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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 13, 1999
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HERBALIFE INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Charter)
State of Nevada 0-15712 22-2695420
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(State of or (Commission (I.R.S. Employer
Other Jurisdiction File Number) Identification No.)
of Incorporation)
1880 Century Park East
Los Angeles, California 90067
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 410-9600
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
On September 13, 1999, the Registrant issued a press release stating
that the Registrant's Board of Directors had accepted an offer from Mark Hughes
to engage in a "going private" transaction. A copy of the press release is
attached hereto as Exhibit 99.1. Pursuant to this transaction, the Registrant
entered into an Agreement and Plan of Merger, dated as of September 13, 1999, a
copy of which is attached hereto as Exhibit 99.2.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
EXHIBITS
Designation Description Method of Filing
Exhibit 99.1 Press Release Filed with this Report
Exhibit 99.2 Agreement and Plan of Merger Filed with this Report
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SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned hereunto duly authorized:
HERBALIFE INTERNATIONAL, INC.
September 14, 1999 By: /s/ Christopher Pair
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Christopher Pair, Executive Vice President, Chief
Operating Officer and Secretary
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Exhibit 99.1
Contact: Herbalife International
Investor Relations
(310) 410-9600 ext. 32202
[email protected]
Media Contact: Donna Walters
Sitrick And Company
(310) 788-2850
HERBALIFE BOARD APPROVES BUY-OUT OFFER FROM FOUNDER
LOS ANGELES, CA - September 13, 1999 - Herbalife International, Inc.
(NASDAQ/NM: HERBA, HERBB) today announced that its Board of Directors has
accepted a definitive offer from company Founder, Chairman, President and Chief
Executive Officer, Mark Hughes, for a transaction in which all of the
outstanding Class A and Class B company shares not currently owned by Mr. Hughes
will be acquired by entities controlled by Mr. Hughes for $17.00 per share in
cash. The buy-out is structured as a cash tender offer to be followed by a cash
merger. Herbalife, Mr. Hughes and entities controlled by Mr. Hughes have entered
into a definitive merger agreement governing the transactions.
Before acting on the buy-out proposal, Herbalife's Board appointed a
Special Committee consisting solely of independent directors to evaluate the
proposal. The Special Committee retained its own financial and legal advisors.
The Special Committee's financial advisor, Bear, Stearns & Co. Inc., has
rendered an opinion to the Special Committee to the effect that the
consideration to be paid in the tender offer and the merger is fair, from a
financial point of view, to Herbalife's public stockholders. Herbalife noted
that the $17.00 per share price represents a premium of approximately 42 percent
over today's closing price of $12 for the Class A shares and 86 percent over
today's closing price of $9 5/32 for the Class B shares.
Mr. Hughes currently owns 5.4 million Class A shares, or approximately
54 percent of the voting Class A shares, and 10.8 million Class B shares, or
approximately 58 percent of the non-voting Class B shares. Mr. Hughes' Class B
shares include 5 million shares posted as collateral to secure his obligations
in connection with the Debt Exchangeable for Common Stock (DECS) securities
issued last year.
The transaction is subject to customary closing conditions, including
the securing of third party financing. The initial tender period is expected to
expire on October 15, 1999, but is subject to extension under certain
circumstances to permit the satisfaction of closing conditions. Mr. Hughes
indicated that he currently expects to extend the initial tender period.
In addition to the unanimous recommendation of the Special Committee and
the fairness opinion from Bear, Stearns & Co. Inc. addressed to the Special
Committee, the Board has received a highly confident letter from its financial
advisor, Donaldson Lufkin & Jenrette Securities Corporation, regarding Mr.
Hughes' ability to secure the financing necessary to fund the transaction.
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Herbalife noted that, in order for the transaction to proceed, at least
a majority of the outstanding Class A shares and a majority of the outstanding
Class B shares, in each case excluding shares held by Mr. Hughes, must be
tendered in the cash tender offer. In addition, Herbalife indicated that the
merger agreement makes dissenters rights available.
Mr. Hughes stated, "This transaction is in the best interests of our
public stockholders and Herbalife. The price being offered is substantially
higher than our current and recent trading prices, and I am pleased to be able
to make this premium price available to our public stockholders. Herbalife has
not been rewarded by the public equity markets in recent periods, and I believe
that the conditions that may have contributed to this situation are not likely
to change in the near future."
Herbalife indicated that the transaction, valued at $500 million, calls
for raising $440 million in a combination of senior bank debt and high-yield
debt, and will utilize approximately $60 million of company cash. In addition to
funding the purchase of shares from public stockholders, the external financing
will be used by Herbalife to make two loans to entities controlled by Mr.
Hughes. The proceeds of the first loan, in the amount of approximately $89
million, will be used to post alternative cash equivalent collateral required to
secure the obligations to the trust that issued the DECS securities placed in
March 1998. The proceeds of this loan, which will be personally guaranteed by
Mr. Hughes, will be used to provide for the buy-out price for the DECS
securities. The proceeds of the second loan, in the amount of $125 million, will
be retained by the Hughes-controlled entity. However, this loan will be secured
by a pledge of the investment securities purchased with the loan proceeds, so
that the loan is expected to be fully or nearly fully secured for the entire
period that it remains outstanding. Under the documentation governing the third
party financing, the ability of Herbalife to release the collateral pledge
securing the second loan, release the Hughes guaranty supporting the first loan
and provide funds to Mr. Hughes sufficient to enable him to repay the loans is
expected to be subject to covenant restrictions. In any event, such releases and
repayment will not be permitted any earlier than the third anniversary of the
closing. Until released, Herbalife may declare dividend payments to the
Hughes-controlled entities in amounts expected to be sufficient to enable the
entities to make interest payments on the loans to Herbalife, but such dividends
will be conditioned on declaration by Herbalife's Board and the absence of any
defaults by Herbalife under its third party financing and certain other
conditions.
Herbalife International, Inc. markets nutritional, weight management and
personal care products worldwide. Herbalife products are available only through
a network of independent distributors who purchase the products directly from
the Company.
Forward-looking statements in this press release involve material risks
and uncertainties that could cause actual results and events to differ
materially from those set forth in the forward-looking statements, including the
company's ability to continue to attract, maintain and motivate its
distributors, changes in the regulatory environment affecting network marketing
sales and sales of foods and dietary supplements, the effects of adverse
publicity on sales, volatility in the company's earnings, and other risks and
uncertainties detailed from time to time in
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the company's SEC filings in recent years. For further information, refer to the
Company's final prospectus filed in March, 1998 and the Company's Form 10-K for
the year ended December 31, 1998.
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Exhibit 99.2
AGREEMENT AND PLAN OF MERGER
DATED
SEPTEMBER 13, 1999
AMONG
MH MILLENNIUM HOLDINGS LLC,
MH MILLENNIUM ACQUISITION CORP.
MARK HUGHES,
THE MARK HUGHES FAMILY TRUST
AND
HERBALIFE INTERNATIONAL, INC.
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is entered into on
September 13, 1999, by and among MH Millennium Holdings LLC, a Delaware limited
liability company, located at 1800 Century Park East, Los Angeles, California
90067 ("PARENT"), MH Millennium Acquisition Corp., a Nevada corporation and
wholly-owned subsidiary of Parent, located at 1800 Century Park East, Los
Angeles, California 90067 ("PURCHASER"), Mark Hughes, a natural person residing
in Los Angeles, California ("MR. HUGHES"), The Mark Hughes Family Trust, a trust
of which Mr. Hughes is the sole trustee ("FAMILY TRUST"), and Herbalife
International, Inc., a Nevada corporation, located at 1800 Century Park East,
Los Angeles, CA 90067 (the "COMPANY").
RECITALS
WHEREAS, the Board of Directors of the Company has formed a special
committee (the "SPECIAL COMMITTEE") comprised exclusively of independent
directors of the Board to consider and act upon a proposal received from Mr.
