required in order to transfer title to Purchaser.
5.16 Personal Property Leases. Set forth in Schedule 5.16 is a true and
------------------------
complete list of all Personal Property Leases. Strouse Adler is not in default
with respect to any Personal
A-21
<PAGE>
Property Lease, and no event has occurred which constitutes, or with due notice
or lapse of time or both may constitute, a default by Strouse Adler under any
such Personal Property Lease. Schedule 5.16 sets forth all of the accrued and
-------------
unpaid obligations and other liabilities of Strouse Adler on or with respect to
any of such Personal Property Leases through the date hereof.
5.17 Inventory. All items of Inventory reflected on the Balance
---------
Sheet, or acquired by Strouse Adler after the date thereof and prior to the
Closing, (i) are (and will be) of a quality and quantity useable or saleable in
the ordinary course of business and are (and will be) of a quantity sufficient
to enable Purchaser to carry on the Business as currently conducted, (ii) are
(and will be) carried at amounts which reflect valuations pursuant to Strouse
Adler's normal inventory valuation policy of stating the inventory at the lower
of cost or market on a first-in-first-out basis, all in accordance with GAAP,
and (iii) do not include any obsolete or defective materials or any inventory
items which should be written-off or written-down by Strouse Adler for which
there is not (and will not be) an adequate reserve calculated in accordance with
GAAP.
5.18 Reserve for Returns. Except as set forth in Schedule 5.18, the
------------------- -------------
reserve for returns of Inventory reflected on the Balance Sheet (and to be
reflected on the Closing Date Balance Sheet) is (and will be) adequate and in
accordance with GAAP.
5.19 Intellectual Property. Set forth in Schedule 5.19 is a true and
--------------------- -------------
complete list of all Intellectual Property, which list includes a summary
description of each item and specifies, where applicable, the date granted or
applied for, the expiration date and the correct status thereof. There is no
restriction affecting the use of any of the Intellectual Property by Strouse
Adler, and no license has been granted with respect thereto. Each item of
Intellectual Property is valid and in good standing, is not subject to any
Liens, is not currently being challenged or infringed, is not involved in any
pending or threatened administrative or judicial proceeding, and does not
conflict with any rights of any other person or entity. Each item of
Intellectual Property is freely transferable by Strouse Adler to Purchaser
without the consent of any third party, and the Intellectual Property is
sufficient in all respects to permit the continued lawful conduct by Purchaser
of the Business in the manner now conducted by Strouse Adler, and Strouse Adler
has not violated and is not now violating any of the terms or conditions under
which any Intellectual Property was acquired, obtained or granted. Strouse Adler
is not in default or in violation with respect to any of the Intellectual
Property or the terms or conditions by which such Intellectual Property was
acquired or obtained, and no event has occurred which constitutes, or with due
notice or lapse of time or both may constitute, a default by Strouse Adler under
or a violation of any item of Intellectual Property. None of the products or
operations of Strouse Adler in the conduct of the Business involves any
infringement of any proprietary right of any other person or entity. Neither
Seller has any knowledge or any reason to know of any fact which could give rise
to a claim of infringement by any person or entity relating to the ownership,
licensing or use of the Intellectual Property by Strouse Adler.
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<PAGE>
5.20 Licenses. Set forth in Schedule 5.20 is a true and complete list of
--------
all Licenses, which list includes a summary description of each item and, where
applicable, specifies the date issued, granted or applied for, the expiration
date and current status thereof. Each of the Licenses has been duly obtained, is
valid and in full force and effect, and is not subject to any Liens or any
pending or threatened administrative or judicial proceeding to revoke, cancel or
declare such License invalid in any respect. Each of the Licenses is freely
transferable by Strouse Adler to Purchaser without the consent of any third
party, and is sufficient in all respects to permit the continued lawful conduct
by Purchaser of the Business in the manner now conducted by Strouse Adler.
Strouse Adler is not conducting the Business in a manner which violates any of
the terms or conditions under which any License was granted. Strouse Adler is
not in default or in violation with respect to any of the Licenses, and no event
has occurred which constitutes, or with due notice or lapse of time or both may
constitute, a default by Strouse Adler under or violation of any License.
Strouse Adler does not possess and is not subject to any quotas relating to the
export of its products.
5.21 Sale and Purchase Contracts. Set forth in Schedule 5.21 is a
description of all Sale and Purchase Contracts between Strouse Adler and any
party relating to the sale or purchase by Strouse Adler of any product
purchased, sold or distributed by Strouse Adler pursuant to which Strouse Adler
incurs liabilities or obligations to purchase or sell (whether by payment or
delivery of goods or services), individually or in the aggregate, of more than
$50,000.00 in any year. Since December 31, 1997, except for "close outs" and
participation in customers' sales promotions which occur in the ordinary course
of business, Strouse Adler has not offered to any person or entity and Sellers
have no knowledge (or reason to know) of any person or entity entitled to claim
any cash discount, profit participation, stock adjustment, or other rebate or
premium in excess of $25,000.00, individually or in the aggregate for any one or
more persons or entities, in connection with or on account of the purchase or
sale of products of Strouse Adler.
5.22 Contracts. Set forth in Schedule 5.22 is a description of each
--------- -------------
Contract to which Strouse Adler is a party or bound thereby, other than those
contracts set forth in another Schedule to this Agreement, (i) which involves
aggregate payments or expenditures by Strouse Adler of in excess of $25,000, but
excluding Sale and Purchase Contracts, Personal Property Leases, Real Property
Leases and Licenses; (ii) which cannot be terminated by Strouse Adler at any
time on 30 days' written notice or less without liability to Strouse Adler;
(iii) for the purchase, sale, lease (as lessee or lessor), or mortgage (as
mortgagee or mortgagor), of any Purchased Assets, except with respect to sales
of Inventory made in the ordinary course of business; (iv) with any Related
Party; (v) which limits or restrains Strouse Adler from engaging or competing in
any business or with any person or entity; (vi) which involves any arrangement
relating to the borrowing or loaning of money, including, without limitation,
letters of credit, warranties, guarantees, indemnification and surety
agreements; (vii) which is not made in the ordinary course of the Business;
(viii) for the purchase of property which, if acquired as of the Closing Date,
would be a Purchased Asset and, contracts for the sale of property which, if
consummated prior to the Closing Date, would be a Purchased Asset (other than
Inventory sold
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<PAGE>
in the ordinary course); (ix) the benefits of which are contingent or
accelerated, or the terms of which are materially altered, by the occurrence of
the transactions contemplated by this Agreement or the Additional Documents; and
(x) pursuant to which services (other than routine professional services) are
rendered by or to Strouse Adler. Schedule 5.22 also set forth all other
-------------
material Contracts to which Strouse Adler is a party or bound.
All Contracts are valid and binding upon Strouse Adler and enforceable against
the other parties thereto in accordance with their respective terms. Strouse
Adler has performed all obligations required to be performed by it under all
Contracts which are Purchased Assets and has performed in all material respect
all obligations required to be performed by it under all other Contracts.
Strouse Adler is not in default under any of such Contracts, nor to the best
knowledge of Sellers is any other party to any such Contract in default
thereunder, nor does any condition exist which, with notice or lapse of time or
both, would constitute a default by Strouse Adler, or, to the best knowledge of
Sellers, by any other party thereunder. Without limiting the foregoing, Strouse
Adler is not a party or subject to any Contract which materially and adversely
affects or, so far as Sellers can now foresee, may in the future materially and
adversely affect Strouse Adler, its Business, the Purchased Assets or the
prospects or financial condition of Strouse Adler's Business. Schedule 5.22
-------------
further sets forth all such Contracts currently in negotiation or proposed by
Strouse Adler, of a type which, if entered into by Strouse Adler, would be
required to be listed in Schedule 5.22 or in any other Schedule.
-------------
5.23 Litigation. Except as set forth in Schedule 5.23, which contains a
---------- -------------
list and summary description of certain pending actions, suits, proceedings and
investigations, there are no claims, actions, suits, proceedings, labor disputes
or investigations pending or, to the best knowledge of each Seller, threatened,
before any court or Governmental Authority, or before any arbitrator of any
nature, brought by or against either Seller, or any of its officers, directors,
employees or agents involving, affecting or relating to any of the Purchased
Assets, the Business, or the transactions contemplated by this Agreement or the
Additional Documents, nor to the best knowledge of each Seller, is there any
basis for any such action, suit, proceeding or investigation. Neither Sellers,
the Business nor any Purchased Asset is subject to any order, writ, judgment,
award, injunction or decree of any court or Governmental Authority or
arbitrator, which affects or which, to the best knowledge of each Seller, might
affect either Seller, any of the Purchased Assets or the Business, or which
would or might interfere with the transactions contemplated by this Agreement or
the Additional Documents.
5.24 Consents. Except for consents and approvals of, or filings or
--------
registrations with the Federal Trade Commission ("FTC") and Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"), the Securities and Exchange Commission ("Commission") pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
parties listed on Schedule 5.24, no notice to and no permit, authorization,
-------------
consent or approval of any federal, state, local, foreign or other
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<PAGE>
governmental or regulatory authority ("Governmental Authority") or of any third
party is necessary for the consummation by either Seller of the transactions
contemplated by this Agreement or the Additional Documents.
5.25 Employee Plans.
--------------
5.25.1 Identification. Set forth in Schedule 5.25 is a true and
-------------- -------------
complete list and summary description of all bonus, pension, stock option, stock
purchase, benefit, welfare, profit sharing, retirement, disability, vacation,
severance, hospitalization, insurance, incentive, deferred compensation and
other similar fringe or employee benefit plans, funds, programs or arrangements,
and all employment contracts or executive compensation agreements, written or
oral, in each of the foregoing cases which cover, are maintained for the benefit
of, or relate to any or all employees of Strouse Adler or any member of its
controlled group (the "Controlled Entities") as described in Sections 414(b),
(c), (m), and (o) of the Code (the "Employee Plans"). Set forth in Schedule 5.25
-------------
is a true and complete list of all manuals, brochures or publications or similar
documents of Strouse Adler and each Controlled Entity regarding office
administration, personnel matters and hiring, evaluation, supervision, training,
termination and promotion of employees of Strouse Adler or any Controlled
Entity, including but not limited to Strouse Adler's or any Controlled Entity's
affirmative action plan, if any, and all communications to employees concerning
such matters (the "Personnel Documents").
5.25.2 Documentation. With respect to each Employee Plan, Sellers
-------------
have made available to Purchaser true and complete copies of (i) all plan
documents, (ii) the most recent determination letters received from the IRS,
(iii) the most recent application for determination filed with the IRS, (iv) the
latest actuarial valuations, (v) the latest financial statements, (vi) the
latest Form 5500 Annual Report and Schedule A and Schedule B thereto, (vii) all
related trust agreements, insurance contracts or other funding arrangements
which implement any of such Employee Plans, and (viii) all Summary Plan
Descriptions and summaries of material modifications and all modifications
thereto communicated to employees. Strouse Adler has no stock options or stock
appreciation rights issued under any Employee Plan. With respect to each
Personnel Document, Sellers have furnished to Purchaser true and complete copies
of all the documents listed in Schedule 5.25.
-------------
5.25.3 Code and ERISA. Each of the Employee Plans and, with respect
--------------
to each Employee Plan, Strouse Adler and each Controlled Entity is in material
compliance, in form and operation, with the requirements provided by any and all
statutes, orders or governmental rules or regulations currently in effect,
including, but not limited to, ERISA and the Code, and applicable to such
Employee Plans.
5.25.4 Contributions and Accrual. With respect to the Employee Plans,
-------------------------
all applicable contributions for all periods ending prior to Closing have been
made in full. Subject only to normal retrospective adjustments in the ordinary
course, all insurance premiums, including premiums to the Pension Benefit
Guaranty Corporation (the "PBGC"), have been paid
A-25
<PAGE>
in full with regard to such Employee Plan for policy years or other applicable
policy periods ending on or before Closing. As of Closing, none of the Employee
Plans has unfunded benefit liabilities, as defined in Section 4001(a)(16) of
ERISA. No accumulated funding deficiency within the meaning of Section 302 of
ERISA or Section 412 of the Code has been incurred with respect to any Employee
Plan, whether or not waived.
