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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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HUFFMAN KOOS INC.
(NAME OF SUBJECT COMPANY)
HUFFMAN KOOS INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
444322 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
WILLIAM HELLMAN
CHAIRMAN OF THE BOARD
HUFFMAN KOOS INC.
ROUTE 4 AND MAIN STREET
RIVER EDGE, NEW JERSEY 07661
(201) 343-4300
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
ROBERT F. WALL
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Huffman Koos Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is Route 4 and Main Street, River Edge, New Jersey 07661. The
title of the class of equity securities to which this statement relates is the
Company's Common Stock, $.01 par value per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by HK Acquisition Company, Inc.,
a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of
Breuner's Home Furnishings Corporation, a Delaware corporation (the "Parent"),
disclosed in a Tender Offer Statement on Schedule 14D-1 dated September 25, 1995
(the "Schedule 14D-1"), to purchase all of the outstanding Shares at a price of
$9.375 per Share, net to seller in cash (the "Offer Price"), upon the terms and
conditions set forth in the Purchaser's Offer to Purchase dated September 25,
1995 (the "Offer to Purchase") and in the related Letter of Transmittal (which,
together with the Offer to Purchase and any amendments or supplements thereto,
collectively constitute the "Offer"). Capitalized terms used but not otherwise
defined herein have the meanings given to such terms in the Offer.
The Offer is conditioned upon, among other things, there having been
validly tendered and not withdrawn prior to the expiration of the Offer that
number of Shares that represents at least ninety percent of the Shares
outstanding (the "Minimum Condition"). See Section 13 of the Offer to Purchase.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
September 18, 1995 by and among the Company, the Purchaser and the Parent (the
"Merger Agreement"). The Merger Agreement provides, among other things, for the
making of the Offer by the Purchaser and further provides that, following the
completion of the Offer and the satisfaction or the waiver of certain conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger" and, together with the Offer, the "Transaction").
Following the consummation of the Merger (the "Effective Time"), the Company
will be the surviving corporation (the "Surviving Corporation") and a
wholly-owned subsidiary of the Parent.
The Schedule 14D-1 states that the address of the principal executive
offices of the Parent and the Purchaser is 7069 Consolidated Way, San Diego,
California 92121.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b)(1) Certain material contracts, agreements, arrangements and
understandings and actual or known potential conflicts of interest between the
Company or its affiliates and (i) its executive officers, directors or
affiliates or (ii) the Purchaser, its executive officers, directors or
affiliates are described in the Information Statement attached hereto as Annex I
(which has been filed as Exhibit 1 to this Schedule 14D-9 and which is
incorporated herein by reference) or set forth below.
The Board established a Special Committee of the Board of Directors (the
"Special Committee") to help the Board review the Company's strategic
alternatives, and subsequent to the Company's public announcement that it had
retained The Chicago Corporation ("Chicago Corporation") to advise it in
considering the possible sale of the Company, the Special Committee assisted the
Board in conducting the sale process. In connection with their services as
members of the Special Committee, the Company will pay directors Peter C.B.
Bynoe and Michael Kurzman each a fee of $10,000.
Prior to September 18, 1995, the Company's by-laws generally provided that
the Company was permitted to indemnify an officer, director, employee or agent
of the Company, subject to certain standards of conduct, against expenses,
judgments and amounts paid in settlement actually and reasonably incurred by
such person arising from claims relating to the fact that he or she is or was an
officer, director, employee or agent of the Company. On September 18, 1995, the
Board amended the Company's by-laws to change such indemnification obligations
from elective obligations to affirmative obligations of the Company.
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(2) A. The Merger Agreement. The following is a summary of the Merger
Agreement, a copy of which has been filed as Exhibit 2 to this Schedule 14D-9.
Such summary is qualified in its entirety by reference to the Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer as soon as practicable, but in no event later than the fifth business
day after the date of the initial announcement of the Merger Agreement and the
Offer. The obligation of the Purchaser to commence the Offer and to accept for
payment, purchase and pay for Shares tendered pursuant to the Offer is subject
to the satisfaction of the Minimum Condition and certain other conditions set
forth in the Merger Agreement and Section 13 of the Offer to Purchase.
The Purchaser and the Parent have agreed with the Company that, without the
prior written consent of the Company, no change in the Offer may be made that
(x) decreases the price per Share payable in the Offer, (y) changes the form of
consideration payable in the Offer or (z) imposes conditions to the Offer in
addition to those set forth in Section 13 of the Offer to Purchase.
The Parent and the Purchaser have agreed with the Company that (i) the
Purchaser shall have the right in its sole discretion to extend the Offer for up
to a maximum of five additional business days if after 20 business days there
shall not have been tendered sufficient Shares to consummate a Short Form Merger
as described in Section 2.9(c) of the Merger Agreement, (ii) the Purchaser may
extend the Offer for such additional number of trading days as may be reasonably
necessary to allow Shares tendered under "signature guarantees" to be delivered
and (iii) if the Parent or the Purchaser determines, upon the advice of outside
legal counsel, that any supplement or amendment to the Offer Documents (as
defined in Section 1.1(b) of the Merger Agreement) is required to be circulated
to the offerees, then the Parent or the Purchaser shall have the right to extend
the offer for such additional number of days as may be necessary under
applicable law as determined by the Parent and the Purchaser, on the advice of
counsel.
Company Action. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof, and in accordance with the General
Corporation Law of the State of Delaware, as amended (the "DGCL"), the Board
will not (x) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the Parent or the Purchaser, its approval or recommendation of the
Offer, the Merger Agreement or the Merger, provided, however, that to the extent
required by the fiduciary obligations of the Board, as determined in good faith
by a majority of the "disinterested" members thereof based on the advice of
outside counsel, in the case of a "superior proposal" (as defined below), the
Board will have the right to withdraw such approval or recommendation; or (y)
approve or recommend, or propose to approve or recommend, any takeover proposal.
If any of the foregoing actions are taken by the Board, the Parent or the
Purchaser will have and the Company will have (subject to certain limitations)
the right to terminate the Merger Agreement. For purposes of the Merger
Agreement, "superior proposal" means a bona fide proposal made by a third party
to acquire the Company pursuant to a tender or exchange offer, a merger, a sale
of all or substantially all of its assets or otherwise on terms which a majority
of the disinterested members of the Board determines in its good faith judgment
to be more favorable to the Company's stockholders than the Offer and the Merger
(based on the written opinion, with only customary qualifications, of the
Company's financial advisor that the value of the consideration provided for in
such proposal exceeds the value of the consideration provided for in the Offer
and the Merger) and for which financing, to the extent required, is then
committed or which, in the good faith judgment of a majority of such
disinterested members (based on the written advice of the Company's financial
advisor), is reasonably capable of being obtained by such third party. For
purposes of the Merger Agreement, "disinterested" means disinterested with
respect to the Parent and the Purchaser.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at such time as the
certificate of merger is filed with the Secretary of State of Delaware or at
such later time as is specified in the certificate of merger (the time the
Merger becomes effective being referred to herein as the "Effective Time"), the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease and the Company
will continue as the surviving corporation after the Merger (the "Surviving
Corporation").
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The Merger Agreement provides that the directors of the Purchaser,
immediately prior to the Effective Time, shall be the initial directors of the
Surviving Corporation, and the officers of the Purchaser, immediately prior to
the Effective Time, shall be the initial officers of the Surviving Corporation.
The Merger Agreement provides that the certificate of incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation; provided, however,
that article 4 thereof shall be amended to provide that the authorized capital
stock of the Surviving Corporation shall consist solely of 1,000 shares of
common stock, par value $.01 per share. The Merger Agreement also provides that
the by-laws of the Company, as in effect immediately prior to the Effective
Time, shall be the by-laws of the Surviving Corporation.
Designation of Directors. The Merger Agreement provides that, promptly upon
the purchase by the Purchaser of the Shares pursuant to the Offer or the
Majority Shares (as hereinafter defined) pursuant to the Stockholders Agreement
(unless as a result of such purchase the Purchaser owns at least 90% of the
Shares then outstanding) and from time to time thereafter, the Purchaser shall
be entitled to designate up to such number of directors, rounded up to the next
whole number, on the board of directors of the Company as will give the
Purchaser representation on the board equal to the product of the number of
directors on the board and the ratio that the combined voting power of the
Shares so purchased bears to the total combined voting power of all outstanding
Shares on a fully-diluted basis, and, upon request by the Purchaser, the Company
shall use its best efforts either, at the Company's election, to increase
promptly the size of the board or to secure promptly the resignation of such
number of directors as is necessary to enable the Purchaser's designees to be
elected to the board and to cause the Purchaser's designees to be so elected. At
such times, the Company will use its best efforts to cause persons designated by
the Purchaser to constitute the same percentage as is on the board of each
committee of the board. Notwithstanding the foregoing, the Company shall use its
best efforts to ensure that two of the members of the board as of the date of
the Merger Agreement shall remain members of the board until the Effective Time,
and the Parent and the Purchaser shall not remove such members and, if
necessary, shall vote to keep such members on the board.
Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of the Purchaser or the Company: (i) each
Share issued and outstanding immediately prior to the Effective Time (other than
any Shares held by a holder who, in connection with the Merger, has properly
demanded and perfected the right for appraisal of such Shares in accordance with
the DGCL) will be converted automatically into the right to receive the amount
in cash payable to the holder thereof, without interest and less any required
withholding taxes, upon surrender of the certificate formerly representing such
Share; (ii) each Share held in the treasury of the Company or owned by the
Parent, the Purchaser or any subsidiary of the Parent or the Purchaser
immediately prior to the Effective Time will be canceled and cease to exist
without any conversion thereof and no payment or distribution will be made with
respect thereto; and (iii) each share of common stock, par value $.01 per share,
of the Purchaser issued and outstanding immediately prior to the Effective Time
will, upon surrender of the certificate formerly representing such shares, be
converted into and become one validly issued, fully paid and nonassessable share
of common stock, par value $.01 per share, of the Surviving Corporation.
Dissenting Shares. Under the DGCL, no appraisal rights are available to
stockholders who tender their Shares. Stockholders who do not tender their
Shares pursuant to the Offer will have the right to dissent and to seek an
appraisal pursuant to Section 262 of the DGCL. If a holder of Shares who has not
tendered those Shares pursuant to the Offer follows the procedures set forth in
Section 262 of the DGCL, he will be entitled to the fair value of his Shares as
of the date prior to the date on which the vote on the Merger is taken, as
appraised and determined by a court of competent jurisdiction, and to receive
payment in cash of such fair value of his Shares as so determined. Any such
judicial determination of "fair value" could be based upon any method of
valuation generally accepted in the investment community. The "fair value" of
the Shares so determined could be more or less than the amount to be paid
pursuant to the Offer and the Merger. Each stockholder who has elected not to
tender his Shares pursuant to the Offer will, in connection with the Merger,
receive notification of his appraisal rights and the procedures that he must
follow, together with a copy of Section 262 of the DGCL. In addition to
appraisal rights, stockholders may have other rights and remedies under federal
securities laws, Delaware law or the laws of the states in which they reside
relating to the
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assertion of any possible claim regarding the Offer and the Merger. In this
connection, stockholders are advised to discuss the Offer and the Merger with
their financial advisors and attorneys for a more complete discussion of their
rights.
Employee Stock Options. The Company will (i) take all necessary action to
provide that immediately prior to the Effective Time each outstanding stock
option (each, an "Option") granted under the Company's 1986 Stock Option Plan,
as amended and restated (the "Option Plan"), will be canceled and each holder of
a canceled Option will be entitled to receive from the Company, as of such date,
in cancellation and settlement of such Option, whether or not such Option was
exercisable at the time of such cancellation, only an amount equal to the
excess, if any, of $9.375, or any greater amount per Share paid pursuant to the
Offer, over the per Share exercise price of such Option, multiplied by the
number of Shares covered by such Option (the "Option Settlement Amount"),
reduced by any applicable withholding taxes or other amounts required by law to
be paid or withheld by the Company, and (ii) pay to each person who formerly
held such Option the Option Settlement Amount, reduced by such taxes or other
amounts; provided, however, that with respect to any person subject to Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
any such amount to be paid will be paid as soon as practicable after the first
date payment can be made without liability for such person under Section 16(b)
of the Exchange Act. Such Options and any rights granted in connection with any
such Options will be canceled upon the payment of the Option Settlement Amount.
At the Effective Time, any such Options with respect to which the holder thereof
has not consented, if necessary, to cancellation in exchange for the receipt of
the Option Settlement Amount will be converted into, and thereafter represent
only the right to receive, the Option Settlement Amount.
On September 18, 1995, the Stock Option and Compensation Committee of the
Board adopted resolutions authorizing and directing the appropriate executive
officers of the Company to take any and all proper actions necessary to effect
the cancellation and settlement of the outstanding Options as described above in
accordance with the terms and conditions of the Merger Agreement.
Company Stockholders' Meeting; Proxy Statement. Pursuant to the Merger
Agreement, in the event less than 90% of the Shares are tendered pursuant to the
Offer, the Parent and the Purchaser, on the one hand, and the Company, on the
other, may, subject to the satisfaction of certain conditions set forth in the
Merger Agreement, complete the Merger through a long-form merger. In that event,
the Company, after the consummation, expiration or termination of the Offer,
acting through its Board, shall in accordance with applicable law, duly call,
give notice of, convene and hold an annual or special meeting of its
stockholders (the "Stockholders Meeting") for the purposes of considering and
taking action upon the Merger Agreement and the transactions contemplated
thereby.
The Merger Agreement provides that, in the event less than 90% of the
Shares are tendered pursuant to the Offer, the Company, subject to its fiduciary
duties as determined in good faith by a majority of its Board, based as to legal
matters on the opinion of legal counsel, shall include in any proxy or similar
materials distributed to the Company's stockholders in connection with the
Merger, including any amendments or supplements thereto (the "Proxy Statement"),
the recommendation of the Board that the stockholders of the Company vote in
favor of the approval and adoption of the Merger Agreement and the written
opinion of the Company's financial advisor that based upon and subject to
matters set forth in the opinion and based upon such other matters as the
financial advisor considers relevant, the consideration to be received by the
holders of the Shares pursuant to the Merger is fair to such holders from a
financial point of view as of the date of the opinion. The Company, pursuant to
the Merger Agreement, shall use its reasonable efforts to have the Proxy
Statement reviewed and cleared by the Securities and Exchange Commission and
shall cause the Proxy Statement and any related materials to be mailed to its
stockholders at the earliest practicable time following the expiration or
termination of the Offer.
The Merger Agreement also provides that, at the Stockholders Meeting, the
Parent and the Purchaser shall vote all shares owned by them in favor of
approval and adoption of the Merger Agreement and the transactions contemplated
thereby.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties. The representations of the
Company relate to: (i) organization and good standing; (ii) authority relative
to the Merger Agreement; consents and approvals; (iii) capitalization; (iv)
effect of the Merger
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Agreement; (v) contracts and commitments; (vi) SEC reports and financial
statements; (vii) absence of liabilities; (viii) absence of certain changes or
events; (ix) tax and other returns; (x) employment arrangements; (xi) property;
(xii) patents and trademarks; (xiii) absence of litigation; (xiv) proxy
statement; (xv) brokers' and finders' fees; (xvi) insurance; (xvii) pension,
retirement and profit sharing plans; (xviii) environmental compliance; and (xix)
inventories. The representations of the Parent and the Purchaser relate to: (i)
organization and good standing; (ii) authority relative to the Merger Agreement;
(iii) proxy statement; (iv) Financing Condition (as defined in Section 1(c)(vi)
of the Merger Agreement); (v) absence of litigation; and (vi) brokers' and
finders' fees.
Conduct of Business of the Company. The Company has agreed that during the
period from the date of the Merger Agreement to the Effective Time, it will
operate in all respects in the ordinary course and in a manner consistent with
past practices. The Company has also agreed that it will not, without the prior
written consent of the Parent or the Purchaser, take any of the following
actions:
(i) amend or propose to amend its certificate of incorporation or
by-laws or create any subsidiary;
(ii) authorize for issuance, issue (other than issuances of Shares
pursuant to the exercise of Options), sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, any stock options, warrants or
stock appreciation rights);
(iii) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, warrants, stock or property or any combination thereof) in respect of
its capital stock or redeem or otherwise acquire any of its securities;
(iv) (A) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company,
except for the renewal of the Company's revolving line of credit; (B)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person except in the ordinary course of business consistent with past
practice and in amounts not material to the Company; (C) make any loans,
advances or capital contributions to or investments in any other person
(other than customary loans or advances to employees in the ordinary course
of business consistent with past practice and in amounts not material to
the maker of such loan or advance); (D) pledge or otherwise encumber shares
of capital stock of the Company or (E) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material lien thereupon;
(v) except as may be contemplated by the Merger Agreement, enter into,
adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or any
other employee benefit agreement, trust, plan, fund or other arrangement
for the benefit or welfare of any director, officer or employee in any
manner, or (except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, and
as required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement in effect as of the
date of the Merger Agreement (including, without limitation, the granting
of stock appreciation rights or performance units) or pay or agree to pay
any management fee or other payment to any of the Majority Sellers or any
of their affiliates;
(vi) acquire, sell, lease or dispose of any assets outside the
ordinary course of business consistent with past practice, or enter into
any commitment or transaction outside the ordinary course of business
consistent with past practice or waive any rights that may exist under any
confidentiality agreement to which the Company may be a party;
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(vii) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
methods, principles or practices used by it;
(viii) revalue any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business;
(ix) (A) acquire (by merger, consolidation or acquisition of stock or
assets or otherwise), any corporation, partnership or other business
organization or division thereof or any equity interest therein; (B) enter
into any contract or agreement other than in the ordinary course of
business consistent with past practice; (C) authorize any new capital
expenditure or expenditures which individually is in excess of $100,000 or,
in the aggregate, are in excess of $500,000; provided, that none of the
foregoing shall limit any capital expenditure already included in the
Company's 1995 capital expenditure budget previously provided to the Parent
or the Purchaser or (D) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action that would
be prohibited by the Merger Agreement;
(x) make any tax election or settle or compromise any income tax
liability of the Company;
(xi) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in, or contemplated
by, the financial statements (or the notes thereto) of the Company or
incurred in the ordinary course of business consistent with past practice;
(xii) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated by the Merger Agreement; or
(xiii) take, or agree in writing or otherwise to take, any of the
foregoing actions.
In addition, the Company has agreed to use all commercially reasonable
efforts to continue its current business relationships (including all rights of
exclusivity with respect to any products) with all significant vendors and
suppliers.
The Company also agreed that it will cause all necessary documents to be
prepared and submitted to (i) the New York State Department of Taxation and
Finance required under the New York Real Estate Transfer Tax and New York Tax on
Gains Derived from Certain Real Property Transfers and (ii) any other relevant
tax authorities to which transfer taxes are required to be paid.