Hughes, the founder, president, chief executive officer and principal
stockholder of the Company (including entities controlled and beneficially owned
by him, directly and indirectly, the "CONTINUING STOCKHOLDER"), to acquire the
Company in a "going private" transaction; and, among other things, the Board of
Directors of the Company has delegated to the Special Committee full and
exclusive responsibility and authority on behalf of the Company and the Board of
Directors to accept, reject or seek to modify, amend or otherwise change this
Agreement, or any of its terms or provisions (including modifications,
amendments or changes subsequent to the Closing (as defined below)); and
WHEREAS, having received the advice of its own independent financial and
legal advisors, and following detailed negotiation of the terms of the "going
private" transaction proposal and this Agreement, the Special Committee has
unanimously determined that the terms of the proposed acquisition of the Company
by Parent, upon the terms and subject to the conditions hereinafter provided,
are fair to, and in the best interest of, the Company and the stockholders of
the Company other than the Continuing Stockholder (the "PUBLIC STOCKHOLDERS");
and
WHEREAS, in furtherance of the acquisition of the Company, Parent
proposes to cause Purchaser to make a tender offer (as it may be amended from
time to time as permitted under this Agreement, the "OFFER") to purchase all of
the Company's issued and outstanding shares of Class A Common Stock, par value
$.01 per share (the "CLASS A STOCK") and Class B Common Stock, par value $.01
per share (the "CLASS B STOCK" and, together with the Class A Stock, the
"COMPANY COMMON STOCK" or the "SHARES") at a price per share of Common Stock of
$17.00, net to the seller in cash, upon the terms and subject to the conditions
set forth in this Agreement; and
WHEREAS, the Continuing Stockholder has agreed pursuant to a letter to
the Company dated September , 1999, among other things, not to tender any shares
owned by any of the persons and entities comprising the Continuing Stockholder
in connection with the Offer, and to ensure that none of such shares shall be
subject to cancellation in exchange for the cash Merger Consideration (as
defined below) in the Merger (as defined below) (such letter and the commitments
contained therein, the "EQUITY COMMITMENT");
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WHEREAS, the managing member of Parent and the Boards of Directors of
Purchaser and the Company have approved the merger (the "MERGER") of Purchaser
into the Company, upon the terms and subject to the conditions set forth in this
Agreement, whereby (i) each issued and outstanding share of Company Common Stock
owned by the Company as treasury stock and any shares of Company Common Stock
owned by Parent or Purchaser shall be cancelled and retired for no
consideration, (ii) each issued and outstanding share of Company Common Stock
that is owned by one or more limited liability companies owned by Mr. Hughes and
which hold a portion of Mr. Hughes's Shares (all of such entities collectively,
"DEBTOR LLC") will remain outstanding or be converted into a different class of
securities of the Surviving Corporation (as hereinafter defined), (iii) all
other Shares issued and outstanding (excluding Shares held by Dissenting
Stockholders (as defined below)) shall be converted into the right to receive
the Merger Consideration (as hereinafter defined) in cash (which is the same per
share consideration paid pursuant to the Offer), and (iv) each issued and
outstanding share of capital stock of Purchaser held by Parent shall be
converted into one share of Class A Stock of the Surviving Corporation;
WHEREAS, the Continuing Stockholder has executed and delivered a written
consent (the "STOCKHOLDER CONSENT") as the Company's majority holder of Class A
Stock, whereby the Continuing Stockholder has approved and adopted this
Agreement and the Merger, such Stockholder Consent being sufficient to
constitute stockholder approval of this Agreement and the Merger under
applicable law;
WHEREAS, the Company has agreed to grant certain dissenters' rights to
the Public Stockholders in the Merger, notwithstanding that such rights are not
required by the applicable laws contained in the Nevada Revised Statutes
("NRS");
WHEREAS, the Special Committee has unanimously approved this Agreement
and has unanimously recommended that the Company's Board of Directors approve
this Agreement, the Offer and the Merger; and
WHEREAS, the Special Committee and the Board of Directors have each
adopted resolutions recommending that the Public Stockholders accept the Offer;
WHEREAS, the Company's Board of Directors also granted full
responsibility and authority on behalf of the Company and the Company's Board of
Directors to the Special Committee to take all action and to execute all
documents necessary or desirable to consummate the transactions contemplated by
this Agreement, to give and receive consents and all notices on behalf of the
Company hereunder, to negotiate and settle claims on behalf of the Company
hereunder, and to perform any other act arising under or pertaining to this
Agreement and the transactions contemplated hereby on behalf of the Company; and
WHEREAS, (i) the managing member of Parent and the Boards of Directors
of Purchaser and the Company have each approved this Agreement, the Offer and
the Merger, upon the terms and subject to the conditions hereinafter provided,
and (ii) the Board of Directors of Purchaser has determined that the Offer and
the Merger are fair to, and deem it advisable and in the best interests of, its
sole stockholder to consummate the acquisition of the Company by Parent pursuant
hereto, and (iii) the Board of Directors of the Company has determined that the
Offer and the Merger are
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fair to, and deem it advisable and in the best interests of the Public
Stockholders to consummate the acquisition of the Company by Parent pursuant
hereto;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE OFFER AND MERGER
1.1 The Offer.
(a) Provided that this Agreement shall not have been
terminated in accordance with Article VIII, then (i) not later than the first
Business Day (for purposes of this Agreement, such term having the meaning given
in Rule 14d-1 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")) after execution of this Agreement, Parent and the Company shall
issue a public announcement of the execution of this Agreement, and (ii)
Purchaser shall, as promptly as practicable, but in no event later than five
Business Days after the date of such public announcement, and Parent shall cause
Purchaser to, commence (within the meaning of Rule 14d-2 under the Exchange
Act), the Offer to purchase all of the issued and outstanding Shares at a price
per share of $17.00, net to the seller in cash. The Offer shall be made pursuant
to the Offer to Purchase and related Letter of Transmittal in form reasonably
satisfactory to the Company and containing the terms and conditions set forth in
this Agreement. The obligation of Purchaser to, and of Parent to cause Purchaser
to, commence the Offer, conduct and consummate the Offer and accept for payment,
and pay for, any Shares properly tendered and not withdrawn pursuant to the
Offer shall be subject only to the conditions set forth in Exhibit A (the "OFFER
CONDITIONS") (any of which may be waived in whole or in part by Purchaser in its
sole discretion, provided, however, that Purchaser shall not waive the Minimum
Condition without the prior written consent of the Company). Purchaser expressly
reserves the right, subject to compliance with the Exchange Act, to modify the
terms of the Offer, except that, without the express written consent of the
Company, neither Parent nor Purchaser shall (i) reduce the number of Shares
subject to the Offer, (ii) reduce the Offer Price, (iii) add to or modify the
Offer Conditions, (iv) except as provided in the next sentence, change the
expiration date of the Offer, (v) change the form of consideration payable in
the Offer or (vi) amend, alter, add or waive any term of the Offer in any manner
adverse to the holders of the Shares. Notwithstanding the foregoing, if on any
scheduled expiration date of the Offer, which shall initially be 20 Business
Days after the commencement date of the Offer, all Offer Conditions have not
been satisfied or waived, Purchaser may, without the consent of the Company, and
at the request of the Company shall, from time to time, extend the expiration
date of the Offer, and Purchaser may, without the consent of the Company, extend
the Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "SEC") or the SEC staff
applicable to the Offer. Subject only to the conditions set forth in Exhibit A,
Purchaser shall, and Parent shall cause Purchaser to, as soon as practicable
after the expiration of the Offer, accept for payment, and pay for all Shares
validly tendered and not withdrawn that Purchaser becomes obligated to accept
for payment pursuant to the Offer.
(b) On the date of commencement of the Offer, Parent and
Purchaser shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (as
supplemented or amended from time to time, the "SCHEDULE 14D-1") and Schedule
13E-3 (as supplemented or amended from time
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to time, the "SCHEDULE 13E-3") with respect to the Offer, which shall contain an
offer to purchase and a related letter of transmittal and summary advertisement
(such Schedule 14D-1, the Schedule 13E-3, and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "OFFER DOCUMENTS"). Parent and Purchaser agree that the
Offer Documents shall comply as to form and content in all material respects
with the Exchange Act and the rules and regulations promulgated thereunder, and
the Offer Documents, at the time filed with the SEC and on the date first
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation or warranty is made by Parent or Purchaser with respect
to written information supplied by the Company or any of its stockholders (other
than the Continuing Stockholder) specifically for inclusion or incorporation by
reference in the Offer Documents. Parent, Purchaser and the Company each agrees
promptly to correct any written information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and Parent and Purchaser further agree to
take all steps necessary to cause the Schedule 14D-1 and Schedule 13E-3 as so
corrected to be filed with the SEC and the other Offer Documents as so corrected
to be disseminated to holders of Shares, in each case as and to the extent
required by applicable Federal securities laws. The Company, the Special
Committee and their respective counsel shall be given reasonable opportunity to
review and comment upon the Offer Documents prior to their filing with the SEC
or dissemination to the stockholders of the Company, and Parent and Purchaser
shall consider such comments in good faith. Parent and Purchaser agree to
provide the Company, the Special Committee and their respective counsel any
comments Parent, Purchaser or their counsel may receive from the SEC or its
staff with respect to the Offer Documents promptly after the receipt of such
comments.
(c) Parent shall provide or cause to be provided to
Purchaser on a timely basis the funds sufficient to accept for payment, and pay
for, any and all Shares that Purchaser becomes obligated to accept for payment,
and pay for, pursuant to the Offer.
(d) Purchaser shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to the Offer such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "CODE"), or under any
provision of state, local or foreign tax law; provided, however, that Purchaser
shall promptly pay any amounts deducted and withheld hereunder to the applicable
governmental authority, shall promptly file all tax returns and reports required
to be filed in respect of such deductions and withholding, and shall promptly
provide to the Company proof of such payment and a copy of all such tax returns
and reports.
1.2 Company Actions
(a) The Company hereby approves of and consents to the
Offer.
(b) On the date the Offer Documents are filed with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (as supplemented or amended from time
to time, the "SCHEDULE 14D-9") containing the recommendation described in
Section 1.2(a) (subject to the fiduciary obligations of the Special
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Committee and the Board, as advised by their counsel) and shall mail the
Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 shall
comply as to form and content in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder and, on
the date filed with the SEC and on the date first published, sent or given to
the Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation or
warranty is made by the Company with respect to written information supplied by
Parent, Purchaser or the Continuing Stockholder specifically for inclusion in
the Schedule 14D-9. The Company, Parent and Purchaser each agree promptly to
correct any written information provided by it for use in the Schedule 14D-9 if
and to the extent that such information shall have become false or misleading in
any material respect, and the Company further agrees to take all steps necessary
to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so
amended or supplemented to be filed with the SEC and disseminated to the
Company's stockholders, in each case as and to the extent required by applicable
Federal securities laws. Parent shall be given reasonable opportunity to review
and comment upon the Schedule 14D-9 prior to its filing with the SEC or
dissemination to stockholders of the Company, and the Company shall consider
such comments in good faith. The Company agrees to provide Parent any comments
the Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer and the Merger, the Company
shall cause its transfer agent to furnish Purchaser promptly with mailing labels
containing the names and addresses of the record holders of Shares as of a
recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of stockholders, security position
listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Shares, and shall
furnish to Purchaser such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the Company's stockholders.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Parent and Purchaser and their agents shall hold in
confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger and,
if this Agreement shall be terminated, will, upon request, promptly deliver, and
will use their best efforts to cause their agents promptly to deliver, to the
Company all copies of such information (and all copies of information derived
therefrom) then in their possession or control.
1.3 The Merger.
(a) Subject to the terms and conditions of this Agreement,
and pursuant to Section 92A.250 of the NRS, at the Effective Time (as defined in
Section 1.4) the Company and Purchaser shall consummate the Merger pursuant to
which (i) Purchaser shall be merged with and into the Company and the separate
corporate existence of Purchaser shall thereupon cease, (ii) the Company shall
be the successor or surviving corporation in the Merger (the "SURVIVING
CORPORATION") and shall continue to be governed by the laws of the State of
Nevada, and (iii) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger.
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(b) Pursuant to the Merger, (i) the articles of
incorporation of the Company as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation, until
amended in accordance with such articles and the NRS, and (ii) the bylaws of
Purchaser, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation until thereafter amended as provided by law,
the articles of incorporation and such bylaws.
(c) The Merger shall have the effects set forth in the NRS
(including without limitation Section 92A.250 thereof). Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Purchaser shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Effective Time. On the date of Closing (as defined in Section
1.5), the parties shall cause articles of merger or other appropriate documents
(in any such case, the "ARTICLES OF MERGER") to be executed and filed with the
Secretary of State of the State of Nevada in accordance with the provisions of
Chapter 92A of the NRS, and make all other filings and recordings required by
the NRS in connection with the Merger. The Merger shall become effective at the
time and on the date on which the Articles of Merger have been duly filed with
the Secretary of State of the State of Nevada or such later time as is agreed
upon by the parties and specified in the Articles of Merger, and such time is
hereinafter referred to as the "EFFECTIVE TIME".