5.25.5 Reportable Events. None of the Employee Plans which are
-----------------
subject to Title IV of ERISA has been completely or partially terminated and
none has been the subject of a "reportable event" as that term is defined in
Section 4043 of ERISA as to which a notice would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate any Employee Plan pursuant to
Subtitle 1 of Title IV of ERISA has been instituted or threatened, there is no
pending or threatened legal action, proceeding or investigation against or
involving any Employee Plan and there is no basis for any such legal action,
proceeding or investigation. Neither Strouse Adler nor any Controlled Entity has
any liability (i) for the termination of any single-employer plan under Section
4062 of ERISA, (ii) for any lien imposed under Section 302(f) of ERISA or
Section 412(n) of the Code, (iii) for any interest payments required under
Section 302(e) of ERISA or Section 412(m) of the Code, (iv) for any excise tax
imposed by Section 4971 of the Code, (v) for any minimum funding contributions
under Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code, or (vi) to
provide security pursuant to Section 307 of ERISA or Section 401(a)(29) of the
Code. None of the Employee Plans provides for any unpredictable contingent event
benefit (as that term is defined in Section 302(d)(7)(B) of ERISA or Section
412(l)(7)(B) of the Code).
5.25.6 Termination Benefits. Neither Strouse Adler nor any Controlled
--------------------
Entity maintains, contributes to, or has any liability (fixed, contingent or
otherwise) for medical, health, life, or other welfare benefits for present or
future terminated employees (other than any welfare benefits provided in
compliance with the Consolidated Omnibus Budget Reconciliation Act of 1985 or
other similar law). Strouse Adler and each Controlled Entity are in compliance
with Section 4980B of the Code (or Section 162 of the Code, as in effect prior
to the effective date of Section 4980B of the Code).
5.25.7 Withdrawal Liability. Except as set forth in Schedule 5.25,
-------------------- -------------
none of the Employee Plans is a multiemployer plan as defined in Section 3(37)
or Section 4001(a)(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 414(f) of the Code (a "Multiemployer Plan").
Neither Strouse Adler nor any Controlled Entity has incurred or expects to incur
any withdrawal liability (either as a contributing employer or as part of a
controlled group which includes a contributing employer) to any Multiemployer
Plan in connection with any complete or partial withdrawal from such plan
occurring on or before the Closing, except as set forth in Schedule 5.25.
Sellers have provided Purchaser with all necessary documents for Purchaser to
determine Strouse Adler's withdrawal liability, including but not limited to any
guidelines established by the trustees of such plans.
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<PAGE>
5.25.8 Employee Plan Grievances. With respect to each Employee Plan
------------------------
that is not a Multiemployer Plan and to the best knowledge of the Sellers, with
respect to each Employee Plan that is a Multiemployer Plan (i) no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code have
occurred, (ii) no action, suit, grievance, arbitration or other manner of
litigation, or claim with respect to the assets thereof (other than routine
claims for benefits made in the ordinary course of plan administration for which
plan administrative review procedures have not been exhausted) are pending,
threatened or imminent against or with respect to any of the Employee Plans,
Strouse Adler, any Controlled Entity, or any fiduciary, as such term is defined
in Section 3(21) of ERISA ("Fiduciary"), of any Employee Plan, including but not
limited to any action, suit, grievance, arbitration or other manner of
litigation, or claim regarding conduct which allegedly interferes with the
attainment of rights under any Employee Plan, and (iii) none of Strouse Adler,
the Controlled Entities, or the Fiduciaries has any knowledge of any facts which
would give rise to or could give rise to any such actions, suits, grievances,
arbitration or other manner of litigation, or claims with respect to each
Employee Plan. None of Strouse Adler, the Controlled Entities, or their
directors, officers, or employees, or the Fiduciaries has any liability for
failure to comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of such plans.
5.26 Labor and Employee Matters.
--------------------------
5.26.1 Labor Agreements. Strouse Adler is not a party to any
----------------
collective bargaining agreement or any other agreement with any labor
organization applicable to employees of or persons or entities providing
services to Strouse Adler (a "Labor Agreement"). Except as set forth in Schedule
--------
5.23 or 5.26, no unfair labor practice charges or complaints are pending or, to
- ---- ----
Sellers' knowledge, threatened against Strouse Adler before the National Labor
Relations Board, no similar claims are pending or threatened before any similar
foreign agency and no current union representation questions involving employees
of or persons or entities providing services to Strouse Adler are outstanding.
To Sellers' knowledge, no activity or proceeding of any labor organization (or
representative thereof) to organize any unorganized employees of or persons or
entities providing services to Strouse Adler, and no strike, slowdown, work
stoppage, lockout or other collective labor action by or with respect to any
employees of or persons or entities providing services to Strouse Adler is in
progress, is pending or has been threatened.
5.26.2 Labor/Employment Controversies. Except as set forth in
------------------------------
Schedule 5.23 or Schedule 5.26, no present or former employee of Strouse Adler
- ------------- -------------
has a pending claim or charge which has been asserted or threatened against
Strouse Adler (whether under any foreign, federal, state or common law, through
a government agency, private arbitral body, or otherwise) for (i) overtime pay,
other than overtime pay for the current period; (ii) wages, salaries or profit
sharing (excluding wages, salaries or profit sharing for the current payroll
period); (iii) any material violation of any statute, ordinance, contract or
regulation relating to minimum wages or maximum hours or work; (iv)
discrimination against employees on any basis; (v) unlawful or
A-27
<PAGE>
wrongful employment or termination practices; (vi) unlawful retirement,
termination or labor relations practices, breach of contract or other claim
arising under a Labor Agreement or individual contract; or (vii) any violation
of occupational safety or health standards.
5.26.3 Employee Matters.
----------------
(a) Except as set forth in Schedule 5.26, there are no agreements,
-------------
arrangements or understandings that would restrict the ability of Strouse Adler
to terminate the employment of any or all of Strouse Adler's employees at any
time, for any lawful reason or for no reason, without penalty or liability.
(b) Set forth in Schedule 5.26 is the name, past twelve months'
-------------
salary and most recent bonus of each salaried and hourly employee of Strouse
Adler.
(c) Except as set forth on the Closing Date Balance Sheet, no
employee of Strouse Adler is, or will be as of the Closing Date, entitled to
accrued vacation.
5.27 Customers and Suppliers. Set forth in Schedule 5.27 is a list of (a)
----------------------- -------------
all of the current customers of Strouse Adler, (b) customers of Strouse Adler
from 1996 or 1997 who are no longer customers, and (c) current suppliers of
Strouse Adler which have sold $10,000 or more of goods or services to Strouse
Adler during the past twelve months and a designation as to which suppliers
supply Strouse Adler with the textiles used in the manufacture of products in
the Business. Except as set forth on Schedule 5.27, (i) no material customer or
-------------
supplier of Strouse Adler has threatened within the last twelve months to cancel
or otherwise terminate, or to the knowledge of Sellers, intends to cancel or
otherwise terminate, the relationship of such person or entity with Strouse
Adler, (ii) no such person or entity has during the last twelve months decreased
materially or threatened in writing to decrease or limit materially, or to the
knowledge of Sellers, intends to modify materially its relationship with Strouse
Adler or intends to decrease or limit materially its services or supplies to
Strouse Adler or its usage or purchase of services or products of Strouse Adler,
and (iii) to the knowledge of Sellers, the purchase of the Business by Purchaser
will not materially and adversely affect the relationship of the Business with
any material supplier or customer.
5.28 Insurance. Strouse Adler owns insurance sufficient for compliance
---------
with all requirements of law and all agreements to which Strouse Alder is a
party or otherwise bound, and which provides insurance coverage for Strouse
Adler, the Business, and the Purchased Assets which is consistent with that of
other companies with similar assets and operations and engaged in similar
businesses. Strouse Adler has not received any notice of cancellation or non-
renewal of any such policy. Except as set forth in Schedule 5.28, Strouse Adler
-------------
has not received any notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or that any
insurance coverage listed in Schedule 5.28 will not be available to Strouse
-------------
Adler in the future on substantially the same terms as now in effect. Strouse
Adler has delivered to Purchaser true and complete copies of the most recent
reports
A-28
<PAGE>
prepared by any property and casualty insurer with respect to Strouse Adler or
any of the Purchased Assets.
5.29 Effect of Transaction. The Purchased Assets constitute all of the
---------------------
assets and properties, tangible and intangible (other than Excluded Assets),
which are used (whether or not owned) by Strouse Adler in the operation of the
Business or which are necessary for the operation of the Business in the
ordinary course and at the sales levels at which the Business is operating and
has operated during Strouse Adler's 1997 and 1998 fiscal years.
5.30 Transactions with Related Parties. For purposes of this Agreement,
---------------------------------
the term "Related Party" shall mean (i) any past or present director, officer,
executive or management level employee, Stockholder or Affiliate of either
Seller, or (ii) spouse of any such director, officer, executive or management
level employee, Stockholder or Affiliate (such persons in (i) or (ii) referred
to herein as a "Related Party" or collectively as the "Related Parties"). Except
as set forth in Schedule 5.30, during the past three years no Related Party has
-------------
been a director or officer of, or has had any direct or indirect interest in,
any person or entity, which during such period has been a supplier or customer
of products or services or sales agent of Strouse Adler or otherwise done
business with Strouse Alder, or has competed with or been engaged in any
business similar to the Business. Except as set forth in Schedule 5.30 or in the
-------------
footnotes to the Audited Financial Statements, no Related Party owns, directly
or indirectly, in whole or in part, any tangible or intangible property of
Strouse Adler, or that Strouse Adler uses in the conduct of the Business. Except
as set forth in Schedule 5.30, no Related Party owes any money or other amounts
-------------
to, nor is any Related Party owed any money or other amounts by, Strouse Adler
other than salaries owed by Strouse Adler as described in the following
sentence. All Indebtedness for Borrowed Funds of Strouse Adler to any Related
Party is set forth on the Balance Sheet, and since December 31, 1997, Strouse
Adler has not directly or indirectly (i) created, incurred, assumed or
guaranteed any Indebtedness for Borrowed Funds or otherwise to or for any
Related Party, or (ii) made any loans, payments or transfers of its assets to
any Related Party other than for salaries paid for services actually performed
in amounts in keeping with past practice and in the ordinary course of business
and not in violation of any other provision of this Agreement, other than as
permitted by Section 5.8.2(d), and other than as set forth on Schedule 5.30.
-------------
5.31 Bank Accounts, Etc. Schedule 5.31 sets forth a true and complete list
------------------- -------------
of each bank in or with which Strouse Adler has an account, credit line or
safety deposit box, and a brief description thereof including amounts and the
names of all persons currently authorized to draw thereon or having access
thereto.
5.32 Name. Strouse Adler has never operated during the past five years
----
under any corporate name other than "Strouse Adler" and "The Strouse, Adler
Company".
5.33 Reports. The Company has filed all forms, reports and documents
-------
required under Section 13(a) under the Exchange Act with the Commission since
June 30, 1996, and none
A-29
<PAGE>
of such forms, reports or documents, including without limitation any financial
statements or schedules included therein, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
5.34 Brokers. No agent, broker, investment banker, financial advisor or
-------
other person or entity is or will be entitled to any brokerage commission,
finder's fee or like payment in connection with any of the transactions
contemplated by this Agreement based upon such arrangements made by or on behalf
of either Seller, except Peter J. Solomon Company Limited whose compensation
shall be the sole responsibility of Sellers.
5.35 Information Supplied. None of the information supplied or to be
--------------------
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Stockholders Meeting, 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 the light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied in writing by or
on behalf of Purchaser specifically for inclusion therein.
5.36 Opinion of Financial Advisor. The Company has received the opinion of
----------------------------
Peter J. Solomon Company Limited to the effect that, as of such date, the
Purchase Price and other terms of this Agreement are fair to Strouse Adler and
the Company from a financial point of view.
5.37 Company Board Recommendation. The Board of Directors of the Company,
----------------------------
and in the case of clause (i), the Board of Directors of Strouse Adler, at a
meeting duly called and held, has duly (i) determined that this Agreement, the
Additional Documents and the transactions contemplated hereby and thereby,
including the Purchase Price, are fair to and in the best interests of the
stockholders of the Company, (ii) resolved to recommend that the holders of the
Company's outstanding capital stock approve this Agreement and the transactions
contemplated herein, and (iii) resolved to approve this Agreement and the
transactions contemplated hereby in its capacity as the sole stockholder of
Strouse Adler. No "fair price," "moratorium," "control share acquisition" or
other similar antitakeover statute or regulation enacted under state or federal
laws in the United States applicable to the Company is applicable to the
transactions contemplated hereby, the Additional Documents or the transactions
contemplated thereby. The Board of Directors of the Company has taken all
appropriate action to render the restrictions on business combinations contained
in Section 203 of the DGCL inapplicable to this Agreement, the Additional
Documents and the consummation of the transactions contemplated hereunder and
thereunder.