No Solicitation of Business Combinations. Pursuant to the Merger Agreement,
the Company has agreed that it will cause its officers, directors and employees,
and will use its best efforts to cause its representatives, advisors, attorneys,
accountants and agents (i) to immediately cease any existing discussions or
negotiations with any corporation, partnership, person (which includes a
"person" as such term is defined in Section 13(d)(3) of the Exchange Act) or
other entity or group other than the Parent and the Purchaser, any affiliate or
associate of the Parent and the Purchaser or any designees of the Parent and the
Purchaser (each, a "Third Party") conducted with respect to a tender offer or
exchange offer for any Shares, any acquisition of more than 25% of the assets
of, or more than 25% of the equity interest in, the Company or any merger,
consolidation or other business combination with the Company (each, a "Business
Combination") and (ii) not to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any
information to any Third Party concerning any Business Combination; provided,
that the Company will not be prohibited from (x) furnishing information and
access, in each case only in response to unsolicited requests therefor, to any
Third Party pursuant to confidentiality agreements or (y) participating in
discussions and negotiating with such entity or group concerning any Business
Combination involving the Company or any division of the Company, in the case of
either (x) or (y), where such Third Party has submitted an unsolicited bona fide
written proposal to the Board relating to any such Business Combination and the
Board by a majority vote determines in its good faith judgment, after consulting
legal counsel, that failing to take such action would be inconsistent with the
Board's fiduciary duty to the Company's stockholders under applicable law. The
Board has also agreed to provide a copy of any such written proposal to
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the Parent or the Purchaser immediately after receipt thereof and thereafter
keep the Parent and the Purchaser promptly advised of any amended proposal with
respect thereto. The Company, however, will not be prohibited from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or from making any disclosure to the Company's stockholders if,
in the good faith judgment of the Board, based on the recommendation of outside
legal counsel, failure to do so would be inconsistent with applicable laws;
provided that the Company does not, except as permitted, withdraw or modify, or
propose to withdraw or modify, its position with respect to the Merger or
approve or recommend, or propose to approve or recommend, a takeover proposal.
Conditions to the Merger. The respective obligations of each party to the
Merger Agreement to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(i) the Merger Agreement will have been adopted by the requisite
affirmative vote of the stockholders of the Company, or the Purchaser will
have acquired sufficient Shares in the Offer to effect a Short Form Merger;
(ii) no statute, rule, regulation, executive order, decree, court
order, ruling or preliminary or permanent injunction will have been
enacted, entered, promulgated or enforced by any local, state or federal
court or governmental authority in the United States that prohibits,
restrains, enjoins or materially restricts the consummation of the Merger;
(iii) any waiting period applicable to the consummation of the Merger
under the HSR Act (as hereinafter defined) will have terminated or expired;
and
(iv) the Financing Condition will have been satisfied; provided,
however, that this condition will be deemed to have been waived if the
Parent or the Purchaser purchases any Shares pursuant to the Offer.
The obligations of the Parent and the Purchaser to effect the Merger are
also subject to the satisfaction of the following additional conditions, all of
which will be deemed to have been waived if the Parent or the Purchaser
purchases any Shares pursuant to the Offer:
(i) there will not have occurred or been threatened any event or
series of events or any condition or circumstance arisen that, individually
or in the aggregate, has or is reasonably likely to have a material adverse
effect on the Company;
(ii) the representations and warranties of the Company contained in
the Merger Agreement will be true and correct in all material respects on
and as of the date of consummation of the Merger as though made on and as
of that date, except (i) for changes occurring after the date of the Merger
Agreement that are specifically permitted by the Merger Agreement and (ii)
those representations and warranties that address matters only as of a
particular date will remain true and correct as of that date; and the
Parent and the Purchaser will have been furnished with a certificate of the
Company to that effect executed by its Chairman in form and substance
satisfactory to the Parent and the Company; and
(iii) the Company will have performed and complied in all material
respects with all obligations, covenants, agreements and conditions
required by the Merger Agreement to be performed or complied with by it
prior to or on the date of consummation of the Merger; and the Parent and
the Purchaser will have been furnished with a certificate of the Company to
that effect executed by its Chairman in form and substance satisfactory to
the Parent and the Purchaser.
The obligations of the Company to effect the Merger are also subject to the
satisfaction of the following additional conditions, all of which will be deemed
to have been satisfied if the Parent or the Purchaser has purchased any Shares
pursuant to the Offer:
(i) the representations and warranties of the Parent and the Purchaser
contained in the Merger Agreement will be true and correct in all material
respects on and as of the date of consummation of the Merger as though made
on and as of that date, except (i) for changes occurring after the date of
the Merger Agreement that are specifically permitted by the Merger
Agreement and (ii) those representations and warranties that address
matters only as of a particular date will remain true and correct as of
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that date; and the Company will have been furnished with a certificate of
each of the Parent and the Purchaser to that effect executed by their
respective Chairmen in form and substance satisfactory to the Company; and
(ii) the Parent and the Purchaser will have performed and complied in
all material respects with all obligations, covenants, agreements and
conditions required by the Merger Agreement to be performed or complied
with by them prior to or on the date of consummation of the Merger; and the
Company will have been furnished with a certificate of the Parent and the
Purchaser to that effect executed by their respective Chairmen in form and
substance satisfactory to the Company.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, and the Offer may be
abandoned at any time prior to acceptance for payment of the tendered Shares:
(i) by mutual written consent of the Parent, the Purchaser and the
Company;
(ii) by the Parent, the Purchaser or the Company if any statute, rule,
regulation, executive order, decree, court order, ruling or preliminary or
permanent injunction will have been enacted, entered, promulgated or
enforced by any local, state or federal court or governmental authority in
the United States that prohibits, restrains, enjoins or materially
restricts the consummation of the Merger or that would make the acquisition
or holding by the Parent or the Purchaser of the Shares or shares of common
stock of the Surviving Corporation illegal; provided, that prior to
invoking this provision in respect of any such injunction, the party
seeking to invoke this provision will use all commercially reasonable
efforts to have any such injunction vacated;
(iii) by the Parent, the Purchaser or the Company, if the Board shall
have withdrawn or modified, or proposed to withdraw or modify, in a manner
adverse to the Parent or the Purchaser, its approval or recommendation of
the Offer, the Merger Agreement or the Merger; provided, however, that the
Company may not exercise this right until after one business day following
the expiration or termination of the Offer (as it may have been extended)
and may then exercise this right if and only if the Purchaser has not then
purchased enough Shares to satisfy the Minimum Condition;
(iv) by the Parent and the Purchaser, on the one hand, or the Company,
on the other hand, if the Minimum Condition is satisfied and, due to an
occurrence or circumstance that would result in failure to satisfy any of
the other conditions to the Offer, the Purchaser will have failed to pay
for Shares pursuant to the Offer after one business day following the
expiration or termination of the Offer (or such later day to which the
Offer is extended), except that this right may not be exercised by a party
in the event that such failure has been caused by or results from the
failure of that party to perform in any material respect any of its
respective covenants or agreements contained in the Merger Agreement;
(v) by the Parent and the Purchaser, on the one hand, or the Company,
on the other hand, if the Financing Commitment Letter (as defined in
Section 4.4 of the Merger Agreement) is no longer in full force and effect
and, within ten business days thereafter, the Parent fails to deliver to
the Company reasonable evidence that it has obtained a financing commitment
(on terms not materially more adverse than the terms and conditions of the
Financing Commitment Letter) to enable it to consummate the long form
merger; or
(vi) by either the Parent or the Company if the Merger has not been
consummated on or before March 1, 1996, except that this provision may not
be exercised by a party in the event such failure has been caused by or
results from the failure of that party to perform in any material respect
any of its respective covenants or agreements contained in the Merger
Agreement.
Officers' and Directors' Insurance; Indemnification. The Merger Agreement
provides that for six years from the Effective Time, the Parent and the
Surviving Corporation will use all reasonable efforts to cause to be maintained
in effect the Company's current directors' and officers' insurance and
indemnification policy or an equivalent policy or policies (so long as no lapse
in coverage occurs as a result of such substitution) relating to actions,
alleged actions, omissions and alleged omissions occurring on or prior to the
Effective Time (the
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"D&O Insurance"), on terms no less favorable than those of such current policy
in terms of coverage and amounts so long as the annual premium therefor is not
in excess of 150% of the last annual premium paid prior to the date of the
Merger Agreement (the "Maximum Premium"); provided, however, that if the
existing D&O Insurance expires, is terminated or canceled during such six-year
period, the Company or the Surviving Corporation, as the case may be, will use
reasonable efforts to obtain 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.
The Merger Agreement provides that after the Effective Time, the Parent and
the Surviving Corporation will indemnify and hold harmless the present and
former directors and officers of the Company (and those persons becoming
directors or officers of the Company prior to the Effective Time) (collectively,
together with their respective heirs and representatives, the "Indemnified
Parties") to the maximum extent permitted under Delaware law as from time to
time in effect and (subject to any limitations in effect from time to time under
Delaware law) under the Company's certificate of incorporation and by-laws as in
effect on the date of the Merger Agreement from all claims by any person or
persons, with respect to acts, omissions or other matters whether occurring
prior to, on or at the Effective Time, relating to (A) the fact that he or she
is or was a director, officer, employee or agent of the Company or any of its
subsidiaries or (B) acts, omissions and other matters arising from or relating
to the Merger Agreement, the Stockholders Agreement or the transactions
contemplated thereby, and (subject to any limitations in effect from time to
time under Delaware law) will advance expenses to such directors and officers
promptly upon receipt of written request therefor and delivery of the
undertaking required by Section 145(e) of the DGCL (or any successor provision),
and such indemnification will (to the maximum extent permitted by applicable
law) be mandatory rather than permissive; provided, that such indemnification
obligations will continue in full force and effect for the later of a period of
seven years from the Effective Time or the expiration of the applicable statute
of limitations.