1.5 Closing. The Closing of the Merger (the "CLOSING") will take
place at 9:00 a.m., Los Angeles time, on a date to be specified by the parties,
which shall be as soon as practicable following the satisfaction or waiver of
the conditions set forth in Article VII (or on such other date as Parent and the
Company may agree), but in any event no later than the second Business Day after
satisfaction or waiver of all of the conditions set forth in Article VII hereof
(the "CLOSING DATE"), at the offices of Irell & Manella LLP at 333 South Hope
Street, Suite 3300, Los Angeles, California 90071, unless another date or place
is agreed to in writing by the parties hereto.
1.6 Directors and Officers of the Surviving Corporation. The
directors and officers of Purchaser at the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's articles of incorporation and
bylaws.
1.7 Consent of Continuing Stockholder.
(a) Concurrently with the commencement of the Offer, the
Company shall prepare and file with the SEC an Information Statement on Schedule
14C (as supplemented or amended from time to time, the "SCHEDULE 14C")
reflecting the action taken pursuant to the Stockholder Consent and relating to
the Merger and this Agreement, such Schedule 14C to include the information
required to be included pursuant to the rules and regulations of the SEC and
shall use its commercially reasonable best efforts, after consultation with
Parent, to respond to any comments made by the SEC with respect to the Schedule
14C and, as promptly as practicable after satisfying applicable SEC rules and
regulations, cause the Schedule 14C to be mailed to its
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stockholders. If required by the rules and regulations of the SEC, the Schedule
14C filing shall include a filing of a Schedule 13E-3. The Offer Documents and,
if required, the Schedule 14C, shall contain a notification conforming to
Section 92A.430(d) of the NRS advising stockholders of (i) the Stockholder
Consent and (ii) the date by which the Company must receive the demand for
payment in order for Shares to qualify for the dissenters' rights provided for
hereunder, which date shall be approved by Parent. The Schedule 14C, including
any amendments or supplements thereto, shall not, at the time filed with the SEC
or as of the date mailed to the Company's stockholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that the
Company makes no representation or warranty with respect to any information
provided by Parent, Purchaser or the Continuing Stockholder specifically for use
in the Schedule 14C. The Schedule 14C shall comply as to form in all material
respects with the provisions of the Exchange Act.
(b) Provided that this Agreement has not been terminated in
accordance with Article VIII, Mr. Hughes agrees not to, and to cause the other
persons and entities included within the Continuing Stockholder not to, revoke
or withdraw the Stockholder Consent.
1.8 Short Form Merger. Notwithstanding Section 1.7 or anything else
in this Agreement to the contrary, at Parent's election, in the event that
Purchaser shall acquire Shares, including Shares accepted for purchase pursuant
to the Offer, in a number sufficient to consummate a merger of the Company into
Purchaser pursuant to Section 92A.180 of the NRS, the parties hereto agree, at
the request of Parent or Purchaser, to take all necessary and appropriate action
to cause the Merger to become effective as soon as practicable after such
acquisition, without approval of the Company's stockholders, in accordance with
Section 92A.180.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holders of any shares of
Company Common Stock (as defined below) or Purchaser's common stock, par value
$.001 per share ("PURCHASER COMMON STOCK"):
(a) Purchaser Common Stock. Each issued and outstanding
share of Purchaser Common Stock shall be converted into and become one (1) fully
paid and nonassessable share of Class A Stock of the Surviving Corporation.
(b) Treatment of Treasury Stock, Parent-Owned Stock and
Other Non-Public Stockholder Stock.
(i) All shares of Class A Stock and all shares of
Class B Stock that are owned by the Company as treasury stock and any shares of
Company Common Stock owned by Parent or Purchaser shall be canceled and retired
and shall cease to exist and no consideration shall be delivered in exchange
therefor.
(ii) Each issued and outstanding share of Class A
Stock that is owned by Debtor LLC shall be converted into and become one (1)
fully paid and nonassessable share of Class
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<PAGE> 9
B Stock of the Surviving Corporation, and each issued and outstanding share of
Class B Stock that is owned by Debtor LLC shall remain outstanding.
(c) Conversion of Shares. Each issued and outstanding share
of Company Common Stock (excluding shares to be cancelled or converted in
accordance with Section 2.1(b) and shares of Company Common Stock held by
Dissenting Stockholders as described in Section 2.1(e)) shall be converted into
the right to receive $17.00 in cash, payable to the holder thereof, without
interest (the "MERGER CONSIDERATION"), upon surrender of the certificate
formerly representing such share of Company Common Stock in the manner provided
in Section 2.2. All such shares of Company Common Stock, at the Effective Time,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration therefor upon the surrender of such certificate
in the manner prescribed in Section 2.2, without interest.
(d) Stock Options. At the Effective Time, all issued and
outstanding warrants, options and other rights to acquire Company Securities (as
defined in Section 3.2(a)), but excluding all such options, warrants and rights
held by the Continuing Stockholder, shall, to the extent not theretofore vested,
become vested and shall terminate as of the Effective Time. Each holder of any
such warrant, option or other right shall only be entitled to receive from the
Company, in cancellation and settlement of such warrant, option or other right,
the Option/Warrant Spread (as defined in Section 3.2(b)), if any. All options,
warrants or other rights to acquire Company Securities held by the Continuing
Stockholder shall, at the Effective Time, be cancelled for no consideration or
contributed to capital of the Company.
(e) Shares of Dissenting Stockholders. Notwithstanding
anything in this Agreement or Section 92A.390 of the NRS to the contrary,
holders of shares of Company Common Stock shall have rights pursuant to Section
92A.380 of the NRS, provided such holders comply with the provisions of such
Section as if such Section otherwise applied to the Merger. Each holder who so
complies shall be referred to as a "DISSENTING STOCKHOLDER." For purposes of
applying the foregoing provisions of the NRS, the date of the corporate action
triggering the obligation to provide notice of dissenters rights to the holders
of shares of Company Common Stock shall be the date of the Stockholder Consent.
Any issued and outstanding shares of Company Common Stock held by a Dissenting
Stockholder shall not be converted as described in Section 2.1(c) but shall
instead represent the right to receive such consideration as may be determined
to be due to such Dissenting Stockholder pursuant to, and to the extent provided
by, the laws of the State of Nevada (notwithstanding Section 92A.390 of the
NRS); provided, however, that the shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a Dissenting Stockholder who
shall, after the Effective Time, fail to perfect his right to appraisal,
withdraw his demand for appraisal or lose his right of appraisal, in any case
pursuant to Sections 92A.400 through 92A.440 (inclusive) of the NRS, shall be
deemed to have been converted as of the Effective Time into the right to receive
the Merger Consideration. The Company shall give Parent (i) prompt notice of any
written demands for appraisal of shares of Company Common Stock received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to any such demands. Prior to the Effective Time, the Company shall not,
without the prior written consent of Parent, voluntarily make any payment with
respect to, or settle, offer to settle or otherwise negotiate, any such demands.
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<PAGE> 10
2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company to act as agent for the holders of shares of Company Common Stock in
connection with the Merger (the "PAYING AGENT") to receive the funds to which
holders of shares of Company Common Stock shall become entitled pursuant to
Section 2.1(c). Prior to the filing of the Articles of Merger with the Secretary
of State of the State of Nevada, Parent or Purchaser shall deposit with the
Paying Agent cash in an amount equal to the product of (i) the number of shares
of Company Common Stock required to be converted pursuant to Section 2.1(c),
multiplied by (ii) the Merger Consideration. The deposit made by Parent pursuant
to the preceding sentence is hereinafter referred to as the "Payment Fund." The
Paying Agent shall cause the Payment Fund to be (i) held for the benefit of the
holders of shares of Company Common Stock, and (ii) promptly applied to making
the payments provided for in Section 2.1(c). The Payment Fund shall not be used
for any purpose that is not provided for herein. Such funds shall be invested by
the Paying Agent as directed by Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES"),
whose shares of Company Common Stock will have been converted pursuant to
Section 2.1 into the right to receive the Merger Consideration (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and related
materials, including, without limitation, a Substitute Form W-9 and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal and related
materials, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate and the Certificate so
surrendered shall forthwith be canceled. If payment of the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash, without interest, as contemplated by
this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares, except as
otherwise provided for herein or by
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<PAGE> 11
applicable law. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason (other than pursuant to exercise of
dissenters' rights granted hereunder), they shall be canceled and exchanged as
provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
twelve months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Lost Certificates. In the event any Certificates shall
have been lost, stolen or destroyed, the Paying Agent shall pay in exchange for
such lost, stolen or destroyed Certificates, upon the making of an affidavit of
that fact by the holder thereof, the Merger Consideration, if any, as may be
required pursuant to Section 2.1(c); provided, however, that Parent may, in its
discretion and as a condition precedent to the payment thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct against any claim that may be made against
Parent, the Surviving Corporation or the Paying Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
2.3 Further Assurances. If, at any time after the Effective Time,
any further action is necessary or desirable to consummate the Merger, to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Purchaser, the officers and directors
of the Company, Parent and Purchaser are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows,
except as previously disclosed in writing to Parent and Purchaser or as
otherwise actually known by Parent, Purchaser or the Continuing Stockholder
(collectively, "EXCLUDED Matters")(provided that such exception shall not be
applicable to the representation and warranty contained in Section 3.4(a)):
3.1 Organization and Qualification.
(a) The Company and each of its "Significant Subsidiaries"
(within the meaning of Regulation S-X of the Securities Act of 1933, as amended
(the "SECURITIES ACT")) is a corporation or other legal entity duly organized,
validly existing and in good standing under the laws of the its respective
jurisdiction of incorporation or organization, and has all requisite corporate
or other legal power and authority to own, lease and operate its properties and
to carry on its respective business as now being conducted.