A-30
<PAGE>
5.38 Required Company Vote. The affirmative vote of at least 50% plus one
---------------------
share of the outstanding shares of the Company's capital stock, voting as a
single class, is the only vote of the holders of any class or series of the
Company's securities necessary to approve this Agreement, the Additional
Documents and the other transactions contemplated hereby and thereby.
5.39 Rights Agreement. The Company has no "Rights Agreement" or similar
----------------
instruments or plans which will be triggered on account of the execution of this
Agreement by Sellers or the Additional Documents.
5.40 Year 2000 Compliance. Except as set forth on Schedule 5.40, all of
-------------------- -------------
Sellers' computer systems are fully "Year 2000 Compliant," i.e., no hardware or
software on such systems will have to be modified, implemented or enhanced in
order for such system to function as correctly and efficiently for periods after
December 31, 1999 as they have functioned to date.
5.41 Accuracy of Information. None of the representations, warranties or
-----------------------
statements contained in this Agreement, in the Schedules or Exhibits hereto, or
in any of the Additional Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make any of such representations, warranties or
statements, in the context in which made, not false or misleading. Copies of all
documents furnished by or on behalf of Sellers to Purchaser or its
representatives in connection with or pursuant to the terms of this Agreement
and the Additional Documents are complete and accurate. All documents (or copies
thereof) referred to in the Schedules or Exhibits hereto have been delivered to
Purchaser. All financial projections provided by Sellers to Sara Lee were
prepared by Sellers in good faith based upon reasonable assumptions; and
although Sellers do not guarantee the results of these projections, all such
projections are reasonable and reflect Sellers' best estimate of the financial
results reflected therein. All facts set forth in the Recitals are true and
correct.
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
- ------------------------------------------------------
represents, warrants and covenants to Sellers as follows:
6.1 Corporate Organization. Sara Lee is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of Maryland,
and has all requisite power and authority (corporate and other) to own, lease
and operate its properties and assets and to conduct its business as now being
conducted. Sara Lee has qualified as a foreign corporation and is in good
standing under the laws of all jurisdictions where the nature of its business or
the nature and location of its assets require such qualification, except in
those jurisdictions where the failure to qualify would not have a material
adverse effect on the financial condition, business, assets or operations of
Sara Lee and its consolidated subsidiaries, taken as a whole.
A-31
<PAGE>
6.2 Authority. Sara Lee has the corporate power and authority to enter
---------
into this Agreement and the Additional Documents and to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Additional Documents and the performance by Sara Lee of its
obligations hereunder and thereunder require authorization by the Board of
Directors of Sara Lee, and no other corporate proceedings on the part of Sara
Lee are necessary to authorize such execution, delivery and performance. Subject
to obtaining such Board approval, this Agreement and the Additional Documents
will be duly executed by Sara Lee and, assuming the due authorization, execution
and delivery by the Sellers and Stockholders, will be the valid and legally
binding obligations of Sara Lee, enforceable against Sara Lee in accordance with
their terms.
6.3 Absence of Conflicts. Subject to the required authorization by Sara
--------------------
Lee's Board of Directors, the execution, delivery and performance by Sara Lee of
this Agreement and the Additional Documents, and the transactions contemplated
hereby and thereby, do not and will not, conflict with or result in any
violation of, or constitute a breach or default under any term of the charter
documents or by-laws of Sara Lee.
6.4 Consents. Except for consents and approvals of, or filings or
--------
registrations with the FTC and DOJ pursuant to HSR, no notice to and no permit,
authorization, consent or approval of any Governmental Authority or any third
party is necessary for the consummation by Sara Lee of the transactions
contemplated by this Agreement or the Additional Documents.
6.5 Brokers. Sara Lee has not employed any investment banker, broker or
-------
finder in connection with the transactions contemplated hereby.
6.6 Recommendation. If Sara Lee does not have any knowledge, at the time
--------------
of the meeting of its Board of Directors, of the existence of (i) any inaccuracy
in any material respect of any representation and warranty of Sellers in this
Agreement or of Sellers or the Stockholders in the Additional Documents, or (ii)
any failure to comply by Sellers with their covenants in this Agreement or by
Sellers or the Stockholders in the Additional Documents, then (a) Sara Lee will
cause the transactions contemplated hereby to be placed on the agenda for
consideration at Sara Lee's next regularly scheduled meeting of its Board of
Directors (or if a special meeting of the Board of Directors is called prior to
such regularly scheduled meeting, then at such special meeting) and (b) the
management of Sara Lee's intimate apparel division will recommend the approval
by Sara Lee's Board of Directors of the transactions contemplated hereby at such
meeting; provided, however, that nothing in this Section 6.6 constitutes a
representation, warranty or covenant regarding the vote to be taken by the Board
of Directors of Sara Lee regarding the transactions contemplated by this
Agreement.
6.7 Information Supplied. None of the information supplied or to be
--------------------
supplied by Sara Lee for inclusion or incorporation by reference in the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Stockholders Meeting, contain
A-32
<PAGE>
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 the light of the circumstances under which they are made, not
misleading.
ARTICLE VII COVENANTS.
---------
7.1 Conduct of Business of Strouse Adler Prior to the Closing Date. During
--------------------------------------------------------------
the period from the date of this Agreement and continuing through the Closing
Date, Sellers agree that except as expressly contemplated or permitted by this
Agreement or to the extent that Sara Lee shall otherwise consent, Sellers shall
use their best efforts to carry on the Business and their respective affairs in
such a manner so that the representations, warranties and covenants contained in
Article V shall continue to be true and correct throughout such period, and on
and as of the Closing Date as if made by Sellers on the Closing Date, and
throughout such period Strouse Adler shall, except in response to matters which
neither it nor the Company can reasonably control, carry on the Business in the
ordinary course in substantially the same manner as heretofore conducted and use
reasonable best efforts (i) to preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees, (iii) preserve its relationships with customers, suppliers and others
having business dealings with it, and (iv) not do or permit to be done any of
the actions described in Section 5.8.2. Without limiting the generality of the
foregoing, prior to the Closing Date, and except as expressly contemplated or
permitted by Section 7.3 of this Agreement, or required by applicable law,
neither Seller will, without the prior written consent of Sara Lee:
(i) except to the extent expressly permitted by Section 7.3 amend,
modify or repeal the resolutions of the Board of Directors of the Company, the
resolutions of the Company as sole stockholder of Strouse Adler, or the
recommendation of the Board of Directors of the Company to the Company
stockholders that the stockholders adopt resolutions of stockholders of the
Company approving the execution and delivery of this Agreement and the
Additional Documents, the consummation of the transactions contemplated hereby
and thereby and the performance by Sellers of their respective obligations
hereunder and thereunder;
(ii) change its capital structure, pursuant to a reclassification,
exchange, combination, split or otherwise, or issue capital stock, or redeem or
repurchase stock, or take any other action, the effect of which could be to
dilute the aggregate voting power of the Stockholders to a percentage level less
than that which exists on the date of this Agreement;
(iii) cause or declare any dividends or distributions to holders of
capital stock of Strouse Adler other than as permitted by Section 5.8.2(d);
(iv) (a) adopt or amend any Employee Plan, other than to comply with
applicable law or in the ordinary course consistent with past practice, (b)
grant, or become
A-33
<PAGE>
obligated to grant, any increase in the compensation of officers or employees of
Strouse Adler, including any such increase pursuant to any Employee Plan (except
for increases in compensation in the ordinary course of business consistent with
past practice), or (c) enter into any employment or similar agreement or
arrangement with any employee of Strouse Adler or other person or entity; or
(v) enter into any transaction not in the ordinary course of
business, except with respect to the transactions contemplated hereby.
7.2 Preparation of Proxy Statement; Stockholders Meeting.
----------------------------------------------------
7.2.1 Proxy Statement. Promptly following the date of this Agreement,
---------------
the Company shall prepare a proxy statement relating to a meeting of the holders
of the Company's common stock and any other securities having voting rights for
the purpose of obtaining stockholder approval of this Agreement, the Additional
Documents and the transactions contemplated hereby and thereby ("Stockholders
Meeting") pursuant to the DGCL (the "Proxy Statement"), and the Company shall
prepare and file with the Commission the Proxy Statement. Sara Lee will
cooperate with the Company in connection with the preparation of the Proxy
Statement including, but not limited to furnishing to the Company any and all
information regarding Sara Lee and its Affiliates as may be required to be
disclosed therein. The information provided and to be provided by Sara Lee and
the Company, respectively, for use in the Proxy Statement shall, at the date it
is first mailed to the Company's stockholders and on the date of the
Stockholders Meeting referred to below, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make such information not misleading, and the
Company and Sara Lee each agree to correct any information provided by it for
use in the Proxy Statement which shall have become false or misleading.
7.2.2 Comments. The Company will as promptly as practicable notify
--------
Sara Lee of (i) the receipt of any comments from the Commission, and (ii) any
request by the Commission for any amendment to the Proxy Statement or for
additional information. All filings by the Company with the Commission,
including the Proxy Statement and any amendment thereto, and all mailings to the
Company's stockholders in connection with the transactions contemplated by this
Agreement and the Additional Documents, including the Proxy Statement, shall be
subject to the prior review, comment and approval of Sara Lee (such approval not
to be unreasonably withheld or delayed). Sara Lee will furnish to the Company
the information relating to it and its Affiliates required by the Exchange Act
and the rules and regulations promulgated thereunder to be set forth in the
Proxy Statement.
7.2.3 Stockholders Meeting. The Company will: (i) as promptly as
--------------------
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a Stockholders Meeting for the purpose of approving this
Agreement and the transactions contemplated hereby to the extent required by the
DGCL and the Company's Certificate of Incorporation; (ii) through its Board of
Directors, and subject to the other provisions hereof,
A-34
<PAGE>
recommend to its stockholders approval of the foregoing matters; and (iii) use
its reasonable best efforts to obtain the necessary approval of this Agreement
and the transactions contemplated hereby by its stockholders; provided, however,
that, subject to Section 12.4, and, without limiting the Company's obligations
set forth in subclause (i) above (which the Company agrees to fulfill
notwithstanding any other term of this Article 7), the Company may fail to make
or may withdraw or modify such recommendation and shall not be obligated to use
its reasonable best efforts or take any action pursuant to clause (ii) or (iii)
of this Section 7.2.3 if the Company shall have concluded in good faith, after
review of advice provided in writing by outside legal counsel to the Company,
that such actions would be in breach of the Company's Board of Directors'
fiduciary duties under applicable law. Any such recommendation shall be
included in the Proxy Statement.
7.3 Non-Solicitation.
----------------
(a) Neither Seller nor its Affiliates will, and each Seller and its
Affiliates will advise their respective directors, officers, employees,
representatives, investment bankers, attorneys, accountants, advisors and agents
(the foregoing being collectively called "Representatives") to not, directly or
indirectly, encourage, solicit or initiate inquiries or proposals from, or
provide any confidential information to, or participate in any discussions or
negotiations with, any person or entity (other than Sara Lee and its Affiliates
and their respective directors, officers, employees, representatives and agents)
concerning any proposed (i) merger, consolidation, share exchange, business
combination or other similar transaction with Strouse Adler or, except for
Permitted Company Transactions, with the Company, (ii) sale, lease, exchange,
transfer, or other disposition, directly or indirectly, of all or a substantial
portion of the consolidated assets of either or both Sellers, or (iii)
transaction in which any person (whether by itself or as a member of any "group"
(as such term is defined in the Exchange Act)) would acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of, or
the right to acquire beneficial ownership, of 5% or more of the outstanding
voting capital stock of either of the Sellers (all such inquiries and proposals
being referred to herein as "Acquisition Proposals" and any such transaction
being called a "Significant Transaction"), provided, however, that nothing
contained in this Section 7.3 shall prohibit the Company or its Board of
Directors from (A) subject to Section 7.4 below, issuing a press release or
otherwise publicly disclosing the terms of this Agreement; (B) proceeding with
the transactions contemplated by this Agreement; (C) communicating to the
Company's stockholders a position as required by Rule 14e-2 promulgated under
the Exchange Act and any other applicable laws; or (D) disclosing the terms of
this Section 7.3 to the extent required by law; and, provided, further, that the
Board of Directors of the Company may, on behalf of the Company, furnish or
cause to be furnished information and may direct the Company and its
Representatives to furnish information, in each case pursuant to appropriate
confidentiality agreements (which do not limit the Company's disclosure of any
information to Sara Lee), and to participate in discussions or negotiations with
any person or entity concerning any Acquisition Proposal which was not
encouraged, solicited or initiated by either Seller or any of its Affiliates or
any of their respective Representatives, or which did not otherwise result from
a breach of this Section 7.3, if (x) the
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Board of Directors of the Company shall conclude in good faith, only after
receipt of written advice from its financial advisor, that such person or entity
has made a bona fide Acquisition Proposal for a transaction more favorable to
the Company's stockholders from a financial point of view than the transactions
contemplated hereby provided such transaction is not subject to any financing
contingency and is otherwise reasonably probable to be consummated, and (y) in
the opinion of the Board of Directors of the Company, only after receipt of
written advice of outside legal counsel to the Company, the failure to provide
such information or access or to engage in such discussions or negotiations
would cause the Board of Directors of the Company to violate its fiduciary
duties to the Company's stockholders under applicable law (an Acquisition
Proposal which satisfies clauses (x) and (y) being referred to herein as a
"Superior Proposal") (the furnishing of information and/or participation in
discussions or negotiations as permitted by this proviso being collectively
called "Permitted Fiduciary Conduct"). The Company will immediately notify Sara
Lee of the terms of any proposal, discussion, negotiation or inquiry (and will
disclose to Sara Lee any written materials received by either Seller in
connection with such proposal, discussion, negotiation, or inquiry) and the
identity of the party making such proposal or inquiry which it may receive in
respect of any such transaction and will keep Sara Lee apprised of the status of
any such proposals, discussions, negotiations or inquiries. Each Seller agrees
not to release any person or entity from, or waive any provision of, any
standstill agreement to which either Seller is a party or any confidentiality
agreement between either Seller and another person or entity. Each Seller shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations by either Seller or any Representative of either
Seller with parties conducted heretofore with respect to any of the foregoing
and shall use all reasonable efforts to enforce the terms of all standstill and
confidentiality agreements, including, without limitation, obtaining the return
or the destruction of any proprietary information provided to any such parties.