The Merger Agreement provides that if the Surviving Corporation or any of
its successors or assigns (i) reorganizes or consolidates with or merges into
any other person and is not the resulting, continuing or surviving corporation
or entity of such consolidation or merger or (ii) liquidates, dissolves or
transfers 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 the Surviving Corporation assume the obligations set
forth in the foregoing two paragraphs. The Merger Agreement also provides that
the obligations of the Parent and Surviving Corporation set forth in the
foregoing two paragraphs shall not be terminated or modified in such a manner as
to adversely affect any Indemnified Party without the consent of each
Indemnified Party.
Fees and Expenses. The Merger Agreement provides for payment of the
following fees and expenses:
(a) The Company will pay to the Parent a fee of $1,500,000 (the
"Termination Fee"), payable in immediately available funds, plus an amount
equal to the Expenses (as defined below), but not more than $1,850,000 of
such Expenses, within one business day after termination of the Merger
Agreement by the Parent, the Purchaser or the Company, pursuant to the
termination provisions of the Merger Agreement, if the Board has withdrawn
or modified or proposed to withdraw or modify, in a manner adverse to the
Parent or the Purchaser, its approval or recommendation of the Offer, the
Merger Agreement or the Merger pursuant to the provisions of the Merger
Agreement relating to a superior proposal.
(b) "Expenses" will mean all reasonable out-of-pocket fees and
expenses incurred or paid by or on behalf of the Parent, the Purchaser or
any of their affiliates in connection with the Offer, the Merger or the
consummation of any of the transactions contemplated by the Merger
Agreement, including all fees and expenses of counsel, investment banking
firms, lending institutions, accountants, experts and consultants; the
$500,000 cash fee payable pursuant to the Financing Commitment Letter will
be deemed to be a reasonable Expense.
(c) Except as otherwise provided in the Merger Agreement, each party
will bear its own costs and expenses.
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(d) The Company will not pay any legal, accounting and other costs,
fees and expenses incurred by or on behalf of any of the stockholders of
the Company in connection with the transactions contemplated by the Merger
Agreement.
B. Stockholders Agreement. The Parent, the Purchaser, Jupiter Industries,
Inc. ("Jupiter") and Sussex Group, Ltd. ("Sussex" and, together with Jupiter,
the "Majority Stockholders") have entered into the Stockholders Agreement dated
September 18, 1995 (the "Stockholders Agreement"), a copy of which has been
filed as Exhibit 3 to this Schedule 14D-9.
The following summary of certain provisions of the Stockholders Agreement
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Stockholders Agreement which is attached
hereto as Exhibit B.
Pursuant to the Stockholders Agreement, the Majority Stockholders have,
among other things, (i) agreed to tender pursuant to the Offer all Shares owned
by them (the "Majority Shares") and any Shares acquired after the date of the
Stockholders Agreement within ten business days after the commencement of the
Offer, (ii) granted to the Purchaser options to purchase all of the Shares owned
by the Majority Stockholders and any Shares acquired after the date of the
Stockholders Agreement, upon the terms and subject to the conditions of the
Stockholders Agreement, at the cash purchase price of $9.375 per Share, (iii)
agreed that at any meeting of the Company's stockholders or in connection with
any written consent of the Company's stockholders, to vote (or cause to be
voted) the Shares currently owned by them and any additional Shares that either
of them may acquire (A) in favor of the acquisition of the Company by the
Purchaser or any other merger or other transaction pursuant to which the
Purchaser or an affiliate or designee thereof would acquire the Company (the
"Acquisition"), the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement, (B) against any action or agreement that
would result in a breach in any material respect of any covenant, representation
or warranty or any other obligation or agreement of the Company under the Merger
Agreement or the Stockholders Agreement and (C) against any action or agreement
(other than the Merger Agreement) that is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or materially
and adversely affect the Acquisition or any of the other transactions to be
consummated pursuant to the Merger Agreement and (iv) granted to and appointed
the Purchaser and the Chairman of the Board, the President, the Secretary and
the Chief Financial Officer of the Purchaser and any individual who succeeds to
any such office of the Purchaser, and any other designee of the Purchaser as its
irrevocable proxy and attorney-in-fact (with full power of substitution) to vote
the Shares owned by such Majority Stockholder and any Shares acquired after the
date of the Stockholders Agreement at any regular or a special meeting of
stockholders with respect to the Shares or to take actions by written consent
with respect to such Shares.
The Stockholders Agreement provides that each of the Majority Stockholders
in their capacities as stockholders shall not, and shall cause every investment
banker, financial advisor, attorney, accountant and other representative
retained by it not to solicit, encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any proposal or agree to or endorse any proposal in connection with an
acquisition of all or substantially all of the outstanding capital stock or all
or substantially all of the assets of the Company. If a Majority Stockholder
receives or becomes aware of any such proposal, then such Majority Stockholder
shall promptly inform the Purchaser of the terms and conditions of such proposal
and the identity of the person making it. Each of the Majority Stockholders
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties to which it, or any of its
stockholders, directors, officers, attorneys or other agents or representatives
on its behalf, is a party in its capacity as a stockholder of the Company,
conducted heretofore with respect to any of the foregoing.
The Stockholders Agreement also provides that neither of the Majority
Stockholders shall, except as contemplated by the Merger Agreement, (i) sell
transfer, pledge, encumber, assign or otherwise dispose of, enforce or permit
the execution of the provisions of any redemption agreement with the Company or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale,
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transfer, pledge, encumbrance, assignment or other disposition of, any of the
Shares, or any interest therein, (ii) grant any proxies or powers of attorney,
deposit any shares into a voting trust or enter into a voting agreement with
respect to any Shares or (iii) take any action that would make any
representation or warranty of such Majority Stockholder contained herein untrue
or incorrect to any material extent or have the effect of preventing or
disabling such Majority Stockholder from performing its obligations under this
agreement.
C. Confidentiality Agreement. On April 25, 1995, Kidd, Kamm & Company
("KKC") entered into a confidentiality agreement with Chicago Corporation (the
"Confidentiality Agreement"), a copy of which has been filed as Exhibit 4 to
this Schedule 14D-9. Under the Confidentiality Agreement, KKC agreed to use
information furnished by the Company that was not generally available to the
public (collectively, the "Evaluation Material") exclusively for the purpose of
evaluating a possible business combination with the Company. In addition, KKC
agreed not to disclose any of the Evaluation Material other than under certain
circumstances. Under the Confidentiality Agreement, KKC agreed that without the
prior written consent of the Company for a period of two years from the date of
the Confidentiality Agreement it would not (i) acquire or make any proposal to
acquire any assets, businesses or securities of the Company, (ii) seek or
propose to influence or control the management or policies of the Company or
(iii) enter into any discussions, negotiations, arrangements or understanding
with any third party with respect to any of the foregoing.
D. Non-Solicitation Agreement. On July 28, 1995, Arnold's Acquisition
Corp., a subsidiary of the Parent ("Arnold's"), entered into a non-solicitation
agreement with the Company (the "Non-Solicitation Agreement"), a copy of which
has been filed as Exhibit 5 to this Schedule 14D-9. Under the Non-Solicitation
Agreement, the Company agreed that, subject to the fiduciary duties of the Board
under applicable law, during the period from July 28, 1995 through September 5,
1995 (the "Exclusivity Period"), it would not directly or indirectly through any
officer, director, employee, agent, advisor, or otherwise (i) solicit, initiate
or encourage submission of proposals or offers from any corporation,
partnership, persons or group relating to any acquisition, purchase or option to
purchase any stock of the Company, or any of the assets of, or any equity
interest in the Company, or any merger, consolidation or other form of business
combination or joint venture with the Company or (ii) furnish to any person or
entity any information with respect to any of the foregoing without Arnold's
prior written consent.
The Company also agreed, pursuant to the Non-Solicitation Agreement, that
if it or any of its employees, directors or representatives prior to the
expiration of the Exclusivity Period, either (a) received an unsolicited
proposal for the purchase of assets, equity interest or any proposed merger or
other form of business combination (an "Acquisition Proposal") (other than from
Arnold's, one of Arnold's affiliates or Arnold's authorized representatives)
which it did not reject or (b) solicited or initiated any discussion for an
Acquisition Proposal (regardless of whether it results in any acquisition), then
in either case the Company would pay to Arnold's an amount equal to all
documented out-of-pocket expenses (including, without limitation, fees and
expenses of counsel, accountants and financial advisors and fees and expenses
paid to financing sources) not in excess of $350,000 in the aggregate incurred
by Arnold's in connection with its "due diligence" investigation and attempted
financing of an offer for the Company. The parties extended the Exclusivity
Period to September 11, 1995 on August 31, 1995, further extended the
Exclusivity Period to September 14, 1995 on September 11, 1995 and extended the
Exclusivity Period finally to September 19, 1995 on September 14, 1995.
E. Employment Understandings.
According to the Offer to Purchase, the Parent has no present plans to
replace the existing management of the Company or the operating personnel of the
Company following consummation of the Merger. Further, according to the Offer to
Purchase, upon completion of the Offer and the Merger, the Parent intends that
the Company's current management will continue to manage the Company as an
ongoing business in the same general manner as it is now being conducted. See
Section 12 of the Offer to Purchase.