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<PAGE> 12
(b) The Company and each of its Significant Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the respective property owned, leased or operated by it or
the nature of the respective business conducted by it makes such qualification
or licensing necessary, and to perform all of its respective obligations under
any contract under which the Company and each of its Significant Subsidiaries
(A) has or may acquire any rights, (B) has or may become subject to any
obligation or liability or (C) is or may, or any of the assets used or owned by
it are or may, become bound, except where the failure to be so duly qualified or
licensed and in good standing or to effect such performance would not,
individually or in the aggregate, have a Company Material Adverse Effect. When
used in this Agreement, the term "COMPANY MATERIAL ADVERSE EFFECT" means any
change or effect that would (i) be materially adverse to the business, assets
(tangible or intangible), results of operations, liabilities, condition
(financial or other) or prospects of the Company and its Subsidiaries taken as a
whole, or (ii) prevent, delay or otherwise impair the ability of the Company to
perform its obligations under this Agreement or to consummate the transactions
contemplated hereby.
3.2 Capitalization of the Company.
(a) As of the date hereof, the authorized capital stock of
the Company consists of (i) 33,333,333 shares of Class A Stock, of which
9,982,300 shares are currently issued and outstanding, (ii) 66,666,667 shares of
Class B Stock, of which 18,604,515 are currently issued and outstanding and
(iii) 100,000,000 shares of preferred stock, no par value, of which zero (0)
shares are currently issued and outstanding. All outstanding shares of capital
stock of the Company have been validly issued, and are fully paid, nonassessable
and free of, and not issued in violation of, preemptive rights. As of the date
hereof, there are 2,238,703 shares of Class A Stock and 5,303,162 shares of
Class B Stock subject to issuance upon exercise of outstanding options,
warrants, or other rights to purchase capital stock of the Company from the
Company. Except as set forth above, there are outstanding (A) no shares of
capital stock or other securities of the Company, (B) no securities of the
Company convertible into or exchangeable for shares of capital stock or
securities of the Company, (C) no options, subscriptions, warrants, convertible
securities, calls or other rights to acquire from the Company, and no obligation
of the Company or any of its Subsidiaries to issue, deliver or sell, any capital
stock, securities or securities convertible into or exchangeable for capital
stock or securities of the Company, and (D) no equity equivalents, performance
shares, interests in the ownership or earnings of the Company or other similar
rights issued by the Company (the items referred to in clauses (A)-(D) are
referred to herein as "COMPANY SECURITIES"). As of the date hereof, (i) there
are no outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any Company Securities, (ii) no agreement, other document or other
obligation that grants or imposes on any Company Securities any right,
preference, privilege or restriction with respect to the transactions
contemplated hereby (including, without limitation, any rights of first
refusal), other than any applicable right to dissent from the Merger as provided
in Section 2.1(e) above, (iii) there are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into securities having
such rights) of the Company issued and outstanding and (iv) the Company is not a
party or bound to, and to the Company's knowledge there are no other, voting
agreements, lock-up agreements or similar agreements or arrangements restricting
or affecting outstanding Company Securities (excluding (x) arrangements
governing 5,000,000 shares of Class B Stock pledged by affiliates of Mr. Hughes
to secure obligations owed by them to DECS Trust III, a Delaware business trust,
as described in the final prospectus dated March 25, 1998 relating to the
offering and sale of 5,000,000 DECS by
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<PAGE> 13
DECS Trust III (the "DECS") and (y) a related share borrow arrangement between
Salomon Smith Barney and Mr. Hughes with respect to 1,000,000 shares of Class B
Stock held by Mr. Hughes).
(b) All issued and outstanding warrants, options and other
rights to acquire Company Securities will, as of or prior to the Effective Time,
terminate or will thereafter constitute only the right to receive the excess, if
any, of the per share Merger Consideration over the per share exercise price of
such warrant, option or such other right, multiplied by the number of shares for
which such warrant or option is exercisable immediately prior to the Effective
Time (in the case of Company Securities other than Company Common Stock and
options or other rights to acquire Company Securities other than Company Common
Stock, if any, computed on a Company Common Stock equivalent basis) (the
"OPTION/WARRANT SPREAD"), without obligation of any other payment. The aggregate
dollar amount of the Option/Warrant Spread, excluding the Option/Warrant Spread
related to options, warrants and other rights to acquire Company Securities held
by the Continuing Stockholder, does not exceed $57,100,000.
3.3 Power and Authority. The Company has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable against it in accordance with its terms, except (a) as
such enforcement may be subject to bankruptcy, insolvency or similar laws now or
hereafter in effect relating to creditors rights generally, and (b) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought (clauses (a) and (b)
collectively, the "ENFORCEABILITY EXCEPTIONS").
3.4 Board Recommendations; Anti-takeover Provisions.
(a) At a Special Committee meeting duly called and held on
September 13, 1999, the Special Committee, based in part upon the opinion of the
Independent Advisor, duly and validly (i) determined that this Agreement and the
Offer and the Merger contemplated hereby are fair to and in the best interest of
the Public Stockholders, (ii) approved, authorized and adopted this Agreement,
the Offer, the Merger and the other transactions contemplated hereby; and (iii)
resolved to recommend that the Public Stockholders accept the Offer and tender
their Shares pursuant to the Offer. On September 13, 1999, the Special Committee
received an opinion from Bear, Stearns & Co. Inc. (the "INDEPENDENT ADVISOR")
addressed to the Special Committee to the effect that the consideration to be
received in the Offer and the Merger is fair from a financial point of view to
the Public Stockholders, and a complete and correct signed copy of such opinion
has been delivered by the Special Committee to Parent for purposes of inclusion
in SEC filings.
(b) The Company's Board of Directors, at a meeting duly
called and held on September 13, 1999, has duly and validly (i) determined that
this Agreement and the Offer and the Merger contemplated hereby are fair to and
in the best interest of the Public Stockholders, (ii) approved, authorized and
adopted this Agreement, the Offer, the Merger and the other transactions
contemplated hereby; (iii) resolved to recommend that the Public Stockholders
accept the Offer and tender their Shares pursuant to the Offer; (iv) taken the
action required to cause all issued and outstanding warrants, options and other
rights to acquire Company Securities, as of or prior to the Effective Time, to
terminate or constitute only the right to receive the Option/Warrant
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<PAGE> 14
Spread; (v) taken all action necessary to ensure that (A) the provisions of
Sections 78.378 through 78.3793, inclusive, of the NRS do not apply to the
Company and to ensure that the prohibitions contained in Sections 78.411 through
78.444, inclusive, of the NRS applicable to "combinations" (as defined in
Section 78.416) do not apply to the transactions contemplated by this Agreement;
and (B) any other anti-takeover, control-share, business combination, moratorium
or like laws of any state do not and will not apply to the transactions
contemplated by this Agreement or otherwise impair, restrict or prohibit the
performance of this Agreement; and (vi) resolved not to alter, amend, repeal,
modify or otherwise restrict the effect of any action described in clause (v)
above, other than an action to ensure compliance with such clause (v).
3.5 Consents and Approvals; No Violation. The execution and delivery
of this Agreement do not, and the consummation of the transactions contemplated
hereby and the performance by the Company of its obligations hereunder will not:
(a) conflict with or violate any provision of the Company's
articles of incorporation or bylaws or the equivalent organizational documents
of any of its Significant Subsidiaries; or
(b) require on the part of the Company or any Significant
Subsidiary of the Company any consent, approval, order, authorization or permit
of, or registration, filing or notification to, any Governmental Authority,
except for (i) the filing with the SEC of (A) the Schedule 14C, and (B) such
reports under Sections 13, 14 and 16(a) of the Exchange Act, as may be required
in connection with this Agreement (including, without limitation, the Schedule
14D-9 and the Schedule 13E-3), and the transactions contemplated hereby, (ii)
the filing of the Articles of Merger with the Secretary of State of the State of
Nevada, and (iii) such additional actions or filings which, if not taken or
made, would not, singly or in the aggregate, have a Company Material Adverse
Effect.
3.6 Information Supplied. None of the information supplied or to be
supplied by the Company specifically for use in the Offer Documents will, at the
time filed with the SEC or as of the date mailed to the Company's stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
3.7 Brokers and Finders. Except for payments required to be made to
Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") as the Company's and
Mr. Hughes's financial advisor pursuant to an engagement letter dated April 23,
1999, and to the Independent Advisor, neither the Company nor any of its
affiliates will or has, directly or indirectly, become obligated to pay any
person or entity any brokerage fee, finder's fee, investment banking fee or
agent's fee as a result of the entering into of this Agreement and/or closing of
the Merger or any of the transactions contemplated hereby.
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<PAGE> 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as follows:
4.1 Organization. Parent is a limited liability company and
Purchaser is a corporation, in each case duly organized, validly existing and in
good standing under the laws of their jurisdiction of organization, and each has
the requisite limited liability company or corporate power to carry on its
business. Parent and Purchaser have made available to the Company a complete and
correct copy of their respective certificate of formation, operating agreement,
articles of incorporation and bylaws, each as amended to date and as in full
force and effect. Neither Parent nor Purchaser is in default in the performance,
observation or fulfillment of any provision of its certificate of formation,
operating agreement, articles of incorporation or bylaws. Purchaser is a
wholly-owned subsidiary of Parent.
4.2 Authority Relative to this Agreement. Each of Parent and
Purchaser has all requisite limited liability company or corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby on the part of
Parent and Purchaser have been duly and validly authorized by the managing
member of Parent and the Board of Directors of Purchaser and by Parent as the
sole stockholder of Purchaser and no other limited liability or corporate
proceedings on the part of Parent and Purchaser are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Parent and Purchaser and,
assuming this Agreement constitutes a valid and binding obligation of the
Company and the requisite approval of the Company's stockholders has been
obtained, this Agreement constitutes a valid and binding agreement of Parent and
Purchaser, enforceable against each of them in accordance with its terms, except
as such enforcement may be subject to the Enforceability Exceptions.
4.3 Consent and Approvals; No Violation. The execution and delivery
of this Agreement do not, and the consummation of the transactions contemplated
hereby and the performance by Parent and Purchaser of their obligations
hereunder will not:
(a) conflict with any provision of the respective
certificate of formation, operating agreement, articles of incorporation or
bylaws of Parent or Purchaser;
(b) require on the part of Parent or Purchaser any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, except (i) such reports under Sections 13, 14 and 16(a)
of the Exchange Act as may be required in connection with this Agreement
(including, without limitation, the Schedule 14D-1 and Schedule 13E-3), and the
transactions contemplated hereby, (ii) the filing of the Articles of Merger with
the Secretary of State of the State of Nevada, and (iii) such additional actions
or filings which, if not taken or made, would not, singly or in the aggregate,
have a Parent Material Adverse Effect (as defined below); or
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<PAGE> 16
(c) result in any conflict with or violation of or the
breach of or constitute a default (with notice or lapse of time or both) under,
or give rise to any right of termination, cancellation or acceleration or
guaranteed payments under or to a loss of a material benefit under, any of the
terms, conditions or provisions of any note, bond, indenture, lease, mortgage,
license, franchise, agreement or other instrument or obligation to which the
Parent or Purchaser is a party or by which the Parent or Purchaser or any of
their properties or assets may be bound, except for such conflicts, violations,
breaches, defaults, or rights of termination, cancellation or acceleration, or
losses as to which requisite waivers or consents have been obtained or will be
obtained prior to the Effective Time or which, singly or in the aggregate, would
not result in any change or effect that would prevent, delay or otherwise impair
the ability of Parent or Purchaser to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby (a "PARENT
MATERIAL ADVERSE EFFECT").