(b) Neither the Board of Directors of either Seller nor any committee
thereof shall, directly or indirectly, (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Sara Lee, the approval or
recommendation by such Board of Directors or any such committee of this
Agreement, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal, or (iii) enter into, or resolve, or agree to enter into,
any agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, the Board of Directors of the Company may withdraw or modify its
approval or recommendation of this Agreement to approve or recommend a Superior
Proposal if and only if (x) the Company shall have furnished Sara Lee with
written notice specifying the material terms and conditions of such Superior
Proposal and identifying the person or entity making such Superior Proposal (and
including a written copy of such proposal) not later than noon (Chicago time)
seven business days in advance of any date that the Board of Directors intends
to take any such action ("Designated Period"), and (y) the Company and its
Representatives have complied in all respects with the terms of the following
sentence. During the Designated Period, the Company shall, and shall cause its
financial and legal advisors, to negotiate in good faith with Sara Lee to make
such amendments to the terms and conditions of this Agreement as would make this
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Agreement as so amended, in the view of its financial advisors, at least as
favorable to the Company's stockholders from a financial point of view as the
Superior Proposal, and if Sara Lee makes a proposal to enter into an agreement
at least as favorable to the Company's stockholders from a financial point of
view as the Superior Proposal, then the Company's Board of Directors shall be
prohibited from withdrawing or modifying its approval or recommendation of this
Agreement, or from approving or recommending such Superior Proposal. The taking
of any Permitted Fiduciary Conduct by the Board of Directors of the Company or
the taking of any conduct or action described in clause (i) or (ii) of this
Section 7.3(b) by either Seller or either Seller's Board of Directors shall not
constitute a breach of this Agreement by such party so long as such conduct or
action is taken in strict compliance with the terms of this Section 7.3, but
this Section 7.3 shall not give any Seller the right to terminate this
Agreement, or engage in any conduct or action described in clause (iii) of this
subsection (b), or otherwise cease performance of its obligations under this
Agreement except pursuant to Article XII.
7.4 Confidentiality; Public Announcements. This Agreement and the terms
-------------------------------------
hereof are confidential and no party or signatory hereto shall disclose any of
the terms of this Agreement, the transaction contemplated hereby or the fact
that the parties are engaged in negotiations, without the prior approval of the
other parties. Sara Lee and Sellers shall consult with each other on the
desirability, timing and substance of any press release or public announcement,
publicity statement or other public disclosure relating to the transaction
contemplated hereby or the fact that negotiations among the parties are being
held. Sara Lee and Sellers each agree not to make any such public disclosures
without the prior consent of the other as to the content and timing of such
disclosure; provided, however, that either party may make such disclosures as
required to comply with applicable law, regulations or stock exchange
requirements provided the other party is afforded prior notice thereof; it being
agreed that, subject to the terms of this Section 7.4, and in all cases subject
to prior consultation with Sara Lee, Strouse Adler shall notify its employees of
the transactions contemplated hereby, and the Company shall issue one or more
press releases, file forms 8-K and form 10-Q under the Exchange Act and describe
the transactions contemplated hereby in the Proxy Statement and attach a copy of
this Agreement and Additional Documents if required.
7.5 Hart-Scott-Rodino Filings. (i) Each of Sara Lee, on the one hand, and
-------------------------
Sellers, on the other hand, shall within ten business days after the date
hereof, prepare and make all filings required pursuant to the notification and
reporting obligations of HSR, and (ii) Sara Lee will pay two-thirds and Sellers
will pay one-third of the filing fee under HSR.
7.6 Bulk Sales Compliance. Except with respect to each Seller's
---------------------
obligations which comprise the Assumed Liabilities, each Seller shall pay in
full from the proceeds of the Closing all sums due and owing its creditors.
Purchaser and Sellers hereby waive compliance with any bulk sales law under any
applicable uniform commercial code. Sellers shall jointly and severally
indemnify and hold the S.L. Indemnified Parties harmless as provided in Article
IX for
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any claim, liability or expense arising from or in connection with non-
compliance with any applicable bulk sales law as it pertains to the transactions
contemplated hereby.
7.7 Employees; 401(k) Plan.
----------------------
7.7.1 Each Seller shall use its best efforts to aid Purchaser in
engaging such of Strouse Adler's employees at the Closing whom Purchaser desires
to engage after the Closing. Purchaser agrees to offer employment (and to
provide service credit for years of employment by Strouse Adler for purposes of
eligibility or satisfaction of waiting periods for any benefits offered to such
employees by Purchaser) to all those persons employed by Strouse Adler on the
date hereof and at the time of Closing on a full-time basis, at levels of salary
and benefits which, in the aggregate, are substantially comparable to the salary
and benefits paid or provided to such persons by Strouse Adler at Closing (but
excluding those benefits marked with an asterisk on Schedule 5.25) so long as
-------------
Strouse Adler is in compliance with the terms of this Agreement; provided,
however that this Section 7.7 shall not obligate Purchaser with respect to any
salary, severance or benefits payable or provided to Alfred Kniberg, Joyce Baran
or Paul McDonald, it being agreed that Purchaser shall not assume any employment
agreement between any such person and Strouse Adler, and shall use reasonable
efforts to negotiate employment terms with each such individual (other than Paul
McDonald who Sellers desire to retain in the employ of Strouse Adler or the
Company). It is further agreed that Purchaser shall have no obligation under
this Agreement to employ any person other than on an "at will" basis and that
Purchaser shall offer former Strouse Adler employees hired by Purchaser
severance upon termination of employment by Purchaser without cause in
accordance with Schedule 7.7 in the event such termination occurs within the
------------
first year of employment and subject to the condition that such persons deliver
duly executed and effective general releases to Purchaser prior to payment of
any such severance, including, without limitation, release of claims relating to
discrimination on the basis of age, sex, race or any other matter.
7.7.2 Purchaser may, in its discretion, elect to assume the 401(k)
Plan, in which event the parties will do all things necessary or appropriate as
requested by Purchaser to accomplish Purchaser's adoption of the Plan; provided,
however, that in no event shall Purchaser be responsible for any liabilities or
contributions relating to such 401(k) Plan which result from, arise in
connection with or pertain to any act or omission of Strouse Adler on or prior
to the Closing Date or any contributions relating to any period on or prior to
the Closing Date (collectively "401(k) Liabilities"). If Purchaser elects to
form a new plan, then at Purchaser's request, Strouse Adler shall cause the
assets of the 401(k) Plan relating to those employees hired by Purchaser to be
transferred to Purchaser's new plan.
7.8 Access to Information. Between the date of this Agreement and the
---------------------
Closing Date, upon reasonable notice and at reasonable times without significant
disruption to the Business, Strouse Adler will give Sara Lee and its authorized
representatives full access to all personnel, offices and other facilities, and
to all Books and Records of Strouse Adler (including tax returns and accounting
work papers) and will permit Sara Lee to make copies thereof and will
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fully cooperate with regard to such inspections (in order to conduct, among
other things, interviews of individuals, visual inspections of facilities, Phase
I and, if necessary, with two business days' advance notice in consultation with
Sellers, Phase II environmental assessments of the facilities) as it may
reasonably request for any purpose, including, without limitation, verification
that the representations and warranties were true when made and continue to be
true through and including the Closing Date and will cause its officers to
furnish Sara Lee such financial and operating data and other information with
respect to the business and properties of Strouse Adler which Sara Lee may from
time to time reasonably request. The representations and warranties of Sellers
contained herein and in any Additional Documents shall not be deemed waived or
otherwise affected by any such investigation made by Sara Lee or any of its
representatives.
7.9 All Reasonable Efforts. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done as
promptly as practicable, all things necessary, proper and advisable under
applicable laws and regulations to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement; provided, however,
-------- -------
that in no event shall Sara Lee be obligated to consider, or consummate, any
sale, disposition, segregation or other arrangement affecting any assets or
properties owned by Sara Lee, on the one hand, or by Strouse Adler, on the other
hand, on account of the transactions contemplated by this Agreement, or any
other action which would limit the freedom of Sara Lee and its Affiliates to own
and operate their businesses, assets and properties as they see fit.
7.10 Consents and Approvals. Each party hereto shall (a) use reasonable
----------------------
efforts to obtain all necessary permits, consents, waivers, approvals, orders
and authorizations of all Governmental Authorities and other persons or entities
required to be obtained by such party hereto in connection with the execution,
delivery and performance of this Agreement, the Additional Documents and the
consummation of the transactions contemplated hereby or thereby by such party,
(b) diligently assist and cooperate with the other parties hereto in preparing
and filing all documents required to be submitted by the other parties hereto to
any Governmental Authority in connection with the execution, delivery and
performance of this Agreement, the Additional Documents and the consummation of
the transactions contemplated hereby and thereby (which assistance and
cooperation in the case of Sara Lee shall include timely furnishing to the
Company all information concerning Sara Lee, which, in the opinion of counsel to
the Company, is required to be included in such documents), and in obtaining any
permits, consents, waivers, approvals, orders and authorizations which may be
required to be obtained by Sara Lee in connection therewith, and (c) keep the
other parties hereto apprised of the status of any inquiries made by any
Governmental Authority with respect to this Agreement, the Additional Documents
or the transactions contemplated hereby or thereby.
7.11 Supplements to Schedules. From time to time prior to the Closing,
------------------------
Sellers will promptly supplement or amend the Schedules to this Agreement with
respect to any matter
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<PAGE>
which, if existing, occurring or known at the date of this Agreement, would have
been required to be set forth or described in such Schedules or which is
necessary to correct any information in such Schedules which has been rendered
inaccurate thereby. No supplement or amendment shall have any effect for the
purpose of determining (i) satisfaction of the conditions to Closing set forth
in Section 10.1.1 hereof, (ii) the compliance by Sellers with the covenants of
Sellers set forth herein, or (iii) whether Sellers shall have breached any
representation or warranty of Sellers contained herein.
7.12 Attorney-in-Fact. Effective as of the Closing, Strouse Adler hereby
----------------
appoints Purchaser as its agent and attorney-in-fact to endorse any checks
received by Purchaser in payment of Accounts Receivable comprising part of the
Purchased Assets, and agrees to remit to Purchaser, promptly upon receipt
thereof and in a form duly endorsed to Purchaser, all checks received by Strouse
Adler in payment of any such Accounts Receivable.
7.13 Potential Successor Taxes. Unless otherwise directed by Purchaser,
-------------------------
Sellers shall give all required notices and make all required filings, on behalf
of Purchaser when required, of the transactions contemplated hereby, including,
without limitation, pursuant to Title 12, Chapter 219 of the Connecticut General
Statutes. If Sellers do not provide to Purchaser at Closing all appropriate tax
clearances and certificates, then Purchaser shall deduct from the Purchase
Price, as provided in Section 3.1, the amount of the Potential Successor Taxes,
and Purchaser shall thereafter cause such Taxes to be paid, to the extent of
such deduction, on Strouse Adler's behalf.