In a memorandum of understanding addressed to Fred Berk (the "Berk
Understanding"), the Parent has, through its affiliate Arnold's, indicated its
desire that the Surviving Corporation continue to employ Mr. Berk after
consummation of the Merger. The Berk Understanding provides that Mr. Berk will
be elected to the Board of the Parent and appointed the President and Chief
Operating Officer of the Parent and will continue to serve as the President and
Chief Executive Officer of the Company as the Surviving Corporation after the
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Merger. The Berk Understanding also provides that Mr. Berk's base salary shall
be $325,000 per annum (the "Berk Base Salary"). In addition, Mr. Berk will be
eligible to earn an annual bonus of up to 75% of the Berk Base Salary for
achieving the Surviving Corporation's annual earnings before interest, taxes,
depreciation and amortization ("EBITDA") target. Further, Mr. Berk will be
eligible to earn an additional 1% of the Berk Base Salary for each 1% by which
the Surviving Corporation's actual annual EBITDA exceeds its annual EBITDA
target. Mr. Berk will also be eligible to participate in the Parent's management
stock option plan (the "Parent Management Stock Option Plan"). The Parent
Management Stock Option Plan will be effected shortly after consummation of the
Merger, and the Board of Directors of the Parent has authorized up to 5% of the
stock of the Parent for inclusion in the Parent Management Stock Option Plan. A
copy of the Berk Understanding has been filed as Exhibit 6A to this Schedule
14D-9.
In letters of understanding addressed to Joseph Albanese, John Alecci,
Timothy Costello, Jack Disanza and Al Melchiano, the Parent has, through its
affiliate Arnold's, indicated its desire that the Surviving Corporation continue
to employ Messrs. Albanese, Alecci, Costello, Disanza and Melchiano after
consummation of the Merger, in each case upon the terms suggested therein.
The letter of understanding with Joseph Albanese (the "Albanese
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Albanese Understanding at least 60 days
prior to the end of the applicable year (the "Albanese Employment Period").
During the Albanese Employment Period, Mr. Albanese's base salary shall be
$115,000 per annum (the "Albanese Base Salary"). In addition, Mr. Albanese will
be eligible to earn an annual bonus of up to 50% of the Albanese Base Salary for
achieving the Surviving Corporation's annual EBITDA target. Further, Mr.
Albanese will be eligible to earn an additional 1% of the Albanese Base Salary
for each 1% by which the Surviving Corporation's actual annual EBITDA exceeds
its annual EBITDA target. Mr. Albanese will also be eligible to participate in
the Parent Management Stock Option Plan. The Parent Management Stock Option Plan
will be effected shortly after consummation of the Merger, and the Board of
Directors of the Parent has authorized up to 5% of the stock of the Parent for
inclusion in the Parent Management Stock Option Plan. A copy of the Albanese
Understanding has been filed as Exhibit 6B to this Schedule 14D-9.
The letter of understanding with John Alecci (the "Alecci Understanding")
dated September 7, 1995 provides for a term of one year with automatic one year
extensions unless the Surviving Corporation provides written notice of its
intention not to renew the Alecci Understanding at least 60 days prior to the
end of the applicable year (the "Alecci Employment Period"). During the Alecci
Employment Period, Mr. Alecci's base salary shall be $107,000 per annum (the
"Alecci Base Salary"). In addition, Mr. Alecci will be eligible to earn an
annual bonus of up to 50% of the Alecci Base Salary for achieving the Surviving
Corporation's annual EBITDA target. Further, Mr. Alecci will be eligible to earn
an additional 1% of the Alecci Base Salary for each 1% by which the Surviving
Corporation's actual annual EBITDA exceeds its annual EBITDA target. Mr. Alecci
will also be eligible to participate in the Parent Management Stock Option Plan.
The Parent Management Stock Option Plan will be effected shortly after
consummation of the Merger, and the Board of Directors of the Parent has
authorized up to 5% of the stock of the Parent for inclusion in the Parent
Management Stock Option Plan. A copy of the Alecci Understanding has been filed
as Exhibit 6C to this Schedule 14D-9.
The letter of understanding with Timothy Costello (the "Costello
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Costello Understanding at least 60 days
prior to the end of the applicable year (the "Costello Employment Period").
During the Costello Employment Period, Mr. Costello's base salary shall be
$115,000 per annum (the "Costello Base Salary"). In addition, Mr. Costello will
be eligible to earn an annual bonus of up to 50% of the Costello Base Salary for
achieving the Surviving Corporation's annual EBITDA target. Further, Mr.
Costello will be eligible to earn an additional 1% of the Costello Base Salary
for each 1% by which the Surviving Corporation's actual annual EBITDA exceeds
its annual EBITDA target. Mr. Costello will also be eligible to participate in
the Parent Management Stock Option Plan. The Parent Management Stock Option Plan
will be effected shortly after consummation of the Merger, and the Board of
Directors of the Parent has authorized up to 5% of the stock of the Parent for
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inclusion in the Parent Management Stock Option Plan. A copy of the Costello
Understanding has been filed as Exhibit 6D to this Schedule 14D-9.
The letter of understanding with Jack Disanza (the "Disanza Understanding")
dated September 7, 1995 provides for a term of one year with automatic one year
extensions unless the Surviving Corporation provides written notice of its
intention not to renew the Disanza Understanding at least 60 days prior to the
end of the applicable year (the "Disanza Employment Period"). During the Disanza
Employment Period, Mr. Disanza's base salary shall be $115,000 per annum (the
"Disanza Base Salary"). In addition, Mr. Disanza will be eligible to earn an
annual bonus of up to 50% of the Disanza Base Salary for achieving the Surviving
Corporation's annual EBITDA target. Further, Mr. Disanza will be eligible to
earn an additional 1% of the Disanza Base Salary for each 1% by which the
Surviving Corporation's actual annual EBITDA exceeds its annual EBITDA target.
Mr. Disanza will also be eligible to participate in the Parent Management Stock
Option Plan. The Parent Management Stock Option Plan will be effected shortly
after consummation of the Merger, and the Board of Directors of the Parent has
authorized up to 5% of the stock of the Parent for inclusion in the Parent
Management Stock Option Plan. A copy of the Disanza Understanding has been filed
as Exhibit 6E to this Schedule 14D-9.
The letter of understanding with Al Melchiano (the "Melchiano
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Melchiano Understanding at least 60
days prior to the end of the applicable year (the "Melchiano Employment
Period"). During the Melchiano Employment Period, Mr. Melchiano's base salary
shall be $122,000 per annum (the "Melchiano Base Salary"). In addition, Mr.
Melchiano will be eligible to earn an annual bonus of up to 50% of the Melchiano
Base Salary for achieving the Surviving Corporation's annual EBITDA target.
Further, Mr. Melchiano will be eligible to earn an additional 1% of the
Melchiano Base Salary for each 1% by which the Surviving Corporation's actual
annual EBITDA exceeds its annual EBITDA target. Mr. Melchiano will also be
eligible to participate in the Parent Management Stock Option Plan. The Parent
Management Stock Option Plan will be effected shortly after consummation of the
Merger, and the Board of Directors of the Parent has authorized up to 5% of the
stock of the Parent for inclusion in the Parent Management Stock Option Plan. A
copy of the Melchiano Understanding has been filed as Exhibit 6F to this
Schedule 14D-9.
Except as set forth in this Item 3, there are, to the best knowledge of the
Company, no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates
or (ii) the Parent or the Purchaser, or their respective executive officers,
directors or affiliates.
Certain information pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 thereunder is contained in the Information Statement attached hereto as
Annex I, a copy of which has also been filed as Exhibit 1 to this Schedule
14D-9.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board of Directors has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and recommends that the stockholders of the Company accept the Offer and
tender all of their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION. For the past several years,
the Company devoted substantial energy and resources towards the implementation
of significant expansion and remodeling plans, developed a new merchandising
strategy to target a broader group of customers and pursued an aggressive
marketing and advertising program. At the same time, the Company also focused on
improving a number of aspects of its operations including making changes in
merchandise delivery, computer operations and customer service. During this
period of expansion, renovation and other improvements, and in conjunction with
the improved local economy, the Company experienced increases in net sales,
operating profits and net income.
Notwithstanding the success of the Company's growth and improvement
strategy, the Board of Directors was cognizant that there may exist other
opportunities to maximize shareholder value of the Company. In October 1994, the
Board began to discuss possible strategic alternatives for the Company that
might further enhance shareholder value. In connection with its discussions, the
Board established the Special Committee,
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consisting of Peter C.B. Bynoe, the chairman of the Special Committee, Michael
Kurzman and Philip Rootberg. The Special Committee explored the possibility of
retaining a financial advisor to assist the Company in its evaluation of whether
or not to pursue strategic alternatives for the Company, and the Board, with the
recommendation of the Special Committee, authorized management to retain Chicago
Corporation to advise the Company. On January 17, 1995, Chicago Corporation was
engaged to serve as the Company's exclusive financial advisor.
On February 28, 1995, the Board of Directors convened a special meeting at
which representatives of Chicago Corporation gave a presentation with respect to
their review of the Company's strategic and financial alternatives.