4.4 Information Supplied. None of the information supplied or to be
supplied by Parent, Purchaser or the Continuing Stockholder specifically for use
in the Schedule 14C or Schedule 14D-9 will, at the time filed with the SEC or as
of the date mailed to the Company's stockholders, contain any untrue statement
of a material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading.
4.5 Purchaser's Operations. Purchaser was formed solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than to facilitate
the transactions contemplated hereby.
4.6 Capitalization. All of the issued and outstanding shares of
Purchaser Common Stock have been duly and validly issued and are held of record
and beneficially solely by Parent. Purchaser has no other outstanding equity
interests or securities convertible, exchangeable or exercisable for any equity
interests.
4.7 Financing. The Company has received written assurances (the "DLJ
LETTER") from DLJ, dated September 13, 1999 relating to such firm's confidence
in being able to secure and/or arrange the financing of the Offer and the Merger
(the "DEBT FINANCING") and has received from the Continuing Stockholder the
Equity Commitment, true and complete copies of which have been provided to the
Special Committee and the Board of Directors of the Company. Funds from the Debt
Financing, together with Company cash and cash equivalents would be sufficient
to fund (i) the Offer, (ii) the Merger Consideration for all shares of Company
Common Stock subject to conversion in accordance with Section 2.1(c) hereof,
(iii) the other transactions contemplated by this Agreement (including, without
limitation, the cancellation of all outstanding warrants, options and other
rights to acquire Company Securities for their Option/Warrant Spread in
accordance with Section 2.1(d) hereof, and the loans to Debtor LLC described on
Exhibit B hereto), (iv) all fees and expenses of the Company, Parent and
Purchaser incurred in connection with the transactions contemplated by this
Agreement and (v) the working capital needs of the Company following the Merger,
including, without limitation, if applicable, letters of credit (collectively,
the funds required for the matters specified in clauses (i)-(v) are referred to
as the "USES OF FUNDS").
4.8 Solvency. Parent has no reason to believe that the financing to
be provided to Purchaser to effect the Offer and the Merger will cause (i) the
fair salable value of the Surviving
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<PAGE> 17
Corporation's assets to be less than the total amount of its existing
liabilities and identified contingent liabilities, (ii) the fair salable value
of the assets of the Surviving Corporation to be less than the amount that will
be required to pay its probable liabilities on its existing debts as they
mature, (iii) the Surviving Corporation not to be able to pay its existing debts
as they mature or (iv) the Surviving Corporation to have an unreasonably small
capital with which to engage in its business.
4.9 Brokers and Finders. Except for payments required to be made to
DLJ as the Company's and Mr. Hughes's financial advisor, neither the Parent,
Purchaser nor any of their affiliates will or has, directly or indirectly,
become obligated to pay any person or entity any brokerage fee, finder's fee,
investment banking fee or agent's fee as a result of the entering into of this
Agreement and/or closing of the Offer or the Merger.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that it shall, prior to the Effective Time, continue
to declare and pay its regular quarterly cash dividend on Company Common Stock,
in accordance with prior practice. In addition, the Company shall declare two
additional special dividends to the holders of its securities, the record dates
for which shall be the close of business on the date that the Offer is
consummated, and the close of business on the last Business Day prior to the
Effective Time, respectively. The amount of the first special dividend shall be
equal to the Company's most recent quarterly dividend rate for such security,
multiplied by the number of days elapsed since the last regular quarterly
dividend record date through and including the date of the consummation of the
Offer, and divided by 90. The amount of the second special dividend shall be
equal to the Company's most recently quarterly dividend rate for such security,
multiplied by the number of days elapsed since the last regular or special
dividend record date (including the first special dividend record date) through
and including the Effective Time, and divided by 90. Dividends payable hereunder
shall be paid in cash in the same manner that regular quarterly dividends are
paid.
ARTICLE VI
ADDITIONAL COVENANTS
The parties hereto further agree as follows:
6.1 Acquisition Proposals.
The Company, its subsidiaries and their affiliates will not, and
the Company, its subsidiaries and their affiliates will use their reasonable
efforts to ensure that their respective officers, directors, employees,
investment bankers, attorneys, accountants and other representatives and agents
do not, directly or indirectly, initiate, solicit, encourage or participate in
negotiations or discussions relating to, or provide any information to any
natural person, corporation, partnership, limited liability company or entity
(each, a "PERSON") concerning, or take any action to facilitate the making of,
any offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined below) relating to the Company, its
subsidiaries or any affiliate, or any inquiry with respect thereto, or agree to
approve or recommend any Acquisition Proposal; provided,
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<PAGE> 18
however, that if at any time prior to the Effective Time, in the opinion of the
Special Committee of the Board of Directors after consultation with its counsel,
the failure to take any of the foregoing actions described in this Section 6.1
would be inconsistent with the fiduciary duties of such Special Committee to the
Public Stockholders under applicable law, such Special Committee may take any
such action; provided, further, that if taking any such action involves,
directly or indirectly, providing access and/or furnishing information
concerning the Company's business, properties or assets to any corporation,
partnership, person or other entity or group, the access and/or information
shall be provided only pursuant to an appropriate confidentiality agreement.
The Company (acting through the Special Committee) shall
promptly notify Parent of any such offers, proposals or Acquisition Proposals
(including without limitation the terms and conditions thereof and the identity
of the Person making it), and will keep Parent apprised of all developments with
respect to any such Acquisition Proposal, including without limitation any
modifications thereof.
Nothing contained in this Section 6.1 shall prohibit the Company
or the Special Committee from (i) taking and disclosing to the Company's
stockholders a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or (ii) making such
disclosure to the Company's stockholders which, in the opinion of the Special
Committee, after consultation with its counsel, may be required under applicable
law.
As used in this Agreement, "Acquisition Proposal" shall mean any
tender or exchange offer involving the Company or its securities, any proposal
for a merger, consolidation or other business combination involving the Company,
any proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the business or assets of, the Company, any proposal
or offer with respect to any recapitalization or restructuring with respect to
the Company or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to the Company; provided, however,
that, as used in this Agreement, the term "ACQUISITION PROPOSAL" shall not apply
to any transaction of the type described in this subsection (d) involving
Parent, Purchaser or their affiliates.
6.2 Access to Information. Between the date of this Agreement and
the Effective Time, upon reasonable notice the Company shall (i) give Parent,
Purchaser and their respective officers, employees, accountants, counsel,
financing sources and other agents and representatives full access to all
buildings, offices, and other facilities and to all contracts, internal reports,
data processing files and records, Federal, state, local and foreign tax returns
and records, commitments, books, records and affairs of the Company, whether
located on the premises of the Company or at another location; (ii) furnish
promptly to Parent and Purchaser a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of Federal securities laws or regulations; (iii) permit
Parent and Purchaser to make such inspections as they may require; (iv) cause
its officers to furnish Parent and Purchaser such financial, operating,
technical and product data and other information with respect to the business
and properties of the Company as Parent and Purchaser from time to time may
request, including without limitation financial statements and schedules; (v)
allow Parent and Purchaser the opportunity to interview such employees and other
personnel and affiliates of the Company with the Company's prior written
consent, which consent shall not be unreasonably withheld; and (vi) assist and
cooperate with Parent and Purchaser in the foregoing; provided, however, that no
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investigation pursuant to this Section 6.2 shall affect or be deemed to modify
any representation or warranty made by the Company herein.
6.3 Consents and Approvals.
(a) The parties hereto shall cooperate with each other and
use reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties ("THIRD PARTY APPROVALS") and federal, state
and local governmental agencies and authorities ("GOVERNMENTAL AUTHORITIES")
which are necessary or advisable to consummate the transactions contemplated by
this Agreement (including without limitation the Offer and the Merger)
("GOVERNMENTAL APPROVALS" and, together with Third Party Approvals,
"APPROVALS"), and to comply with the terms and conditions of all such Approvals.
Each of the parties hereto and their respective officers, directors and
affiliates shall use their reasonable best efforts to file within 15 days after
the date hereof, and in all events shall file within 30 days after the date
hereof, all required initial applications and documents in connection with
obtaining the Governmental Approvals and shall act reasonably and promptly
thereafter in responding to additional requests in connection therewith; and
each party will use its reasonable best efforts to secure such Governmental
Approvals as expeditiously as practicable. Parent and the Company shall have the
right to review in advance, and to the extent practicable each will consult the
other on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to Parent or the Company, as the case
may be, and any of their respective subsidiaries, directors, officers and
stockholders which appear in any filing made with, or written materials
submitted to, any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. Without limiting the foregoing,
each of Parent and the Company (the "NOTIFYING PARTY") will notify the other
promptly of the receipt of comments or requests from Governmental Authorities
relating to Governmental Approvals, and will supply the other party with copies
of all correspondence between the Notifying Party or any of its representatives
and Governmental Authorities with respect to Governmental Approvals.
(b) Parent and the Company shall promptly advise each other
upon receiving any communication from any Governmental Authority whose consent
or approval is required for consummation of the transactions contemplated by
this Agreement which causes such party to believe that there is a reasonable
likelihood that any such consent or approval will not be obtained or that the
receipt of any such consent or approval will be materially delayed.
6.4 Notification of Certain Matters. The Company will give prompt
notice to Parent of (a) any notice of default received by it subsequent to the
date of this Agreement and prior to the Effective Time under any material
instrument or material agreement to which it is a party or by which it is bound,
which default, if not remedied, would render materially incomplete or untrue any
representation or warranty made herein, (b) any suit, action or proceeding
instituted or, to the knowledge of the Company, threatened against or affecting
the Company subsequent to the date of this Agreement and prior to the Effective
Time which, if adversely determined, would render materially incorrect any
representation or warranty made herein and (c) any material breach of the
Company's covenants hereunder or the occurrence of any event that is reasonably
likely to cause any of its representations and warranties hereunder to become
incomplete or untrue in any material respect.