7.14 5500 Filings. Seller shall cause to be timely filed prior to the
------------
Closing, in accordance with applicable laws and following review by Purchaser,
Form 5500 filings applicable to the 401(k) Plan (for Plan years ended September
30, 1997 and December 31, 1997) and to the Strouse Adler Company Employee
Welfare Benefit Plan.
ARTICLE VIII RESTRICTIVE COVENANTS. In consideration of the Purchase Price and
---------------------
$5,000,000.00 payable in full by Purchaser to the Company at the Closing by wire
transfer of immediately available funds, Sellers covenant with Purchaser as
follows:
8.1 Restrictions. Sellers acknowledge that Purchaser has paid valuable
------------
consideration for the assets of Strouse Adler, particularly customer and
supplier lists, distribution records, know-how, goodwill and other proprietary
business information and trade secrets of Strouse Adler. The use by either
Seller of these relationships and such confidential information in a business or
activity which competes with Purchaser or a Related Affiliate would provide the
competing business with an unfair advantage over Purchaser or such Related
Affiliate. Accordingly, Purchaser wishes to restrict Sellers' use of such
information and their ability to compete with Purchaser and its Related
Affiliates. Sellers agree, for the Purchase Price described in Article III, to
comply with the terms of this Agreement, all of which are reasonable and
necessary to protect the confidential business information and trade secrets
being acquired by
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<PAGE>
Purchaser and to prevent any unfair advantage from being conferred upon a
competing business of Purchaser or a Related Affiliate, as set forth below.
8.2 Non-competition. For a period of five years from the date hereof,
---------------
neither Seller shall,-directly or indirectly, either by itself, or as a
stockholder, partner, associate, consultant, owner, agent, creditor, coventurer
of any other person or entity, or in any other capacity, directly or indirectly,
engage in the business of manufacturing, marketing, distributing and/or selling,
on a wholesale basis, women's intimate apparel and any other product serviced,
distributed or sold or similar to products serviced, distributed or sold by
Strouse Adler on the Closing Date or within a two-year period prior to the
Closing Date (each a "Prohibited Business") within the Prohibited Area; provided
that nothing herein shall prohibit either Seller from being an owner of not more
than 1% of the outstanding stock of any class of a corporation which is publicly
traded, so long as neither Seller actively participates in the business of such
corporation. The term "Prohibited Area" shall mean North America and the
Caribbean. The term "Related Affiliate" means any Affiliate of Purchaser which
engages in a Prohibited Business. Sellers further agree that neither of them
shall directly or indirectly engage in any business at any time under a
trademark or trade name that is confusingly similar to or may connote an
association with "Strouse Adler", or any other trademark, trade name or logo of
Strouse Adler acquired by Purchaser pursuant to this Agreement.
8.3 Non Interference with Business Relations. For a period of five years
----------------------------------------
after the Closing Date, neither Seller shall, directly or indirectly, without
the written consent of Purchaser, solicit, induce or attempt to solicit or
induce any supplier, licensee or other business relation of Purchaser or its
Affiliates to cease doing business with Purchaser or its Affiliates, or in any
way interfere with the relationship between any customer or business relation of
Purchaser or its Affiliates.
8.4 Solicitation of Customers and Employees. For a period of five years
---------------------------------------
after the Closing Date, neither Seller shall, directly or indirectly, on behalf
of itself, or as a stockholder, partner, consultant, adviser, owner, associate,
agent, creditor, coventurer of any other person or entity, or in any other
capacity, (i) sell to or solicit sales of Products from any customer or account
which was a customer or account of Strouse Adler as of the Closing Date or
within one year prior thereto, or (ii) solicit, hire, attempt to solicit or
hire, or participate in any attempt to solicit or hire any person who was an
employee of Strouse Adler or any of their respective Affiliates as of the
Closing Date or within the six-month period prior thereto, except for such
employees which Purchaser does not offer to hire or hired by Purchaser and whose
employment Purchaser has terminated at its election. As used herein, "Products"
shall mean women's intimate apparel and any other product distributed, serviced
or sold by Strouse Adler at the time, or within two years prior to, the Closing
Date.
8.5 Confidential Information. Each Seller recognizes that Purchaser's
------------------------
business interests require the fullest practical protection and confidential
treatment of all information not generally known within the relevant trade group
or by the public, including all documents,
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<PAGE>
writings, memoranda, business plans, illustrations, designs, plans, processes,
programs, inventions, computer software, reports, sources of supply, customer
lists, supplier lists, trade secrets, and all other valuable or unique
information and techniques acquired, developed or used by Strouse Adler relating
to its businesses, operations, employees and customers (hereinafter collectively
termed "Protected Information"). Each Seller expressly acknowledges and agrees
that Protected Information constitutes trade secrets, confidential and
proprietary business information of Purchaser. Protected Information shall not
include information which is or becomes part of the public domain through no
breach of this Agreement by either Seller. Each Seller acknowledges that
Protected Information is essential to the success of business, and it is the
policy of Purchaser to maintain as secret and confidential Protected
Information, which gives Purchaser a competitive advantage over those who do not
know the Protected Information and is expressly and implicitly protected by
Purchaser from unauthorized disclosure. Accordingly, each Seller agrees to hold
such Protected Information in a fiduciary capacity, to keep secret and to treat
confidentially and not to, and not to permit any other person or entity to,
directly or indirectly, appropriate, divulge, disclose or otherwise disseminate
to any other person or entity nor use in any manner for either Seller's or any
other person's or entity's purposes or benefit any Protected Information, and
not to use or aid others in using any such Protected Information in competition
with Purchaser or a Related Affiliate except to the extent that disclosure is
required by law; provided, however, that Sellers shall provide Sara Lee with
notice as far in advance of any required disclosure as is practicable in order
for Sara Lee to obtain an order or other assurance that any information required
to be disclosed will be treated as Protected Information and Sellers shall use
all reasonable efforts to cooperate with Sara Lee in connection therewith and in
furtherance thereof. This obligation of non-disclosure of information shall
continue to exist for so long as such information remains Protected Information.
For purposes of this Agreement, trade secrets are subject to the protection of
the Illinois Trade Secret Act.
8.6 Scope. If, at the time of enforcement of this Section 8, a court shall
-----
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area.
8.7 Remedies. Each Seller agrees that if it shall commit or threaten to
--------
commit a breach of any of the covenants and agreements contained in this Section
8, then Purchaser shall have the right to seek and obtain all appropriate
injunctive and other equitable remedies therefor, in addition to any other
rights and remedies that may be available at law, it being acknowledged and
agreed that any such breach would cause irreparable injury to Purchaser and that
money damages would not provide an adequate remedy therefor.
8.8 Dissolution. The Company shall not voluntarily dissolve, liquidate, or
-----------
otherwise terminate its corporate existence, or distribute more than 20% of the
net proceeds from
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the sale contemplated by this Agreement to its respective stockholders, prior to
the end of the Indemnification Period.
ARTICLE IX INDEMNIFICATION.
---------------
9.1 Survival of Representations, Warranties and Covenants. The respective
-----------------------------------------------------
representations, warranties and covenants of each of the parties to this
Agreement, including all statements contained in any Schedule delivered pursuant
hereto, shall be deemed to be material and to have been relied upon by the
parties hereto, and shall survive the Closing, and the consummation of the
transactions contemplated hereby, regardless of any investigation made by or on
behalf of, or disclosure to, any party to whom such representations, warranties
or covenants have been made. No party or other person or entity entitled to
indemnification under this Article IX shall commence any suit or proceeding
alleging a Third Party Claim due to a breach of any representation or warranty
in Article IV or V of this Agreement after the period ending September 1, 1999,
subject to extension as provided below, except insofar as (i) any party or other
person or entity entitled to indemnification under this Article shall have
asserted in writing a specific Third Party Claim prior to the expiration of such
eighteen-month period, in which event the representations and warranties shall
continue in effect and remain a basis for indemnity with respect to each such
asserted Third Party Claim until such Claim is finally resolved (pursuant to a
non-appealable order by a court of competent jurisdiction or agreement of
Sellers and Purchaser) (said period ending September 1, 1999 as extended hereby
being called the "Indemnification Period"), or (ii) any Third Party Claim
relating to Sections 5.1, 5.2, 5.3, 5.12, 6.1 and 6.2, it being agreed that the
representations and warranties of those Sections shall continue indefinitely
beyond the eighteen-month anniversary of the Closing Date (regardless of whether
the facts giving rise to such claim are also the subject of any expired
representation and warranty). The rights and remedies of any person or entity
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in this
Agreement, including, without limitation, the right of S.L. Indemnified Parties
to be indemnified for Excluded Liabilities, shall in no way be limited by the
fact that the act, omission, occurrence or other state of facts upon which any
claim of any such inaccuracy, breach or indemnity is based may also be the
subject matter of any representation, warranty, covenant or agreement contained
in this Agreement or any Additional Document as to which there is no inaccuracy
or breach or as to which the Basket or Cap applies, or as to which the
Indemnification Period has expired.
9.2 Sellers' Indemnification. Sellers, acting jointly and severally, shall
------------------------
indemnify and hold harmless Purchaser and its Affiliates and their respective
officers, directors, stockholders, agents, successors and assigns (collectively,
"S.L. Indemnified Parties"), from and against and in respect of any and all
demands, claims, causes of action, administrative orders and notices, losses,
costs, fines, liabilities, penalties, damages (direct or indirect) and expenses
(including, without limitation, reasonable legal, paralegal, accounting and
consultant fees and
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other expenses incurred in the investigation and defense of claims and actions)
(hereinafter collectively called "Losses") resulting from, in connection with or
arising out of:
(a) any incorrect representation or warranty made by Sellers in
Article V of this Agreement or in any Additional Document delivered by Sellers
in connection herewith or therewith;
(b) the failure of either Seller to comply with, or the breach by
either Seller or any of the Stockholders of, any of the covenants of this
Agreement or any Additional Document;
(c) any Excluded Liabilities;
(d) any failure to comply with any so-called "bulk sales" laws
applicable to the transactions contemplated hereby;
(e) any claim, action, suit or proceeding initiated by or on behalf
of any stockholder of the Company (in his, her or its capacity as a stockholder)
against Purchaser in connection with any communication to, or failure to
communicate to, any stockholder of the Company by the Company or any of its
Representatives;
(f) any claim, action, suit or proceeding arising from or related to
the presence, generation, emission, storage, treatment, transport or disposal of
any Hazardous Substance from, to, at, in, on or under any facility owned or used
by Strouse Adler on or before the Closing Date and liabilities arising from
violations of Environmental Laws; and
(g) any claim, action, suit or proceeding relating to any of the
foregoing.
9.3 Purchaser's Indemnification. Purchaser shall indemnify and hold
---------------------------
harmless each Seller and its Affiliates and their respective officers,
directors, stockholders, agents, successors and assigns, from and against and in
respect of any and all Losses resulting from, in connection with or arising out
of:
(a) any incorrect representation or warranty made by Purchaser in
Article VI of this Agreement or in any Additional Document delivered by
Purchaser in connection herewith or therewith;
(b) the failure of Purchaser to comply with, or the breach by
Purchaser of, any of the covenants of this Agreement or any Additional Document;
and
(c) any claim, action, suit or proceeding relating to any of the
foregoing.
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9.4 Cooperation. Subject to the provisions of Section 9.5, a party or
-----------
parties against whom a claim for indemnification has been asserted (individually
and collectively "Indemnifying Party") shall have the right, at its own expense,
to participate in the defense of any action or proceeding brought by a third
party which resulted in said claim for indemnification, and if said right is
exercised, the party or parties entitled to indemnification (individually and
collectively "Indemnified Party") and the Indemnifying Party shall cooperate in
the defense of said action or proceeding.
9.5 Indemnification Procedure for Third Party Claims Against Indemnified
--------------------------------------------------------------------
Parties.
- --------
9.5.1 In the event that subsequent to the Closing Date any
Indemnified Party asserts a claim for indemnification under this Article IX, on
account of or in connection with any claim or the commencement of any action or
proceeding against such Indemnified Party by any person or entity who is not a
party to this Agreement (including any Governmental Authority) (a "Third Party
Claim"), the Indemnified Party shall promptly give written notice thereof
together with a statement of any available information regarding such claim (the
"Notice of Claim") to the Indemnifying Party promptly after learning of such
Third Party Claim. If the Indemnifying Party is one or both Sellers and the
potential aggregate amount of such Third Party Claim, together with all other
pending Third Party Claims for which indemnity is being sought against one or
more of them, is or is reasonably expected to be $100,000.00 or less, and such
Claim does not seek injunctive or other equitable relief involving Sara Lee or
its Affiliates, or if Sara Lee's insurance carrier does not require, as a
condition to Sara Lee's eligibility to recover insurance proceeds on account of
such Third Party Claim, that such carrier control the defense of any such Claim,
or if the Indemnifying Party is Sara Lee, then in any such case, the
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party (the "Defense Notice") within fifteen days of its receipt from the
Indemnified Party of the Notice of Claim, to conduct at its expense the defense
against such Claim in its own name, or, if necessary, in the name of the
Indemnified Party; provided, however, that the Indemnified Party shall have the
right to approve the defense counsel representing the Indemnifying Party in such
defense, which approval shall not be unreasonably withheld or delayed, and in
the event the Indemnifying Party and the Indemnified Party cannot agree upon
such counsel within ten days after the Defense Notice is provided, then the
Indemnifying Party shall propose an alternate defense counsel, which shall be
subject again to the Indemnified Party's approval, which approval shall not be
unreasonably withheld or delayed.