Representatives of Chicago Corporation first presented their views on recent
trends in the furniture retailing industry and discussed their analysis of the
financial performance and market valuation of the Company and of comparable
firms. Representatives of Chicago Corporation then presented an analysis of the
Company's growth strategy as well as a "same store" strategy, including an
analysis of the implied valuation of each strategy. Representatives of Chicago
Corporation concluded their presentation by stating that, as result of current
conditions with respect to the market price for furniture retailing equities,
their views as to the interest level of potential acquirors of the Company and
the availability of financing, it was, in their view, a favorable time to
explore a sale of the Company.
In further discussions at the Board's February 28, 1995 special meeting,
representatives of Chicago Corporation explained that the Company could analyze
its strategic alternatives as follows: (i) continue with its present strategic
plan, (ii) effect a stock repurchase/recapitalization transaction, (iii) sell a
portion of the equity of the Company or (iv) sell or merge all of the Company.
Representatives of Chicago Corporation stated that the alternative that would
best maximize value for all shareholders would be most likely a total sale or
merger of the Company. Representatives of Chicago Corporation then recommended
that the Company consider pursuing the possibility of a total sale of the
Company. Although the Board made no decision at such time to sell the Company,
it authorized Chicago Corporation to prepare evaluation materials appropriate
for exploring a potential sale of the Company so that the Board could continue
to evaluate the Company's options. During March and April 1995, representatives
of Chicago Corporation conducted due diligence and other analyses with respect
to the Company's business and prospects.
On April 18, 1995, the Board of Directors again met with representatives of
Chicago Corporation at which time there was further discussion of each of the
Company's strategic alternatives to enhance shareholder value. The Board
concluded that, pending its and Chicago Corporation's continuing investigation
and review, the most likely alternative for enhancing shareholder value would be
the pursuit of a total sale of the Company. The Board then unanimously voted to
authorize Chicago Corporation to continue (x) preparing evaluation materials
regarding the Company and (y) its review of the Company's strategic
alternatives, and to begin to solicit expressions of interest from potential
acquirors of the Company. On April 19, 1995, the Company publicly announced the
engagement of Chicago Corporation to assist the Company in considering the
possible sale of the Company and to review its other possible strategic
alternatives.
Following the Company's public announcement, representatives of Chicago
Corporation approached potentially interested strategic and financial acquirors,
including KKC. KKC is a financial advisor to the Parent and an affiliate of
Kidd, Kamm Equity Partners, L.P. ("KKEP"), the majority shareholder of the
Parent. Of the potential acquirors approached by Chicago Corporation,
approximately fifty entered into confidentiality agreements and all such persons
were provided with evaluation materials describing the Company.
On April 19, 1995, a potential acquiror (the "Financial Party") informed
Chicago Corporation of its interest in considering an acquisition of the
Company. On April 25, 1995 the Financial Party entered into a confidentiality
agreement and subsequently Chicago Corporation provided the Financial Party with
evaluation materials describing the Company. Also on April 25, 1995, KKC entered
into the Confidentiality Agreement and thereafter Chicago Corporation provided
KKC with evaluation materials.
On May 10, 1995, a furniture retailer (the "Strategic Party"), through its
financial advisor, contacted Chicago Corporation and indicated an interest in
acquiring the Company. On May 11, 1995, the Strategic Party executed a
confidentiality agreement and received evaluation materials from Chicago
Corporation. On
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May 19, 1995, the Strategic Party informed Chicago Corporation of its strong
interest in an acquisition of the Company at $9.00 or possibly more per Share in
cash on the condition that it be permitted to proceed immediately with a due
diligence investigation of the Company. In addition, the Strategic Party
indicated that it intended to complete its decision process by mid-June 1995 and
expected to submit at that time an acquisition proposal that would not be
subject to a financing condition.
On May 22, 1995, KKC informed Chicago Corporation that KKEP had decided not
to proceed with a further evaluation of a possible acquisition of the Company
and KKC returned the evaluation materials provided to it by Chicago Corporation.
On May 24, 1995, the Strategic Party met with senior officers of the Company and
commenced its due diligence investigation. On June 19, 1995, the Strategic Party
submitted a non-binding, preliminary proposal for the acquisition of the Company
for a price below $9.00 per Share in cash, subject to certain conditions.
Chicago Corporation advised the Strategic Party that the Company was not likely
to accept the Strategic Party's proposal.
On July 7, 1995, the Financial Party met with senior officers of the
Company and began its due diligence review of the Company. On July 11, 1995, KKC
reinitiated contact with Chicago Corporation on behalf of KKEP and informed
Chicago Corporation that KKEP had an interest in revisiting the possible
acquisition of the Company by Arnold's. Evaluation materials were again sent to
KKC.
On July 13, 1995 the Financial Party submitted an acquisition proposal,
subject to certain conditions including a financing condition, for $7.50 per
Share in cash and $1.50 per Share principal amount of subordinated debt
securities of the Financial Party. On July 19, 1995, the Financial Party
informed Chicago Corporation that it would be willing to revise its acquisition
proposal to provide that stockholders other than the Majority Stockholders would
receive $9.00 per Share in cash and the Majority Stockholders would receive a $6
million principal amount debenture of the Financial Party plus cash in amount
that would provide the Majority Stockholders with total consideration of $9.00
per Share. Chicago Corporation advised the Financial Party that the Company was
not likely to accept the Financial Party's proposal.
On July 21, 1995, Arnold's submitted to Chicago Corporation a non-binding,
preliminary indication of interest to explore further the possible acquisition
of the Company at a price of $9.00 per Share in cash. On July 24, 1995, the
Strategic Party informed Chicago Corporation that it was unwilling to revise its
June 19, 1995 proposal. On July 25, 1995, the Company's senior management met
with Arnold's for an on-site, preliminary due diligence meeting.
On July 27, 1995, the Financial Party orally indicated to Chicago
Corporation that it would be willing to purchase the Company at a price of $9.00
per Share in cash, subject to certain conditions including a financing
condition. Also on July 27, 1995, Arnold's orally submitted to Chicago
Corporation an acquisition proposal for the Company at a price of $9.50 per
Share in cash, subject to certain conditions including a financing condition. On
July 28, 1995, the Company and Arnold's entered into the Non-Solicitation
Agreement which granted Arnold's the exclusive right, subject to certain
conditions, until September 5, 1995, to conduct the final phase of its due
diligence investigation and to negotiate a definitive agreement providing for
the acquisition of the Company. On August 1, 1995, Arnold's began its final due
diligence investigation of the Company and representatives of the Company, KKEP
and the Parent proceeded to negotiate the Merger Agreement and the Stockholders
Agreement. On August 31, 1995, the Exclusivity Period under the Non-Solicitation
Agreement was extended to September 11, 1995.
On or about August 31, 1995, KKEP informed the Company's outside legal
counsel that as a result of KKEP's review and analysis of the current fiscal
year's financial performance of the Company's operations through August 1995,
which indicated less favorable results than previously projected, the Parent was
prepared to acquire the Company at $9.25 per Share in cash rather than at the
$9.50 per Share price that had been communicated in Arnold's July 27, 1995
submission. Subsequent to the Parent's indication of the revised bid,
representatives of Chicago Corporation held discussions with KKEP regarding this
development. A meeting of the Special Committee was convened on September 6,
1995 at which representatives of Chicago Corporation reviewed their discussions
with KKEP and the Parent regarding the Parent's lower offer of $9.25 per Share
in cash. Representatives of Chicago Corporation expressed their views regarding
the basis of the Parent's $9.25 per Share bid and recommended that the Company
continue discussions with the Parent as to
16
<PAGE> 17
the Share price. The Special Committee discussed the Parent's new offer and
various strategies with which to respond to the Parent. The Special Committee
resolved to recommend to the Board that the Board not accept the Parent's $9.25
per Share offer and to seek authority from the Board to negotiate the price to
be accepted for the Company, subject to the approval of the Board, in the range
between $9.25 and $9.50 per Share in cash.
On September 7, 1995, a special meeting of the Board was convened to
discuss the status of the proposed acquisition by the Purchaser. The Board also
reviewed KKEP's financing arrangements regarding the proposed acquisition. Mr.
Bynoe, Chairman of the Special Committee, reported the results of the Special
Committee's September 6, 1995 meeting and requested that the Special Committee
be granted authority to negotiate the sale price with the Parent, subject to the
approval of the Board. The Board then discussed the Parent's bid at $9.25 per
Share and the views of Chicago Corporation and members of the Special Committee
regarding the bid. The Board resolved to grant to the Special Committee the
authority to negotiate the price for the sale of the Company, in the range
between $9.25 and $9.50 per Share in cash, subject to approval by the Board, and
directed Chicago Corporation to inform the Parent that the Board would not
accept the $9.25 per Share bid.
Chicago Corporation immediately informed the Parent that the Board would
not accept the $9.25 per Share bid and presented to the Parent the views of the
Board and the Special Committee. On September 8, 1995, a representative of the
Parent contacted Mr. Bynoe and indicated that the Parent was prepared to acquire
the Company at a price of $9.375 per Share in cash. On September 11, 1995, the
Exclusivity Period under the Non-Solicitation Agreement was extended to
September 14, 1995.
On September 13, 1995, the Board discussed the proposed acquisition,
received an update from its advisors on the status of negotiations with the
Parent and reviewed KKEP's financing arrangements. On September 14, the
Exclusivity Period under the Non-Solicitation Agreement was extended to
September 19, 1995.