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<PAGE> 20
6.5 Additional Actions. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, to consummate and make
effective the Offer, the Merger and the other transactions contemplated by this
Agreement.
6.6 Cooperation with Financing.
(a) Parent, Purchaser and Mr. Hughes shall use commercially
reasonable best efforts to obtain the Debt Financing. The Company agrees to
provide, and will use commercially reasonable efforts to cause its subsidiaries,
its officers and employees, representatives and advisors, including legal and
accounting, to provide all necessary cooperation reasonably requested by Parent,
Purchaser and Mr. Hughes in connection with the Debt Financing, including,
without limitation, using commercially reasonable best efforts to cause (a)
appropriate officers and employees to be available on a customary basis for
"road show" appearances and the preparation of disclosure documents in
connection therewith and (b) its independent accountants and counsel to provide
assistance to Parent, Purchaser and Mr. Hughes as reasonably required in
connection with the Debt Financing; provided, however, that the obligation of
the Company to use its commercially reasonable best efforts in connection with
the foregoing shall only apply to reasonable and customary activities in this
regard and shall not include any obligation to obtain any extraordinary waivers,
consents or approvals to loan agreements, leases or other contracts or to agree
to an adverse modification of the terms of any of such documents, to prepay or
incur additional obligations to any other parties or to incur or become liable
for any other costs or expenses. Parent and Purchaser shall keep the Company
informed of the status of their arrangements for the Debt Financing, including
providing written notification to the Company as promptly as possible (but in
any event within forty-eight (48) hours) with respect to (i) any indication that
DLJ has withdrawn or will withdraw or adversely modify the DLJ Letter, or that
DLJ has indicated that there has occurred a material adverse disruption or
material adverse change in the banking, financial or capital markets generally
or in the market for senior credit facilities or for new issuances of high yield
securities which has caused or could cause DLJ to withdraw the DLJ Letter, and
(ii) any other material adverse developments relating to the financing
contemplated by the Debt Financing. Parent shall provide written notice to the
Company within twenty-four (24) hours if DLJ has indicated to Parent or
Purchaser that it will be unable to arrange or secure the financing contemplated
by the DLJ Letter. In the event Parent and Purchaser are unable to arrange any
portion of such financing in the manner or from the sources contemplated by the
DLJ Letter, Parent and Purchaser shall use commercially reasonable best efforts
(but without any requirement to expend additional funds or modify in a manner
adverse to Parent, Purchaser or Mr. Hughes any of the terms of the Offer, the
Merger or the other transactions contemplated hereby) to arrange any such
portion from alternative sources on substantially the same terms and with
substantially the same conditions as the portion of the financing that Parent
and Purchaser were unable to arrange. Nothing in this Section shall require the
Company to enter into any credit agreement, indenture, guarantee or similar
agreement related to the Debt Financing (other than by operation of law upon
consummation of the Merger) without the consent of the Special Committee.
(b) Prior to the acceptance for purchase of shares of
Company Common Stock properly tendered in the Offer, Mr. Hughes shall, and shall
have caused the other persons and
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<PAGE> 21
entities included within the Continuing Stockholder to, have complied in all
material respects with the Equity Commitment.
6.7 Certain Use of Proceeds. Immediately after the Effective Time,
the Surviving Corporation will make the loans to Debtor LLC described on Exhibit
B to this Agreement, the form, terms and conditions thereof to be satisfactory
to Parent and Mr. Hughes in their sole reasonable discretion.
6.8 Indemnification, Exculpation And Insurance.
(a) Parent agrees that all rights to indemnification and
exculpation (including the advancement of expenses) from liabilities for acts or
omissions occurring at or prior to the Effective Time (including with respect to
the transactions contemplated by this Agreement) existing now or at the
Effective Time in favor of the current or former directors or officers of
Company as provided in the Company Certificate of Incorporation, the Company
By-Laws and any indemnification agreements (each as in effect on the date
hereof) shall be assumed by the Surviving Corporation in the Merger, without
further action, as of the Effective Time and shall survive the Merger and shall
continue in full force and effect without amendment, modification or repeal in
accordance with their terms; provided, however, that if any claims are asserted
or made during the continuance of such terms, all rights to indemnification (and
to advancement of expenses) hereunder in respect of any such claims shall
continue, without diminution, until disposition of any and all such claims.
(b) In the event that Parent, the Surviving Corporation or
any of their successors or assigns (i) consolidates with or merges into any
other person and is not the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision will be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall expressly assume the
obligations set forth in this Section 6.8. In the event the Surviving
Corporation transfers any material portion of its assets, in a single
transaction or in a series of transactions, Parent will either guarantee the
indemnification obligations referred to in Section 6.8(a) or take such other
action to insure that the ability of the Surviving Corporation, legal and
financial, to satisfy such indemnification obligations will not be diminished in
any material respect.
(c) The Surviving Corporation shall (i) maintain for a
period of not less than six years from the Effective Time the Company's current
directors' and officers' insurance and indemnification policy to the extent that
it provides coverage for events occurring prior to the Effective Time (the "D&O
INSURANCE"), for all persons who are directors or officers of the Company on the
date of this Agreement (the "INSURED PARTIES") or (ii) cause to be provided
coverage no less advantageous to the Insured Parties than the D&O Insurance, in
each case so long as the annual premium therefor would not be in excess of 150%
of the last annual premium paid for the D&O Insurance prior to the date of this
Agreement (such 150% amount, the "MAXIMUM PREMIUM"). If the existing D&O
Insurance expires, is terminated or canceled during such six-year period, the
Surviving Corporation will use all reasonable efforts to cause to be obtained as
much D&O Insurance as can be obtained for the remainder of such period for an
annualized premium not in excess of the Maximum Premium.
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<PAGE> 22
(d) The provisions of this Section 6.8 (i) are intended to
be for the benefit of, and will be enforceable by, each indemnified or insured
party, his or her heirs and his or her representatives and (ii) are in addition
to, and not in substitution for, any other rights to indemnification or
contribution that any such person may have by contract or otherwise.
6.9 Solvency Matters.
(a) Parent and the Company will jointly agree to retain a
mutually satisfactory appraisal firm (the "APPRAISER") to provide a letter to
the Special Committee of the Board of Directors of the Company and the Board of
Directors of the Parent (the "SOLVENCY LETTER") to the effect that the financing
to be provided to Purchaser to effect the Offer and the Merger and the other
transactions contemplated hereby will not cause (i) the fair salable value of
the Surviving Corporation's assets to be less than the total amount of its
existing liabilities and identified contingent liabilities, (ii) the fair
salable value of the assets of the Surviving Corporation to be less than the
amount that will be required to pay its probable liabilities on its existing
debts as they mature, (iii) the Surviving Corporation not to be able to pay its
existing debts as they mature or (iv) the Surviving Corporation to have an
unreasonably small capital with which to engage in its business.
(b) The Appraiser will be requested to deliver a Solvency
Letter as promptly as practicable. If the Appraiser is unable to deliver the
Solvency Letter prior to the acceptance of Shares pursuant to the Offer or the
Solvency Letter is not reasonably acceptable to the Special Committee of the
Board of Directors of the Company (after reasonable efforts are made to remedy
any deficiencies in the Solvency Letter), Parent and Purchaser covenant and
agree that they shall not consummate the Offer.
ARTICLE II
CONDITIONS
7.1 Conditions to each Party's Obligations to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) Governmental Approvals. Other than the filing of the
Articles of Merger in accordance with the NRS, all material Governmental
Approvals required to be obtained and all material filings, notices or
declarations with or to Governmental Authorities required to be made by the
parties and their Subsidiaries, officers, directors and affiliates in order to
consummate the Merger shall have been obtained or made, and no such approval
shall contain any conditions, limitations or restrictions, other than any
deviation from the foregoing that does not have and may not reasonably be
expected to have a Company Material Adverse Effect or Parent Material Adverse
Effect.
(b) Legal Action; Statutes. No Governmental Entity shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect of
making the Merger or the transactions contemplated hereby illegal or prohibits
or imposes material limitations on the ability of Purchaser to consummate the
Merger or otherwise prohibiting (directly or indirectly) consummation of the
transactions contemplated by
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<PAGE> 23
this Agreement or prohibits or imposes material limitations on the ability of
Parent to own or operate all or a material portion of the Company's and its
subsidiaries' businesses or assets, taken as a whole.
(c) Closing of Tender Offer. Purchaser shall have (i)
commenced the Offer pursuant to Article I hereof and (ii) purchased, pursuant to
the terms and conditions of such Offer, all shares of the Company Common Stock
duly tendered and not withdrawn; provided, however, that neither Parent nor
Purchaser shall be entitled to rely on the condition in clause (ii) above if
either of them shall have failed to purchase shares of the Company Common Stock
pursuant to the Offer in breach of their obligations under this Agreement.
7.2 [Intentionally deleted]
7.3 Conditions to Obligations of the Company to Effect the Merger.
The obligations of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Representations and Warranties Accurate. The
representations and warranties of the Parent and Purchaser set forth in this
Agreement that are qualified as to materiality shall be true and correct, or any
such representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case at the date of the Agreement and
at the date of the Closing (unless a representation speaks as of an earlier
date, in which case it shall be true and correct as of such earlier date).
(b) No Material Breach. Parent and Purchaser shall have
performed in all material respects all obligations, and shall have complied in
all material respects with any agreement or covenant of Parent and/or Purchaser,
to be performed or complied with by either of them under this Agreement, prior
to or as of the date of the Closing, and the Company shall have received a
certificate signed by a senior officer of the Parent to such effect.
(c) Parent to Fund Paying Agent. Prior to the Effective
Time, Parent shall have deposited with the Paying Agent the funds to which
holders of Company Common Stock shall become entitled pursuant to Section 2.1(c)
hereof.
(d) Solvency Letter. The Solvency Letter shall have been
delivered to the Special Committee and the Board of Directors of the Company
prior to the acceptance of Shares pursuant to the Offer.
(e) Stockholder Consent. The Stockholder Consent shall
remain in full force and effect.