9.5.2 In the event that the Indemnifying Party shall fail to give the
Defense Notice within the time and as prescribed by Section 9.5.1, or if the
Indemnifying Party does not have the right to defend such Third Party Claim
pursuant to Section 9.5.1, then in either such event the Indemnified Party shall
have the right to conduct such defense in good faith with counsel reasonably
acceptable to the Indemnifying Party, but the Indemnified Party (or any
insurance carrier defending such Third Party Claim on the Indemnified Party's
behalf) shall be
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<PAGE>
prohibited from compromising or settling the claim without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed.
9.5.3 In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of such Third Party Claim in
accordance with Section 9.5.1, the Indemnified Party will cooperate with and
make available to the Indemnifying Party such assistance and materials as it may
reasonably request, all at the expense of the Indemnifying Party. Regardless of
which party defends such Third Party Claim, the other party shall have the right
at its expense to participate in the defense assisted by counsel of its own
choosing. Without the prior written consent of the Indemnified Party, the
Indemnifying Party (and any insurance carrier defending such Third Party Claim
on the Indemnified Party's behalf) will not enter into any settlement of any
Third Party Claim if pursuant to or as a result of such settlement, such
settlement would lead to liability or create any financial or other obligation
on the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder. If a firm offer is made to settle a Third
Party Claim, which offer the Indemnifying Party is permitted to settle under
this Section 9.5, and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party will give written notice to the Indemnified Party
to that effect. If the Indemnified Party objects to such firm offer within ten
days after its receipt of such notice, the Indemnified Party may continue to
contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not exceed
the amount of such settlement offer, plus costs and expenses paid or incurred by
the Indemnified Party up to the point such notice had been delivered. Failure at
any time of the Indemnifying Party to diligently defend a Third Party Claim as
required herein shall entitle the Indemnified Party to assume the defense and
settlement of said Third Party Claim as if the Indemnifying Party had never
elected to do so as provided in this Section. Failure by an Indemnified Party to
provide notice on a timely basis of a Third Party Claim shall not relieve the
Indemnifying Party of its obligations hereunder, except that the foregoing shall
not constitute a waiver by the Indemnifying Party of any claim for direct
damages caused by such delay.
9.5.4 Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall be
conclusively deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder, subject to the
Indemnifying Party's right to appeal an appealable judgment or order.
9.5.5 For purposes of this Section 9.5 and the actions and decisions
to be made by Sellers, the Company shall be deemed to be the representative of
Sellers and the S.L. Indemnified Parties shall be entitled to rely exclusively
on the acts and omissions of the Company with respect to actions to be taken by,
or inferences from omissions of, either Seller, in their capacity, collectively
or individually, as the Indemnifying Party.
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<PAGE>
9.6 Nature of Other Liabilities. In the event any Indemnified Party should
---------------------------
have a claim against any Indemnifying Party hereunder which does not involve a
Third Party Claim, the Indemnified Party shall transmit to the Indemnifying
Party a written notice (the "Indemnity Notice") describing in detail the nature
of the claim, and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within 30 days from its receipt of the Indemnity Notice
that the Indemnifying Party disputes such claim, the claim specified by the
Indemnified Party in the Indemnity Notice shall be deemed a liability of the
Indemnifying Party hereunder.
9.7 Basket; Cap. Sellers shall not be obligated to indemnify S.L.
------
Indemnified Parties pursuant to Section 9.2(a) of this Agreement on account of
any breach of representations or warranties under this Agreement (i) unless
claims for indemnification against Sellers on account of any such breach of
representations or warranties exceed in the aggregate $400,000.00 (the
"Basket"), at which point Purchaser shall be entitled to indemnification for all
Losses relating to any breach of representations or warranties beginning with
the first dollar of Losses, or (ii) for Losses in excess of the Purchase Price
("Cap"). No adjustments to the Purchase Price to be made under Section 3.2
hereof and no payment payable under any other provision of Section 9.2, other
than Section 9.2(a), as the case may be, shall be counted in calculating the
Basket.
ARTICLE X CONDITIONS TO CLOSING.
---------------------
10.1 Conditions to Obligations of Purchaser. All obligations of Purchaser
--------------------------------------
under this Agreement are subject to the fulfillment, at or prior to the Closing,
of the following conditions, any one or more of which may be waived by
Purchaser:
10.1.1 Representations and Warranties of Sellers. All representations
-----------------------------------------
and warranties made by Sellers in this Agreement and the Stockholders in the
Additional Documents shall be true and correct in all material respects on and
as of the Closing Date and as of the time of the Closing, as if again made by
each Seller on and as of such dates.
10.1.2 Performance of Sellers' and Stockholders' Obligations. Each
-----------------------------------------------------
Seller and Stockholder shall have delivered all documents and agreements to
which it is a party or signatory described in Section 4.2 and each Seller and
the Stockholders shall have otherwise performed in all respects all obligations
required under this Agreement and the Additional Documents to be performed by it
or them on or prior to the Closing Date.
10.1.3 Consents and Approvals. All consents, waivers, authorizations
----------------------
and approvals required in connection with the execution, delivery and
performance of this Agreement and the transfer to Purchaser of all of the
Purchased Assets and the assumption by Purchaser of the Assumed Liabilities, as
contemplated hereby shall have been duly obtained, including, without
limitation, the affirmative vote of the stockholders described in Section 5.38,
unless waived in writing by Purchaser.
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10.1.4 Pending Proceedings. No action or proceeding shall be pending
-------------------
before any court or Governmental Authority seeking to restrain or prohibit or
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby (including, without
limitation, the Additional Documents) or the proposed operation of the Business
by Purchaser.
10.1.5 Board Approval. The Board of Directors of Sara Lee shall have
--------------
approved this transaction by March 31, 1998.
10.1.6 Expiration of Waiting Period. The statutory waiting period
----------------------------
required under HSR shall have expired and neither the DOJ nor the FTC shall have
taken any action to enjoin or delay the consummation of the transactions
contemplated hereby or require the sale or divestiture of any of the Purchased
Assets.
10.1.7 No Material Adverse Change. During the period from the date
--------------------------
hereof to the Closing, there shall have been no Material Adverse Effect.
10.1.8 Other Closing Documents. Purchaser shall have received such
other certificates, instruments and documents, reasonably satisfactory in form
and substance to Purchaser, in confirmation of the representations and
warranties of each Seller or in furtherance of the transactions contemplated by
this Agreement and the Additional Agreements as Purchaser or its counsel may
reasonably request, including, without limitation, agreements duly signed by
each employee of Strouse Adler who has an employment agreement with Strouse
Adler and who is hired by Purchaser at Closing (it being understood, however,
that such hiring is not a condition to Closing) to the effect that such employee
has no claims against Purchaser or its Affiliates on account of any liability
owed to such employee by Strouse Adler, except for accrued vacation to the
extent reflected on the Closing Statement and accrued management bonus to the
extent provided in Section 3.2.2.
10.2 Conditions to Obligations of Sellers
------------------------------------
. All obligations of Sellers under this Agreement are subject to the
fulfillment, at or prior to the Closing, of the following conditions, any one or
more of which may be waived by Sellers:
10.2.1 Representations and Warranties of Purchaser. All
-------------------------------------------
representations and warranties made by Purchaser in this Agreement and the
Additional Documents shall be true and correct in all material respects on and
as of the Closing Date and as of the time of Closing, as if again made by
Purchaser on and as of such dates.
10.2.2 Performance of Purchaser's Obligations. Purchaser shall have
--------------------------------------
delivered all documents and agreements described in Section 4.3 and otherwise
performed in all respects all obligations required under this Agreement and the
Additional Documents to be performed by it on or prior to the Closing Date.
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10.2.3 Consents and Approvals. The affirmative vote as set forth in
----------------------
Section 5.38 shall have been duly obtained.
10.2.4 Pending Proceedings. No action or proceeding against either
-------------------
Seller shall be pending before any court or Governmental Authority seeking to
restrain or prohibit, or obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby
(including, without limitation, the Additional Documents); provided, however,
-------- -------
that each Seller shall be obligated to perform hereunder, notwithstanding this
Section 10.2.4 if, in the event of such an action or proceeding, Purchaser
agrees to indemnify Sellers in accordance with Article IX hereof for all costs,
expenses and damages incurred by either of them in connection with or as a
result of such action or proceeding.
10.2.5 Expiration of Waiting Period. The statutory waiting period
----------------------------
required under HSR shall have expired and neither the DOJ nor the FTC shall have
taken any action to enjoin or delay the consummation of the transactions
contemplated hereby or require the sale or divestiture of any of the Purchased
Assets.
10.2.6 Other Closing Documents. Sellers shall have received such
-----------------------
other certificates, instruments and documents, reasonably satisfactory in form
and substance to Sellers, in confirmation of the representations and warranties
of Purchaser or in furtherance of the transactions contemplated by this
Agreement as Sellers or their counsel may reasonably request.
ARTICLE XI POST-CLOSING OBLIGATIONS.
------------------------
11.1 Subrogation. In the event that Purchaser shall suffer any damage
-----------
with respect to any matter which was covered by insurance maintained by Strouse
Adler at or prior to the Closing, Sellers agree that Purchaser shall be and
hereby is subrogated to any rights of Strouse Adler under such insurance
coverage, and, in addition, Sellers agree promptly to remit to Purchaser any
insurance proceeds which Strouse Adler may receive on account of any such
damage, but not to exceed the amount of all costs and damages incurred by
Purchaser in connection with such matter; it being agreed, however, that to the
extent Purchaser receives such insurance proceeds as part of the Purchased
Assets (in lieu of any Purchased Asset), the Closing Date Balance Sheet shall
reflect such proceeds.
11.2 Use of Marks. As of the Closing, each Seller shall cease to use any
------------
of the Purchased Assets, including, without limitation, logos, marks and other
Intellectual Property comprising a part thereof.
11.3 Collection of Accounts. If after the date hereof either Seller shall
----------------------
receive any payment on any Accounts Receivable acquired by Purchaser hereunder,
such Seller shall forward such payment to Purchaser within five business days
after such Seller's receipt thereof,
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together with any endorsement required so as to permit Purchaser to collect on
such Accounts Receivable.
11.4 Further Assurances.
------------------
(a) Upon the request of Purchaser at any time after the Closing, each
Seller will forthwith execute and deliver such instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as Purchaser or its counsel may request in order to perfect title of
Purchaser and its successors and assigns to the Purchased Assets or otherwise to
effectuate the purposes of this Agreement.
(b) Upon the request of either Seller at any time after the Closing,
Purchaser will forthwith execute such instruments of assumption and other
documents as Sellers or their counsel may request to effectuate the purposes of
this Agreement.
ARTICLE XII TERMINATION AND ABANDONMENT.
---------------------------
12.1 Methods of Termination. This Agreement may be terminated and the
----------------------
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by the mutual written consent of Purchaser and Sellers; or
(b) by Purchaser, if all of the conditions set forth in Section 10.1
of this Agreement shall not have been satisfied or waived on or prior to
September 15, 1998; provided, however, that Purchaser shall not have the right
to terminate this Agreement pursuant to this subsection if such conditions have
not been satisfied due to Purchaser's breach of this Agreement; or
(c) INTENTIONALLY OMITTED;
(d) by Sellers, if all of the conditions set forth in Section 10.2 of
this Agreement shall not have been satisfied or waived on or prior to September
15, 1998; provided, however, that Sellers shall not have the right to terminate
this Agreement pursuant to this subsection if such conditions have not been
satisfied due to either Seller's breach of this Agreement; or
(e) by either Purchaser or the Company if Sara Lee's Board of
Directors has not approved this Agreement on or before March 31, 1998; or
(f) by Purchaser if either Seller or either Seller's Board of
Directors or any Representative of either Seller breaches this Agreement,
including, without limitation, by engaging in any conduct or act described in
clause (iii) of Section 7.3(b); or
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(g) by Purchaser if the condition specified in Section 10.2.3
requiring the stockholder approval described in Section 5.38 is not satisfied at
the time of the Stockholders Meeting; or
(h) subject to Sellers' compliance with Section 7.3, by Sellers no
sooner than 14 days after the Stockholders Meeting if the condition specified in
Section 10.2.3 requiring the stockholder approval described in Section 5.38 is
not satisfied at such Meeting; or
(i) by Purchaser if either Seller or the Board of Directors of either
Seller engages in any conduct or act described in clause (i) or (ii) of Section
7.3(b).