The Board convened a meeting on September 18, 1995 at which it further
discussed the proposed Merger and the Parent's revised bid of $9.375 per Share
in cash. The Board reviewed the transaction with the Company's legal and
financial advisors and received a presentation by representatives of Chicago
Corporation summarizing the transaction process. Representatives of Chicago
Corporation then delivered Chicago Corporation's opinion as to the fairness,
from a financial point of view, of the $9.375 per Share cash consideration in
the Offer and the Merger. The Board discussed and then unanimously approved the
proposed Merger Agreement and all transactions contemplated thereby. With
respect to the Offer, the Board of Directors unanimously recommended that the
stockholders of the Company accept the Offer and tender all of their Shares
pursuant to the Offer.
A copy of the joint press release of the Parent and the Company announcing
the execution of the Merger Agreement has been filed as Exhibit 7 to this
Schedule 14D-9 and is incorporated herein by reference. A copy of a letter to
stockholders of the Company, which accompanies this Schedule 14D-9, has been
filed as Exhibit 8 to this Schedule 14D-9 and is incorporated herein by
reference.
In reaching its conclusion and recommendation described above, the Board of
Directors of the Company considered the following factors:
(i) the premium which $9.375 per Share represents over the historical
and then current market prices for the Shares, including the fact that
$9.375 per Share represents a 50% premium based on the April 18, 1995
trading price, the day immediately preceding the Company's announcement of
its engagement of Chicago Corporation to assist the Company in considering
the possible sale of the Company, and a 17% premium based on the September
18, 1995 trading price, the last full day of trading before execution and
public announcement of the Merger Agreement;
(ii) the opinion of Chicago Corporation to the effect that, as of the
date of its opinion and based upon and subject to certain matters stated
therein, the consideration to be received by the holders of Shares pursuant
to the Offer and the Merger was fair to such holders from a financial point
of view. The full text of Chicago Corporation's written opinion, which sets
forth the assumptions made, matters considered and limitations on the
review undertaken by Chicago Corporation, is attached hereto as
17
<PAGE> 18
Annex II (which has been filed as Exhibit 9 to this Schedule 14D-9 and
which is incorporated herein by reference). STOCKHOLDERS ARE URGED TO READ
THE OPINION OF CHICAGO CORPORATION CAREFULLY IN ITS ENTIRETY;
(iii) the results of the process undertaken to identify and solicit
proposals from third parties to enter into a strategic transaction with the
Company which results indicated a low likelihood that any third party would
propose to acquire the Company at a price higher than $9.375 per share;
(iv) the likelihood that the Company will be able to complete the
Merger, including the fact that the Majority Stockholders were willing to
enter into the Stockholders Agreement pursuant to which the Majority
Stockholders agreed, among other things, to tender their respective Shares
in the Offer;
(v) the business, results of operations, financial condition and
future prospects of the Company;
(vi) the terms of the Offer and the Merger Agreement, including the
structural feature of the Offer and the Merger providing for a prompt cash
tender offer for all outstanding Shares to be followed by a merger for the
same consideration, thereby enabling stockholders to obtain cash for their
Shares at the earliest possible time;
(vii) the provisions of the Merger Agreement that require the Company
to pay the Parent a termination fee of $1,500,000 and reimburse the Parent
and the Purchaser for up to $1,850,000 of their out-of-pocket expenses
under certain circumstances as described above under "The Merger Agreement
-- Termination" and "-- Fees and Expenses";
(viii) the potential that the Company's growth strategy and financial
prospects may be in part dependent upon continued access to equity capital
markets and that the current trading behavior and concentrated ownership
profile of the Shares, combined with the potential desire on behalf of the
Majority Stockholders to achieve liquidity, may negatively influence such
access and prospects;
(ix) discussions with the Parent leading to the Board's belief that
$9.375 per Share represented the highest price per Share that could be
negotiated with the Parent; and
(x) the regulatory approvals required to consummate the Offer and the
Merger, and the prospects for receiving all such approvals.
The Board of Directors did not assign relative weights to the foregoing factors
or determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it.
Having considered all of the foregoing, the structural provisions of the
Merger Agreement, and other relevant factors, the Board concluded that the Offer
and the Merger, taken together, was the best available alternative for the
Company and its stockholders.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Chicago Corporation to act as the Company's
exclusive financial advisor with respect to the Offer and the Merger. Pursuant
to an engagement letter with Chicago Corporation, the Company has agreed to pay
Chicago Corporation for its services a retainer fee of $100,000 and a
transaction fee equal to 1% of the aggregate consideration (as defined in the
engagement letter), including debt obligations assumed or retired by the Parent,
payable upon consummation of the Merger. In addition, the Company has agreed to
pay Chicago Corporation an opinion fee of $100,000, which is creditable against
the transaction fee and became payable upon the delivery of Chicago
Corporation's opinion to the Board on September 18, 1995. The aggregate fees are
estimated to be approximately $500,000. The Company has also agreed to reimburse
Chicago Corporation for its out-of-pocket expenses, including the fees and
expenses of its counsel, and to indemnify Chicago Corporation and certain
related parties against certain liabilities, including liabilities under the
federal securities laws. In the ordinary course of business, Chicago Corporation
and its affiliates may actively trade the equity securities of the Company for
their own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
18
<PAGE> 19
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in Shares which were effected during
the past 60 days by the Company, or, to the best knowledge of the Company, any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best knowledge of the Company, (i) all of its executive
officers, directors, affiliates or subsidiaries presently intend to tender their
Shares to the Purchaser pursuant to the Offer and (ii) none of its executive
officers, directors, affiliates or subsidiaries presently intends to otherwise
sell any Shares which are owned beneficially or held of record by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as referred to in Item 3(b) or Item 4 hereof, the Company is not
engaged in any other negotiation in response to the Offer which related to or
would result in (i) an extraordinary transaction such as a merger or
reorganization, involving the Company or its subsidiary; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or its subsidiary;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Item 3(b), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate or would result in one or more of the matters referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(A) SECTION 203. As a Delaware corporation, the Company is subject to
Section 203 ("Section 203") of the DGCL. Section 203 would prevent an
"Interested Stockholder" (generally defined as a person beneficially owning 15%
or more of a corporation's voting stock) from engaging in a "Business
Combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an Interested Stockholder unless:
(i) before such person became an Interested Stockholder, the board of directors
of the corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination, (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for purposes of determining the number of
shares of outstanding stock held by directors who are also officers and by
employee stock ownership plans that do not allow plan participants to determine
confidentially whether to tender shares), or (iii) following the transaction in
which such person became an Interested Stockholder, the Business Combination is
(x) approved by the board of directors of the corporation and (y) authorized at
a meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. In accordance with the provisions of Section 203, the
Board of Directors of the Company has approved the Stockholders Agreement, the
Purchaser's entering in to the Stockholders Agreement, the Merger Agreement and
the Purchaser's acquisition of Shares pursuant to the Offer and the Merger and
the transactions contemplated thereby, and, therefore, the restrictions of
Section 203 are inapplicable to the Offer, the Merger and the related
transactions.
(B) ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the FTC and certain waiting period requirements
have been satisfied. The acquisition of Shares by the Purchaser pursuant to the
Offer is subject to such requirements. Pursuant to the requirements of the HSR
19
<PAGE> 20
Act, KKEP filed the required Notification and Report Forms (the "Forms") with
the Antitrust Division and the FTC on September 20, 1995, and the Company
intends to file the Forms with the Antitrust Division and the FTC on or about
September 25, 1995. The statutory waiting period applicable to the purchase of
Shares pursuant to the Offer is scheduled to expire at 11:59 P.M., New York City
time, on October 5, 1995, unless early termination of the waiting period is
granted or KKEP and the Company receive a request for additional information or
documentary material prior thereto. Pursuant to the HSR Act, KKEP has requested
early termination of the applicable waiting period. However, prior to such date,
the Antitrust Division or the FTC may extend the waiting period by requesting
additional information or documentary material relevant to the acquisition. If
such a request is made, the waiting period will be extended until 11:59 P.M.,
New York City time, on the tenth day after substantial compliance by KKEP with
such request. Thereafter, such waiting periods can be extended only by court
order. There can be no assurance that the waiting period will be terminated
early. The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions. At any time before or after the
consummation of any such transaction, the Antitrust Division or the FTC could,
not withstanding termination of the waiting period, take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Shares pursuant to the Offer or
seeking divestiture of the Shares so acquired or divestiture of substantial
assets of KKEP or the Company. Private parties may also bring legal actions
under the antitrust laws. There can be no assurance that a challenge to the
Offer on antitrust grounds will not be made, or if such a challenge is made,
what the result will be.
(C) PURCHASER'S DESIGNATION OF PERSONS TO BE ELECTED TO THE COMPANY'S BOARD
OF DIRECTORS. The Information Statement attached hereto as Annex I is being
furnished in connection with the possible designation by the Purchaser, pursuant
to the Merger Agreement, of certain persons to be appointed to the Board of
Directors of the Company other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C> <C>
Exhibit 1* -- Information Statement pursuant to Section 14(f) of the Exchange Act and Rule
14(f)-1 thereunder.
Exhibit 2 -- Agreement and Plan of Merger dated September 18, 1995 by and among the
Company, the Purchaser and the Parent.
Exhibit 3 -- Stockholders Agreement dated September 18, 1995 by and among the Purchaser,
the Parent, Jupiter Industries, Inc., a Tennessee corporation, and Sussex
Group, Ltd., a Delaware corporation.
Exhibit 4 -- Confidentiality Agreement dated April 25, 1995 between the Company and KKC.
Exhibit 5 -- Non-Solicitation Agreement dated July 28, 1995 between the Company and
Arnold's, an affiliate of the Parent.
Exhibit 6A -- Memorandum of Understanding from Arnold's, an affiliate of the Parent, to
Fred Berk.