ARTICLE III
TERMINATION
8.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
stockholder approval thereof:
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<PAGE> 24
(a) By Mutual Consent. By mutual consent of Parent and the
Board of Directors of the Company.
(b) By Any Party. By Parent or Purchaser, or by the Board of
Directors of the Company:
(i) if the Merger shall not have been consummated on
or prior to March 31, 2000; provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party whose
failure to fulfill any material obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to be consummated on or
prior to such date;
(ii) if a court of competent jurisdiction or other
governmental authority shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties hereto
shall use their reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; or
(iii) if the Offer terminates or expires on account of
the failure of any condition specified in Exhibit A without Purchaser having
purchased any shares of the Company Common Stock thereunder; provided, however,
that the right to terminate this Agreement pursuant to this Section 8.1(b)(iii)
shall not be available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of any Offer Condition.
(c) By Parent or Purchaser. By Parent or Purchaser:
(i) if the Board of Directors of the Company or the
Special Committee thereof shall have withdrawn, modified or changed in a manner
adverse to Parent or Purchaser its approval or recommendation of this Agreement,
the Offer or the Merger or shall have approved or recommended an Acquisition
Proposal; or
(ii) the Independent Advisor shall have withdrawn,
modified or changed in a manner adverse to Parent or Purchaser its opinion as to
the fairness, from a financial point of view, of the consideration to be
received in the Offer and the Merger; or
(iii) if the Company breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein (including without limitation the covenants in Article VI), or
breaches any of its representations or warranties contained herein, in any
material respect, which breach shall not have been cured in the case of a
representation or warranty, prior to the Closing or, in the case of a covenant
or agreement, within ten (10) days following receipt by the Company of written
notice specifying such breach from Parent or Purchaser.
(d) By the Company. By the Company (acting through the
Special Committee): (i) if Parent or Purchaser breaches or fails in any material
respect to perform or comply with any of their respective material covenants and
agreements contained herein
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<PAGE> 25
(including without limitation the covenants in Article VI), or breaches any of
their respective representations or warranties contained herein, in any material
respect, which breach shall not have been cured in the case of a representation
or warranty, prior to the Closing or, in the case of a covenant or agreement,
within ten (10) days following receipt by Parent of written notice specifying
such breach from the Company; or
(ii) if Purchaser or Parent shall have (A) failed to
commence the Offer within five Business Days of the public announcement by
Parent and the Company of this Agreement, or (B) failed to pay for Shares
pursuant to the Offer in accordance with Section 1.1(a) hereof.
3.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1 above, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of Parent and Purchaser, or either of them, or the Company, or their respective
officers, directors or employees, except (a) for fraud, (b) as set forth in this
Section 8.2 and in Section 9.1 hereof and (c) nothing herein shall relieve any
party from liability for any willful breach hereof.
ARTICLE IV
GENERAL PROVISIONS
9.1 Fees and Expenses. All costs and expenses incurred in connection
with this Agreement and the consummation of the transactions contemplated hereby
(including, without limitation, all fees and expenses of the parties' respective
financial advisors and legal and accounting advisors, the Independent Advisor
and the legal and accounting advisors to the Special Committee) (collectively,
"COSTS") shall be paid by the Company, whether or not the Closing occurs;
provided, however, that if a Reimbursement Event occurs, Parent, Purchaser and
Mr. Hughes shall reimburse the Company for $2 million (or such lesser amount
actually incurred) of the Costs incurred by them in connection herewith. A
"REIMBURSEMENT EVENT" shall mean a failure to consummate the Offer or the Merger
as a result of the Financing Condition to the Offer (as defined in Exhibit A
hereto) not being satisfied for any reason, and then only if the
non-satisfaction of the Financing Condition is not principally the result of a
Company Material Adverse Effect. Notwithstanding anything in this Section 9.1 to
the contrary, in the event that this Agreement is terminated pursuant to Section
8.1(d), then Parent, Purchaser and Mr. Hughes shall be responsible fully for the
Costs incurred by them. For purposes of determining the Costs incurred by
Parent, Purchaser and Mr. Hughes, "Costs" shall include (i) the fees and
expenses of DLJ and its legal advisors and (ii) the fees and expenses of legal,
tax and accounting advisors to the Company, to the extent that their services
were provided to assist Mr. Hughes in the structuring and negotiation of the
transactions contemplated by this Agreement.
9.2 Amendment and Modification. Subject to applicable law and
subject to Section 9.13, this Agreement may be amended, modified and
supplemented in any and all respects, whether before or after any vote of the
stockholders of the Company contemplated hereby, by written agreement of the
parties hereto, by action taken by their respective Boards of Directors at any
time prior to the Closing Date with respect to any of the terms contained
herein; provided, however, that
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<PAGE> 26
after the approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce or change the form of the
Merger Consideration.
9.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
9.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon personal delivery, facsimile
transmission (which is confirmed), telex or delivery by an overnight express
courier service (delivery, postage or freight charges prepaid), or on the fourth
day following deposit in the United States mail (if sent by registered or
certified mail, return receipt requested, delivery, postage or freight charges
prepaid), addressed to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent, Purchaser, Mr. Hughes or the Family Trust,
to:
Mr. Hughes
C/o Herbalife International, Inc.
1800 Century Park East, Los Angeles, CA 90067
Telecopy No.: (310) 557-3904
Attention: Mr. Hughes
with a copy to:
Irell & Manella LLP
333 South Hope Street, Suite 3300 Los Angeles,
California 90071
Telecopy No.: (213) 229-0516
Attention: Anthony T. Iler, Esq.
(b) if to the Company, to:
The Special Committee of the Board of Directors
of Herbalife International, Inc.
C/o John M. Newell, Esq.
Latham & Watkins
633 West Fifth Street, Los Angeles, CA 90071
Telecopy No.: (213) 891-8763
Attention: Messrs. Edward J. Hall and Christopher Miner
with a copy to:
Latham & Watkins
633 West Fifth Street, Los Angeles, CA 90071
Telecopy No.: (213) 891-8763
Attention: Randall C. Bassett, Esq. and John M. Newell,
Esq.
9.5 Definitions; Interpretation. As used in this Agreement, the
terms "AFFILIATE(S)" and "ASSOCIATES" shall have the meanings set forth in Rule
12b-2 under the Exchange Act. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference
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<PAGE> 27
shall be to an Article, Section, Exhibit or Schedule to this Agreement unless
otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used
herein shall be deemed in each case to be followed by the words "WITHOUT
LIMITATION." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof (including without limitation
Section 6.1 hereof) in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.8 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein and therein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.8, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
9.9 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
9.10 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada (without giving effect to the
principles of conflicts of law thereof).
9.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect subsidiary of Parent. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors and assigns.
9.12 Extension; Waiver. Subject to Section 9.13, at any time prior to
the Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties of
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<PAGE> 28
the other parties hereto contained herein or in any document delivered pursuant
hereto or (iii) subject to Section 9.2, waive compliance with any of the
agreements or conditions of the other parties hereto contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
9.13 Procedure For Termination, Amendment, Extension Or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 9.2 or an extension or waiver pursuant to Section
9.12 shall, in order to be effective, require in the case of Parent, Purchaser
or Company, action by its respective managing member, Board of Directors or the
duly authorized designee thereof; provided, however, the affirmative vote of a
majority of the members of the Special Committee of the Board of Directors of
the Company shall be required in order for the Company or the Board of Directors
of the Company to act to (i) amend or terminate this Agreement, (ii) exercise or
waive any of Company's rights or remedies under this Agreement, (iii) extend the
time for performance of Parent's and Purchaser's respective obligations under
this Agreement or (iv) take any action to amend or otherwise modify the
Company's Certificate of Incorporation or By-Laws (each as in effect on the date
hereof).
9.14 Guarantee.
(a) In order to induce the Company to enter into this
Agreement and for other valuable consideration, each of Mr. Hughes and the
Family Trust, jointly and severally, hereby irrevocably guarantees (as primary
obligor and not merely as surety) to the Company and each person who controls
the Company within the meaning of the Securities Act or the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise
(each of such persons, a "BENEFICIARY") (i) the accuracy of the representations
and warranties of Parent and Purchaser contained in Article IV hereof and (ii)
the performance by Parent and Purchaser of the covenants and agreements
contained in this Agreement.
(b) The obligations of Mr. Hughes and the Family Trust under
this Section 9.14 shall be unconditional, irrespective of the validity or
enforceability of any other provision of this Agreement.
(c) The obligations of Mr. Hughes and the Family Trust under
this Section 9.14 constitute guarantees of performance and of payment, and not
merely guarantees of collection, and shall remain in full force and effect until
all obligations of and all amounts payable by Parent and Purchaser in respect of
the matters (the "GUARANTEED MATTERS") that are the subject of the obligations
of Mr. Hughes and the Family Trust under this Section 9.14 of this Agreement
have been validly, finally and irrevocably performed or paid in full, as the
case may be, and shall not be affected in any way by the absence of any action
to obtain such performance or amounts, as the case may be, from Parent or
Purchaser hereunder or of any security from time to time therefor. Each of Mr.
Hughes and the Family Trust hereby waives all requirements as to promptness,
diligence, presentment, demand for payment, protest and notice of any kind with
respect to his or its obligations under this Section 9.14. Each of Mr. Hughes
and the Family Trust hereby agrees, jointly and severally, that action may be
taken directly against such person under this Section 9.14 without any action
being taken against Parent or Purchaser.
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(d) The obligations of Mr. Hughes and the Family Trust under
this Section 9.14 shall not be affected by any change in applicable laws, rules
or regulations or by any present or future action of any governmental authority
or court amending, varying, reducing or otherwise affecting or purporting to
amend, vary, reduce or otherwise affect any of the obligations of Parent or
Purchaser under this Agreement or by any other circumstance (other than by
complete, irrevocable performance or payment) that might otherwise constitute a
legal or equitable discharge or defense of a surety or a guarantor. If Parent or
Purchaser merges or consolidates with or into another entity, loses its separate
legal identity or ceases to exist, Mr. Hughes and the Family Trust shall
nonetheless continue to be liable for the performance of all obligations or the
payment of all amounts, as the case may be, that would have been due or payable,
as the case may be, by Parent or Purchaser in respect of the Guaranteed Matters.