12.2 INTENTIONALLY OMITTED.
12.3 Procedure Upon Termination. In the event of termination of this
--------------------------
Agreement by Sellers or Purchaser pursuant to this Article XII, written notice
thereof shall forthwith be given to the other parties and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any party to this Agreement. If this Agreement is so
terminated, no party to this Agreement shall have any right or claim against
another party on account of such termination unless this Agreement is terminated
by a party on account of the breach of any representation, warranty, term or
covenant herein by the other party or parties (including, without limitation,
the respective Representatives and Boards of Directors of Sellers) or on account
of circumstances which give rise to payment obligations under Section 12.4, in
which case the terminating party or parties shall be entitled to all of its
rights and remedies at law or in equity. The agreements set forth in this
Section 12.3, Section 12.4, Article IX and Article XIII shall survive the
termination of this Agreement.
12.4 Termination Expenses and Fees. Sara Lee shall be entitled to receive
-----------------------------
a fee in cash in an amount equal to $995,000.00 (the "Termination Fee") and
reimbursement of the Termination Expenses, if: (i) this Agreement is terminated
pursuant to Section 12.1(i); or (ii) at any time after the receipt of an
Acquisition Proposal which the Company's Board of Directors entertains or which,
directly or indirectly, is communicated to the Stockholders of the Company or in
any other manner becomes public, this Agreement is terminated pursuant to
Section 12.1(g) or 12.1(h); or (iii) this Agreement is terminated pursuant to
Section 12.1(f); or (iv) at any time during the twelve-month period following
the termination of this Agreement pursuant to Section 12.1(b) (other than on
account of a failure of a condition described in Section 10.1.5 or 10.1.6 to
have been satisfied) or pursuant to Section 12.1(d) (other than on account of a
failure of the condition described in Section 10.2.5 to have been satisfied),
either Seller enters into any agreement involving a Significant Transaction. As
used in this Agreement, the term "Termination Expenses" means Sara Lee's and its
Affiliates' out-of-pocket fees and expenses, not to exceed $500,000.00,
(including, without limitation, legal and investment banking and commercial
banking fees and expenses) actually incurred in connection with (x) this
Agreement
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<PAGE>
and the transactions contemplated hereby, (y) due diligence investigation, and
(z) the negotiation and execution of this Agreement and all Additional Documents
contemplated hereby. Sellers shall be jointly and severally liable for payment
of the Termination Fee and the Termination Expenses. The Termination Fee shall
be payable to Sara Lee within two business days after the occurrence of any of
the events set forth in subclauses (i) through (iv) of this Section 12.4 and the
Termination Expenses shall be paid promptly but in no event later than two
business days after Purchaser furnishes the Company with documentation
supporting such Expenses.
ARTICLE XIII MISCELLANEOUS PROVISIONS
------------------------
13.1 Successors and Assigns. This Agreement shall inure to the benefit of,
----------------------
and be binding upon, the parties hereto and their respective successors, heirs,
representatives and assigns, as the case may be; provided, however, that no
party shall assign or delegate this Agreement or any of the rights or
obligations created hereunder without the prior written consent of the other
party. Notwithstanding the foregoing, Purchaser shall have the unrestricted
right to assign this Agreement and all or any part of its rights hereunder and
to delegate all or any part of its obligations hereunder to any transferee,
lender, subsidiary or Affiliate of Purchaser, but in such event Purchaser shall
remain fully liable for the performance of all of such obligations in the manner
prescribed in this Agreement. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or the legal representatives of
such person or entity, any rights (including, without limitation, rights as a
third party beneficiary) or remedies of any nature or kind whatsoever under or
by reason of this Agreement.
13.2 Expenses. Except as otherwise provided in this Agreement, including
--------
Section 12.4, and except with respect to HSR filing fees which shall be paid in
accordance with Section 7.5, Sellers shall bear all expenses incurred on their
behalf in connection with the preparation, execution and performance of this
Agreement, the Additional Documents and the transactions contemplated hereby and
thereby, and Purchaser shall bear all expenses of such nature incurred on its
own behalf.
13.3 Title; Risk of Loss. Legal title, equitable title and risk of loss
-------------------
with respect to the Purchased Assets shall not pass to Purchaser until the
Purchased Assets are transferred at the Closing.
13.4 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing (including telecopier or facsimile or similar
writing), shall be given to such party at its address or facsimile number set
forth below or at such other addresses as shall be furnished by any party by
like notice to the others. Except as otherwise expressly provided herein, each
such notice, request or other communication shall be effective upon the earlier
of (i) actual receipt, and (ii) receipt of confirmation of delivery, in each
case at the address specified in
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<PAGE>
this Section. Any notice, request or communication delivered by telecopier,
facsimile or similar means shall be confirmed by hard copy delivered as soon as
practicable.
(a) if to Purchaser, to:
Sara Lee Corporation
Three First National Plaza
Chicago, Illinois 60622
Attention: Janet Langford Kelly
Senior Vice President, Secretary
and General Counsel
Fax No. 312-419-3187
(b) if to Sellers, to:
The Aristotle Corporation
c/o Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, Massachusetts 02111
Attention: Stanford N. Goldman, Jr.
Fax No. 617-542-2241
or such other address or persons as the parties may from time to time designate
in writing in the manner provided in this Section 13.4.
13.5 Entire Agreement. This Agreement, together with the Exhibits attached
----------------
hereto and the Schedules, represent the entire agreement and understanding of
the parties hereto with reference to the transactions contemplated herein and
therein, and no representations, warranties or covenants have been made in
connection with this Agreement other than those expressly set forth herein. This
Agreement supersedes all prior negotiations, discussions, correspondence,
communications, understandings and agreements among the parties relating to the
subject matter of this Agreement and all prior drafts thereof, all of which are
merged into this Agreement or such other agreements, as the case may be, except
for the Confidentiality Agreement dated December 22, 1997, the terms of which
shall continue notwithstanding execution of this Agreement.
13.6 Waivers, Amendments and Remedies. This Agreement may be amended,
--------------------------------
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
and consents may be provided, only by a written instrument signed by Purchaser
and Sellers or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The rights
and remedies herein provided are cumulative and are
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<PAGE>
not exclusive of any rights or remedies that any party may otherwise have at law
or in equity. The rights and remedies of any party based upon, arising out of
or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement or any Additional
Document shall in no way be limited by the fact that the act, omission,
occurrence or other statement of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement (or
in any other agreement among the parties) as to which there is no inaccuracy or
breach. Notwithstanding anything herein to the contrary, if either Seller has
dissolved or liquidated, then the consent, waiver or the like of such Seller
shall be deemed properly given if such consent, waiver or the like has been
given by the other Seller. Also, the consent, approval or waiver of the Company
shall constitute consent, approval or waiver of Strouse Adler.
13.7 Severability. This Agreement shall be deemed severable, and the
------------
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof.
13.8 Section Headings. The section headings contained in this Agreement
----------------
are solely for convenience of reference and shall not affect the meaning or
interpretation of this Agreement or of any term or provision hereof.
13.9 Counterparts; Terms. This Agreement may be executed in two or more
-------------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement. All references herein
to Articles, Sections, Subsections, clauses, Exhibits and Schedules shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require. All references to singular or plural or masculine or feminine
shall include the other as the context may require.
13.10 Governing Law; Consent to Jurisdiction; Venue. This Agreement shall
---------------------------------------------
be governed by, and construed in accordance with the internal laws (as opposed
to conflicts of law provisions) of the State of Delaware; provided, however,
that any interpretation or application of Section 8.5 shall be governed by the
Illinois Trade Secret Act. As a further inducement to Purchaser to enter into
this Agreement and the Additional Documents, and in consideration thereof,
Sellers agree (i) that any state or federal court within New Castle County,
Delaware shall have exclusive jurisdiction of any action or proceeding relating
to, or arising under or in connection with this Agreement and the Additional
Documents and Sellers consent to personal jurisdiction of such courts and waive
any objection to such courts' jurisdiction, (ii) that service of any summons and
complaint or other process in any such action or proceeding may be made by
registered or certified mail directed to Sellers at the address set forth in
Section 13.4 above, and service so made shall be deemed to be completed upon the
earlier of actual receipt or three days after the same shall have been posted as
aforesaid, Sellers hereby waiving personal service thereof. The parties hereto
agree that any claim or suit between or among any of the parties hereto relating
to or arising under or in connection with this Agreement or any of the
Additional
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Documents may only be brought in and decided by the state or federal courts
located in the County of New Castle, State of Delaware, such courts being a
proper forum in which to adjudicate such claim or suit, and each party hereby
waives any objection to each such venue and waives any claim that such claim or
suit has been brought in an inconvenient forum.
13.11 Documentation. This Agreement and the Additional Documents were
-------------
initially prepared by Purchaser's legal counsel as a matter of convenience only,
and such documents have been thoroughly reviewed by Sellers and their respective
legal counsel and the input of Sellers and their legal counsel was properly
considered, and, therefore, no interpretation will be made in favor of any of
the parties or signatories or any of their Affiliates with respect to this
Agreement and the Additional Documents for the reason that such documents were
prepared by Purchaser's legal counsel.
13.12 Exhibits and Schedules. The Exhibits attached hereto are a part of
----------------------
this Agreement as if fully set forth herein. The Schedules referred to herein
mean the schedules set forth in that certain letter agreement, of even date
herewith, being furnished to Purchaser by Sellers.
13.13 WAIVERS OF TRIAL BY JURY. SELLERS AND PURCHASER HEREBY IRREVOCABLY
------------------------
WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE ADDITIONAL DOCUMENTS, AND CONSENT TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
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<PAGE>
IN WITNESS WHEREOF, Purchaser and Sellers have caused this Agreement to be
signed as of the date first written above.
SARA LEE CORPORATION, a Maryland corporation
By:/s/ Mark McCarville
-------------------
Name: Mark McCarville
---------------
Title: Senior Vice President
---------------------
THE ARISTOTLE CORPORATION, a Delaware corporation
By:/s/ John Crawford
-----------------
Name: John Crawford
-------------
Title: Chairman
--------
THE STROUSE, ADLER COMPANY, a Delaware corporation
By:/s/ John Crawford
-----------------
Name: John Crawford
-------------
Title: Chairman
--------
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<PAGE>
EXHIBIT A
DEFINED TERMS
The following terms shall have the meanings as ascribed to them or
referenced below:
ACCOUNTS RECEIVABLE shall have the meaning set forth in Section 1.1.2
ACCRUED BONUS AMOUNT shall mean the amount of management bonus accrued for any
period up to and including June 30, 1998 and reflected on Strouse Adler's most
recent monthly balance sheet prior to the Closing.
ACQUISITION PROPOSALS shall have the meaning set forth in Section 7.3(a)
ADDITIONAL DOCUMENTS shall have the meaning set forth in Section 2.2.3
AFFILIATES shall mean a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
another person or entity.
AGREEMENT shall have the meaning set forth in the Preamble
ASSUMED LIABILITIES shall have the meaning set forth in Section 2.1
AUDITED STATEMENTS shall have the meaning set forth in Section 5.6
BALANCE SHEET shall have the meaning set forth in Section 5.6
BASKET shall have the meaning set forth in Section 9.7
BONUS PLAN shall have the meaning set forth in Section 3.2.2.
BONUS RECIPIENTS shall have the meaning set forth in Section 3.2.2.
BOOKS AND RECORDS shall have the meaning set forth in Section 1.1.5
BUSINESS shall have the meaning set forth in the Recitals
CAP shall have the meaning set forth in Section 9.7.