(e) The obligations of Mr. Hughes and the Family Trust under
this Section 9.14 shall remain in full force and effect or shall be reinstated
(as the case may be) if at any time any obligation or payment of Parent or
Purchaser in respect of the Guaranteed Matters, in whole or in part, is
rescinded or must otherwise be returned by a Beneficiary upon the insolvency,
bankruptcy or reorganization of Parent or Purchaser or otherwise, all as though
such performance or payment, as the case may be, had not been made.
(f) If at any time when any obligation of, or any amount
payable by Parent or Purchaser in respect of, the Guaranteed Matters is overdue
and unperformed or unpaid, as the case may be, Mr. Hughes and the Family Trust
receives any amount as a result of any action against Parent or Purchaser or any
of its property or assets or otherwise for or on account of any payment made by
Mr. Hughes and the Family Trust pursuant to this Section 9.14, Mr. Hughes or the
Family Trust, as the case may be, shall forthwith pay such amount received by it
to the Beneficiaries, without demand, to be credited and applied toward any such
amount payable by Parent or Purchaser.
(g) The guarantee agreements set forth in this Agreement
shall be in addition to any liability which Parent, Purchaser, Mr. Hughes or the
Family Trust may otherwise have.
9.15 Announcements. Neither the Company, Parent nor Purchaser shall
make any public announcement of the terms or existence of this Agreement without
the consent of the other parties hereto, unless required by law.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 30
IN WITNESS WHEREOF, Parent, Purchaser, Mr. Hughes, the Family Trust and
the Company have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
HERBALIFE INTERNATIONAL, INC.: MH MILLENNIUM HOLDINGS LLC:
By: ______________________________ By: _________________________________
Name Mark Hughes
Title: ___________________________ Title: Managing Member
MH MILLENNIUM ACQUISITION CORP.:
By: _________________________________
Mark Hughes
Title: President
MARK HUGHES*:
_____________________________________
THE MARK HUGHES FAMILY TRUST**:
By: _________________________________
Mark Hughes
Title: Sole Trustee
- --------
* Signing only with respect to Sections 1.7(b), 6.6 and Section 9.14.
** Signing only with respect to Section 9.14.
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<PAGE> 31
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless the number of Shares tendered and not withdrawn shall equal
more than 50% of each class of the Company Common Stock outstanding on the date
hereof excluding Company Common Stock owned by the Continuing Stockholder (the
"MINIMUM CONDITION") prior to the date which is 20 Business Days following the
commencement of the Offer in accordance with the terms hereof or such later date
as the Offer may be extended as provided in Section 1.1(a) of the Agreement or
by an amendment to this Agreement in accordance with the provisions of Section
9.13. Furthermore, notwithstanding any other term of the Offer, Purchaser shall
not be required to accept for payment or, subject as aforesaid, to pay for any
Shares not theretofore accepted for payment or paid for, and may terminate the
Offer, subject to the terms and conditions of the Agreement and Purchaser's
obligation to extend the Offer pursuant to Section 1.1(a), if, at any time on or
after the date of this Agreement and before the acceptance of such Shares for
payment or the payment therefor, any of the following conditions exists:
(a) any material Governmental Approvals required to be obtained or
any material filings, notices or declarations with or to Governmental
Authorities required to be made by the parties or their Subsidiaries, officers,
directors and affiliates in order to consummate the Offer, shall fail to have
been obtained or made, or if obtained or made, any such approval does or would
contain any conditions, limitations or restrictions that have or would
reasonably be expected to have a Company Material Adverse Effect or Parent
Material Adverse Effect;
(b) a Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
which is in effect and has the effect of making the acquisition of Shares by
Purchaser, the Offer, the Merger or the other transactions contemplated by the
Agreement illegal or prohibits or imposes material limitations on the ability of
Purchaser to consummate the Offer, the Merger or the acquisition of the Shares
or otherwise prohibits(directly or indirectly) consummation of the transactions
contemplated by the Agreement or prohibits or imposes material limitations on
the ability of Parent to own or operate all or a material portion of the
Company's and its subsidiaries' businesses or assets, taken as a whole;
(c) any of the representations and warranties of the Company set
forth in the Agreement that are qualified as to materiality shall not be true
and correct, or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each case at
the date of the Agreement and at the scheduled or extended expiration of the
Offer (unless a representation speaks as of an earlier date, in which case if
any such representation is not true and correct as of such earlier date), which
breaches have not been cured within 10 Business Days after the giving of written
notice to the Company;
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<PAGE> 32
(d) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement, which breaches have not been cured within 10 Business Days after the
giving of written notice to the Company; or
(e) this Agreement shall have been terminated in accordance with its
terms;
(f) Parent, Purchaser and/or one or more of their respective
subsidiaries shall not have obtained the Debt Financing, on terms and conditions
satisfactory in form and substance to Parent and Purchaser in their sole
reasonable discretion (including the availability of funds for the loans
referred to in Section 6.7 of the Agreement, which loans shall be permitted to
be made immediately after the Effective Time) in amounts that, together with
cash and cash equivalents of the Company as of the Effective Date, is sufficient
to satisfy the Uses of Funds (the "FINANCING CONDITION");
(g) the number of shares of Company Common Stock as to which the
holders thereof have properly exercised, or reasonably appear to have properly
exercised, dissenters' rights, if any, with respect to the Merger exceed three
percent (3%) of the total number of shares of Company Common Stock outstanding
as of the date of the Agreement,
which, in the reasonable judgment of Parent or Purchaser in any such case, and
regardless of the circumstances (including any action or omission by Parent or
Purchaser) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payments therefor.
The foregoing conditions in paragraphs (a) through (g) are for the sole
benefit of Purchaser and Parent and may, subject to the terms of this Agreement
and except for the Minimum Condition, be waived by Purchaser and Parent in whole
or in part at any time and from time to time in their sole discretion. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, the waiver of any such
right with respect to particular facts and circumstances shall not be deemed a
waiver with respect to any other facts and circumstances and each such right
shall be deemed an ongoing right that may be asserted at any time and from time
to time. Terms used herein but not defined herein shall have the meanings
assigned to such terms in the Agreement of which this Exhibit A is a part.
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<PAGE> 33
EXHIBIT B
LOANS TO MR. HUGHES
Immediately after the Closing of the Merger, the Company will make two
loans in the aggregate amount of approximately $214.25 million, comprised of a
loan in the aggregate amount of approximately $125 million ("Loan A") and a loan
in the aggregate amount of approximately $89.25 million ("Loan B" and, together
with Loan A, the "Loans") to Debtor LLC. The Loans will have a stated maturity
of seven years, will bear interest at a commercially reasonable rate (for loans
of similar nature and with similar terms) per annum, and will call for annual
interest-only payments until maturity, at which time the principal balance and
all accrued and unpaid interest will be due.
Debtor LLC will use the proceeds from Loan B to fund the required
posting of alternative collateral to secure the obligations of Mr. Hughes and
related entities under the forward purchase agreements with DECS Trust III.
Repayment of Loan B will not be secured; it will, however, be guaranteed as to
repayment by Mr. Hughes (the "Loan B Guarantee"). The proceeds of Loan A will be
retained by Debtor LLC and invested, and such proceeds and investments
(collectively, the "Collateral") will be pledged by Debtor LLC to secure that
Loan. The Company will pledge Loan A and the related Collateral to the bank
anticipated to be the lender to Purchaser (and, after the Merger, to the
Company) under senior bank financing constituting a portion of the Debt
Financing. The secured note evidencing and securing Loan A will serve as
security for Purchaser's (and, after the Merger, the Company's) obligations
under such senior bank financing. Initially, the value of the Collateral is
expected to be approximately $125 million. Other than the Collateral, the only
assets of Debtor LLC will consist of substantially all of the outstanding shares
of the Company's capital stock (other than a small number of voting shares to be
held by Parent); however, under the terms of the agreements governing the Loans
(the "Loan Agreements"), there will be no restriction on the ability of Debtor
LLC to make a distribution of the Company capital stock at any time.
The terms of the Loan Agreements and the pledge of the Collateral may
impose restrictions on investments that Debtor LLC may make utilizing funds
constituting all of the Collateral. In particular, it is anticipated that Debtor
LLC would only be permitted to invest in investment grade government securities.
Provided only that Debtor LLC is not in default in making interest payments on
the Loans, and that the Company is not in default under the Debt Financing,
investment earnings on the Collateral will be released from the Collateral
pledge and are expected to be distributed by Debtor LLC to Mr. Hughes.
Consequently, provided no default is occurring on the Loans or on the Debt
Financing, investment earnings on the Collateral will not provide additional
security for the Loans. If the value of the investment portfolio constituting
all or a portion of the Collateral declines in value, there is no obligation on
the part of Debtor LLC or any other person or entity to post additional security
to restore the value of the Collateral to its initial value or any other amount,
and such a decline in value would not affect the treatment of investment
earnings derived from the Collateral. Such earnings would still be released from
the Collateral pledge (provided, however, that Debtor LLC was not in default in
interest payments on the Loans and the Company is not in default under the Debt
Financing) and available for distribution to Mr. Hughes.
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<PAGE> 34
Commencing not earlier than three years following the Closing, if
certain financial covenant criteria contained in the Debt Financing are
satisfied, Mr. Hughes and the Company contemplate causing the Company to redeem
the capital stock held by Debtor LLC (which may, at the Company's election, be
recapitalized into preferred stock), or otherwise make payments to the LLC, in
order to permit Debtor LLC to repay the principal of the Loans, although Mr.
Hughes may cause Debtor LLC to satisfy the Loans in another fashion that does
not require any payment by the Company. The covenants restricting these actions
will be negotiated in arms lengths transactions, in good faith, with the lenders
providing the Debt Financing. Following the redemption of the capital stock held
by Debtor (or such other payments), the Collateral will be released from the
pledge and will thereby cease to act as security for the senior bank facility.
In addition, repayment of the Loans in the foregoing manner will have the effect
of extinguishing the Loan B Guarantee.
The Company intends to make distributions on its capital stock (or
preferred stock, if the common stock held by Debtor LLC is recapitalized) in an
amount approximately equal to the aggregate required interest payments on the
Loans. Under the Loan Agreements and Debt Financing, such distributions would be
permissible at any time (provided, however, that corresponding interest payments
are made on the Loans substantially contemporaneously by Debtor LLC to the
Company), regardless of whether the Company could then make a restricted payment
pursuant to the restricted payments covenant included in the Debt Financing, and
regardless of the general prohibition on such payments included in the Debt
Financing. However, such distributions could not be made during the existence of
a default or event of default under the Debt Financing.
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