CASH AND CASH EQUIVALENTS shall have the meaning set forth in Section 1.1.1
CLAIMS shall have the meaning set forth in Section 1.1.12
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CLOSING shall have the meaning set forth in Section 4.1
CLOSING DATE shall have the meaning set forth in Section 4.1
CLOSING DATE BALANCE SHEET shall have the meaning set forth in Section 3.2
CLOSING NET BOOK VALUE shall have the meaning set forth in Section 3.3
CLOSING PAYMENT shall have the meaning set forth in Section 3.1
CLOSING STATEMENT shall have the meaning set forth in Section 3.2
CODE shall have the meaning set forth in Section 3.4
COMMISSION shall have the meaning set forth in Section 5.24
COMMON STOCK EQUIVALENTS shall have the meaning set forth in Section 5.2(b)
COMPANY shall have the meaning set forth in the Preamble
CONTRACTS shall have the meaning set forth in Section 1.1.11
CONTROLLED ENTITIES shall have the meaning set forth in Section 5.25.1
DEFENSE NOTICE shall have the meaning set forth in Section 9.5.1
DESIGNATED PERIOD shall have the meaning set forth in Section 7.3
DGCL shall have the meaning set forth in Section 5.2(b)
EMPLOYEE PLANS shall have the meaning set forth in Section 5.25.1
EMPLOYMENT AGREEMENTS shall have the meaning set forth in Section 4.2.4
ENVIRONMENTAL LAWS shall have the meaning set forth in Section 5.9.2(a)
ENVIRONMENTAL PERMITS shall have the meaning set forth in Section 5.9.2(b)
EQUIPMENT shall have the meaning set forth in Section 1.1.3
ERISA shall have the meaning set forth in Section 5.25.7
EXCHANGE ACT shall have the meaning set forth in Section 5.24
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401(K) LIABILITIES shall have the meaning set forth in Section 7.7.2
401(K) PLAN shall have the meaning set forth in Section 1.3.7.
FIDUCIARY shall have the meaning set forth in Section 5.25.8
FIXED ASSETS shall have the meaning set forth in Section 3.3
FTC shall have the meaning set forth in Section 5.24
FULLY-DILUTED BASIS shall mean taking into account the number of shares of
outstanding shares issuable upon exercise of outstanding warrants, options or
other rights to acquire shares (and regardless of whether such rights are
vested) and conversion or issuance of all securities which may be converted into
or exchanged for shares.
GAAP shall have the meaning set forth in Section 3.2
GOVERNMENTAL AUTHORITY shall have the meaning set forth in Section 5.24
HAZARDOUS SUBSTANCES shall have the meaning set forth in Section 5.9.2(a)
HSR shall have the meaning set forth in Section 5.24
INAPPLICABLE ACCRUED VACATION shall have the meaning set forth in Section 3.3
INDEBTEDNESS FOR BORROWED FUNDS shall mean, as to any person or entity, without
duplication, (i) all obligations (whether interest, principal, fees, penalties
or otherwise) of such person or entity for borrowed money, (ii) all obligations
of such person or entity evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such person or entity to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such person or entity
as lessee under equipment leases and (v) any of the foregoing guaranteed by such
person or entity.
INDEMNIFICATION PERIOD shall have the meaning set forth in Section 9.1
INDEMNIFIED PARTY shall have the meaning set forth in Section 9.4
INDEMNIFYING PARTY shall have the meaning set forth in Section 9.4
INDEMNITY NOTICE shall have the meaning set forth in Section 9.6
INDEPENDENT ACCOUNTANT shall have the meaning set forth in Section 3.2
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INTELLECTUAL PROPERTY shall have the meaning set forth in Section 1.1.6.
INVENTORY shall have the meaning set forth in Section 1.1.4
IRS shall have the meaning set forth in Section 3.4
KNOW-HOW shall mean specialized knowledge which is proprietary to Strouse Adler
(including product knowledge and use and application knowledge), formulae,
product formulations, processes, product designs, specifications, quality
control, procedures, manufacturing, engineering and other drawings, computer
data bases and software, technology, other intangibles, technical information,
safety information, engineering data and design and engineering specifications,
research records, market surveys and all promotional literature, customer and
supplier lists and similar data.
LABOR AGREEMENT shall have the meaning set forth in Section 5.26.1
LEASED REAL PROPERTY shall have the meaning set forth in Section 5.13.
LICENSES shall have the meaning set forth in Section 1.1.10
LIENS shall have the meaning set forth in Section 1.1
LOSSES shall have the meaning set forth in Section 9.2
MATERIAL ADVERSE EFFECT shall have the meaning set forth in Section 5.8.1
MULTIEMPLOYER PLAN shall have the meaning set forth in Section 5.25.7
NOTICE shall have the meaning set forth in Section 3.2
NOTICE OF CLAIM shall have the meaning set forth in Section 9.5.1
PBGC shall have the meaning set forth in Section 5.25.4
PATENTS shall mean patents (including all reissues, reexaminations, divisions,
continuations in part and extensions thereof), utility models, patent
applications and disclosures docketed; patent continuations.
PERMITTED COMPANY TRANSACTIONS shall mean any merger, consolidation, business
combination or similar transaction to which the Company is a party on or prior
to September 15, 1998, and pursuant to which the Company acquires any other
entity or business, so long as, following such transaction all of the following
terms are met: (i) the Company is the survivor of such transaction or has
accomplished such transaction through a subsidiary of the Company, (ii) such
transaction
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does not dilute, reduce or adversely affect the aggregate voting power or
rights, on a Fully-Diluted Basis, of the shares of capital stock held of record
or owned beneficially by the Stockholders, (iii) any shares of capital stock of
the Company issued or delivered in connection with such transaction have no
voting rights (individually, as a class or otherwise) prior to the day following
(a) the Closing Date or (b) September 15, 1998, whichever is earlier, and (iv)
such transaction will not, and could not reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect this Agreement,
the Additional Documents or the consummation or contemplated economic benefits
of the transactions contemplated hereby or thereby.
PERMITTED LIENS shall have the meaning set forth in Section 1.1
PERSONAL PROPERTY LEASES shall have the meaning set forth in Section 1.1.7
PERSONNEL DOCUMENTS shall have the meaning set forth in Section 5.25.1
POTENTIAL SUCCESSOR TAXES means any Taxes owed by Strouse Adler as of the
Closing Date with respect to which Purchaser may have successor liability,
including, without limitation, pursuant to Title 12, Chapter 219 of the
Connecticut General Statutes.
PRODUCTS shall have the meaning set forth in Section 8.4
PROHIBITED AREA shall have the meaning set forth in Section 8.2
PROHIBITED BUSINESS shall have the meaning set forth in Section 8.2
PROTECTED INFORMATION shall have the meaning set forth in Section 8.5
PROXY STATEMENT shall have the meaning set forth in Section 7.2.1
PURCHASE PRICE shall have the meaning set forth in Section 3.1
PURCHASED ASSETS shall have the meaning set forth in Section 1.1
PURCHASER shall have the meaning set forth in the Recitals
REAL PROPERTY LEASES shall have the meaning set forth in Section 1.1.8
RELATED PARTY shall have the meaning set forth in Section 5.30
RELATED PARTIES shall have the meaning set forth in Section 5.30
RELATED AFFILIATE shall have the meaning set forth in Section 8.2
REPORTABLE EVENT shall have the meaning set forth in Section 5.25.5
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REPRESENTATIVE shall have the meaning set forth in Section 7.3
RESERVES shall have the meaning set forth in Section 5.7
RIGHTS AGREEMENT shall have the meaning set forth in Section 5.39
RULES shall have the meaning set forth in Section 5.9.1
SALE AND PURCHASE CONTRACTS shall have the meaning set forth in Section 1.1.9
SARA LEE shall have the meaning set forth in the Preamble
SCHEDULES shall have the meaning set forth in Section 13.12
SELLERS shall have the meaning set forth in the Preamble
SIGNIFICANT TRANSACTION shall have the meaning set forth in Section 7.3
S.L. INDEMNIFIED PARTIES shall have the meaning set forth in Section 9.2
STOCKHOLDERS shall have the meaning set forth in the Recitals
STOCKHOLDERS' AGREEMENT shall have the meaning set forth in the Recitals
STOCKHOLDERS MEETING shall have the meaning set forth in Section 7.2.1
STROUSE ADLER'S PRO RATA SHARE OF THE ACTUAL BONUS AMOUNT shall have the meaning
set forth in Section 3.2.2.
STROUSE ADLER shall have the meaning set forth in the Preamble
SUPERIOR PROPOSAL shall have the meaning set forth in Section 7.3(a)
TAXES shall have the meaning set forth in Section 5.10
TERMINATION EXPENSES shall have the meaning set forth in Section 12.4
TERMINATION FEE shall have the meaning set forth in Section 12.4
THIRD PARTY CLAIM shall have the meaning set forth in Section 9.5
TRADE NAMES shall mean (i) trade names, (ii) brand names, and (iii) logos and
all other names and slogans used in the Business
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TRADEMARKS shall mean trademarks, service marks, brand marks, registrations
thereof, pending applications for registration thereof, and such unregistered
rights which are used in the Business
TRANSACTION EXPENSES shall have the meaning set forth in Section 2.2.1.
UNAUDITED STATEMENTS shall have the meaning set forth in Section 5.6
WORKING CAPITAL shall have the meaning set forth in Section 3.3
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PETER J. SOLOMON COMPANY APPENDIX B
LIMITED ----------
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
March 3, 1998
Board of Directors
The Aristotle Corporation
78 Olive Street
New Haven, CT 06511
Members of the Board:
You have asked us to advise you with respect to the fairness to The Aristotle
Corporation ("Aristotle" or "Parent") and its wholly-owned subsidiary, The
Strouse, Adler Company ("Strouse, Adler" or the Company) (collectively
hereinafter referred to as "Seller") from a financial point of view of the
consideration to be received by Aristotle in exchange for substantially all of
the assets, and the assumption of certain liabilities, of Strouse, Adler,
pursuant to the terms of the Asset Purchase Agreement dated as of March 3, 1998
(the "Agreement"), by and among Seller and Sara Lee Corporation ("Purchaser").
Any capitalized term not otherwise defined herein shall have the meaning
assigned to such term in the Agreement.
We understand that the Agreement provides for the sale to Purchaser of
substantially all of the assets of Strouse, Adler and the assignment to, and
assumption by, Purchaser of certain liabilities and obligations of the Company
for a purchase price of $16.5 million minus the Accrued Bonus Amount and any
Potential Successor Taxes (the "Purchase Price") as adjusted by the amount by
which Closing New Book Value is greater than or less than $15,250,000, plus an
additional $5.0 million in exchange for a non-compete agreement (the
"Transaction").
For purposes of the opinion set forth herein, we have:
(i) reviewed certain internal financial statements and other financial
and operating data pertaining to Strouse, Adler prepared by Company
management ("Management"), including such information contained in
certain publicly available financial statements of Aristotle;
(ii) reviewed with Management the balance sheet of Strouse, Adler dated
December 31, 1997 prepared by Management;
(iii) reviewed certain financial assumptions and forecasts for Strouse,
Adler prepared by Management;
(iv) discussed the past and current operations, financial condition and
prospects of Strouse, Adler with Management;
(v) reviewed the reported prices and trading activity of the common
stock of certain publicly traded companies operating in business
lines we believe to be generally comparable to that of Strouse,
Adler;
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The Aristotle Corporation
March 3, 1998
Page 2
(vi) compared the financial performance of Strouse, Adler with that of
certain publicly traded companies operating in business lines we
believe to be generally comparable to that of Strouse, Adler;
(vii) reviewed publicly available information regarding the financial
terms of certain comparable acquisition transactions;
(viii) reviewed the Agreement; and
(ix) performed such other analyses as we have deemed appropriate.
We have, with your consent, assumed and relied upon the accuracy and
completeness of the information reviewed by us for the purposes of this opinion
and we have not assumed any responsibility for independent verification of such
information. We have assumed that all financial assumptions and forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Strouse, Adler. We
express no view as to such assumptions and forecasts. We have not assumed any
responsibility for any independent valuation or appraisal of the assets or
liabilities of the Strouse, Adler, nor have we been furnished with any such
appraisals. We have assumed with your consent for purposes of this opinion that
adjustments to the Purchase Price will not be material. In connection with the
preparation of this opinion, other than a limited number of contacts
specifically authorized by the Company, we were not authorized by the Company or
the Board of Directors to solicit, nor have we solicited, third-party
indications of interest for the acquisition of all or a portion of the Company.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of March 2, 1998.
We have acted as financial advisor to Seller in connection with this transaction
and will receive a fee for our services, a portion of which is contingent upon
closing of the Transaction.
It is understood that this letter is for the information of the Board of
Directors of Aristotle and may not be used for any other purpose without our
prior written consent.
Based upon and subject to the foregoing, we are of the opinion that on the date
hereof, the Purchase Price to be received by Aristotle pursuant to the
Transaction is fair from a financial point of view to Aristotle.
Very truly yours,
Peter J. Solomon Company Limited
By: /s/ David L. Resnick
_____________________________
David L. Resnick
Managing Director