Exhibit 6B -- Letter of Understanding from Arnold's, an affiliate of the Parent, to Joseph
Albanese dated September 7, 1995.
Exhibit 6C -- Letter of Understanding from Arnold's, an affiliate of the Parent, to John
Alecci dated September 7, 1995.
Exhibit 6D -- Letter of Understanding from Arnold's, an affiliate of the Parent, to Timothy
Costello dated September 7, 1995.
Exhibit 6E -- Letter of Understanding from Arnold's, an affiliate of the Parent, to Jack
Disanza dated September 7, 1995.
Exhibit 6F -- Letter of Understanding from Arnold's, an affiliate of the Parent, to Al
Melchiano dated September 7, 1995.
Exhibit 7 -- Joint Press Release of the Parent and the Company issued on September 19,
1995.
Exhibit 8* -- Letter to Stockholders of the Company dated September 25, 1995.
Exhibit 9* -- Opinion of Chicago Corporation dated September 18, 1995.
</TABLE>
- -------------------------
* Included in the materials sent to stockholders of the Company.
20
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
HUFFMAN KOOS INC.
By: /s/ WILLIAM HELLMAN
------------------------------------
William Hellman
Chairman of the Board
Date: September 25, 1995
21
<PAGE> 1
EXHIBIT 1
HUFFMAN KOOS INC.
ROUTE 4 AND MAIN STREET
RIVER EDGE, NEW JERSEY 07661
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 25, 1995
as part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9"). You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
September 25, 1995. The Offer is scheduled to expire at 12:00 midnight on
October 23, 1995, New York City time, at which time, upon the expiration of the
Offer, if all conditions of the Offer have been satisfied or waived, the
Purchaser has agreed with the Company that, subject to permitted extensions of
the Offer of no more than five business days in the aggregate for the purpose of
obtaining the tender of 90 percent of the outstanding Shares, it will purchase
all Shares validly tendered pursuant to the Offer and not withdrawn. The
consummation of the Offer and the Merger pursuant to the terms of the Merger
Agreement would result in a change of control of the Company.
The information contained in this Information Statement concerning the
Parent and the Purchaser has been furnished to the Company by the Parent and the
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
BOARD OF DIRECTORS
GENERAL
The common stock, $0.01 par value per share (the "Company Common Stock"),
is the only class of voting stock of the Company outstanding. As of September
18, 1995, there were outstanding and entitled to vote 3,938,400 shares of the
Company Common Stock, each of which is entitled to one vote. An additional
140,200 shares of the Company Common Stock are issuable pursuant to outstanding
employee options, 60,100 of which are immediately exercisable. No cumulative
voting rights exist under the Company's Certificate of Incorporation. For
information regarding the ownership of the Company Common Stock by holders of
more than five percent of the outstanding shares and by the management of the
Company, see "Security Ownership of Certain Beneficial Owners and Management."
The Board is comprised of a single class. Generally, the directors are
elected at the Annual Meeting of the Stockholders of the Company and each
director elected holds office until his successor is elected and qualified. The
Board currently consists of eight members. There are no family relationships
among any directors or executive officers of the Company.
RIGHT TO DESIGNATE DIRECTORS
The Company has agreed in the Merger Agreement that, promptly upon the
purchase by the Purchaser of Shares pursuant to the Offer or the Majority Shares
pursuant to the Stockholders Agreement (unless as a result of such purchase the
Purchaser owns at least 90% of the Shares then outstanding) and from time to
time thereafter, the Purchaser shall be entitled to designate up to such number
of directors, rounded up to the next whole number, on the Board as will give the
Purchaser representation on the Board equal to the product
1
<PAGE> 2
of the number of directors on the Board and the ratio that the combined voting
power of the Shares so purchased bears to the total combined voting power of all
outstanding Shares on a fully-diluted basis, and, upon request by the Purchaser,
the Company shall use its best efforts either, at the Company's election, to
increase promptly the size of the Board or to secure promptly the resignation of
such number of directors as is necessary to enable the Purchaser's designees to
be elected to the Board and to cause the Purchaser's designees to be so elected.
At such times, the Company will use its best efforts to cause persons designated
by the Purchaser to constitute the same percentage as is on the board of each
committee of the Board. Notwithstanding the foregoing, the Merger Agreement
provides that the Company shall use its best efforts to ensure that two of the
members of the Board as of the date of the Merger Agreement shall remain members
of the Board until the Effective Time.
The Company's obligations to appoint the Purchaser's designees to the Board
pursuant to the Merger Agreement are subject to Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder, if applicable. The Company has agreed to promptly
take all actions required pursuant to such Section and Rule in order to fulfill
its obligations under the Merger Agreement to cause a majority of the directors
of the Company to consist of the Purchaser's designees and to include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under such Section and Rule in order to fulfill such
obligations.
PURCHASER'S DESIGNEES
Pursuant to the terms of the Merger Agreement, it is expected that the
Purchaser's designees will take office as directors of the Company upon the
purchase by the Purchaser of Shares pursuant to the Offer or the Majority Shares
pursuant to the Stockholders Agreement.
The Purchaser has advised the Company that its designees will be the
persons described in the following table and has provided the information below
regarding such individuals.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Michael H. Solomon...... 47 Chairman of the Board and Chief Executive Officer of
Arnold's and the Parent
Terry M. Theodore....... 32 Vice President of Kidd, Kamm Investments, Inc.
Kurt L. Kamm............ 52 President and Secretary of Kidd, Kamm Investments, Inc.
</TABLE>
Michael H. Solomon has been the Chairman of the Board and Chief Executive
Officer of Arnold's since 1994 and was named the Chairman of the Board and Chief
Executive Officer of the Parent and the Chairman of the Board of the Purchaser
in 1995. Mr. Solomon served as the President and Chief Executive Officer of
Stylus, Inc. from 1990 to 1994.
Terry M. Theodore has been a partner of KKC since 1989. Mr. Theodore serves
as a Vice President of Kidd, Kamm Investments, Inc. Mr. Theodore was named the
Secretary and a Director of the Parent and the Vice President, Secretary and a
Director of the Purchaser in 1995.
Kurt L. Kamm is the Co-Founder, Officer and Controlling Stockholder of KKC.
Mr. Kamm has served as the President, Secretary and a Director of Kidd, Kamm
Investments, Inc. since 1990. Mr. Kamm was named the Vice Chairman and a
Director of the Parent and the Treasurer and a Director of the Purchaser in
1995.
2
<PAGE> 3
BOARD OF DIRECTORS OF THE COMPANY
Listed below are the names, ages and principal occupations of all directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------------------------ --- ------------------------------------------------ --------------
<S> <C> <C> <C>
William Hellman......... 74 Chairman of the Board of the Company 1986
Fred Berk............... 52 President and Chief Executive Officer of the 1989
Company
Peter C.B. Bynoe........ 44 Attorney at Law, Rudnick & Wolfe 1991
Charles H. Jamison...... 55 President and Chief Operating Officer of Jupiter 1986
Michael Kurzman......... 56 Executive Vice President and Treasurer of The 1993
Lurie Company and its subsidiaries and LaSalle
Security Systems, Inc.
Philip Rootberg......... 77 Vice President and Treasurer of the Company; 1986
Senior Partner of Philip Rootberg & Company,
L.L.P., a public accounting firm
Edward W. Ross.......... 74 Chief Executive Officer of Jupiter 1986
Wallace W. Schroeder.... 70 Director of JG Industries, Inc. 1988
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years.
William Hellman has been the Chairman of the Board of the Company since
1988. Mr. Hellman has served as the President of Goldblatt's Department Stores,
Inc., a wholly-owned subsidiary of JG Industries, Inc. ("JG"), since May 1993
and from February 1986 to October 1990. Mr. Hellman has also served as a
Director of Sussex since September 1984 and as the Chairman of the Board, Chief
Executive Officer and President since February 1988.
Fred Berk has been the President and Chief Executive Officer of the Company
since August 1990. Mr. Berk served as the President and Chief Operating Officer
of the Company from March 1989 to August 1990. Mr. Berk also served as the
President of the Barker Bros. division of Sussex from March 1986 to March 1989.
Peter C.B. Bynoe is an attorney with the law firm, Rudnick & Wolfe. Mr.
Bynoe serves as the Chairman of the Board and Chief Executive Officer of Telemat
Ltd. Mr. Bynoe also serves as a Director of Uniroyal Technology Corporation. Mr.
Bynoe has served as a Director of JG since 1991.
Charles H. Jamison serves as the President, Chief Operating Officer and a
Director of Jupiter. Mr. Jamison also serves as a Director of Integon
Corporation. Mr. Jamison has served as a Director of JG since 1986.
Michael Kurzman serves as the Executive Vice President and Treasurer of the
Lurie Company and its subsidiaries and LaSalle Security Systems, Inc. Mr.
Kurzman also serves as the President and a Director of Lurie Century Associates,
Lurie Columbia Associates, Inc., Randolph Jefferson, Inc. and TLC Real Estate,
Inc. Mr. Kurzman has served as a Director of JG since 1983.
Philip Rootberg has served as the Vice President and Treasurer of the
Company since 1989. Mr. Rootberg serves as the Vice President and a Director of
JG and as the Senior Executive Vice President and a Director of Jupiter. Mr.
Rootberg also serves as the Senior Partner of the public accounting firm, Philip
Rootberg & Company, L.L.P. Mr. Rootberg has served as a Director of Sussex since
1984.
Edward W. Ross serves as the Chairman of the Board, Chief Executive Officer
and a Director of Jupiter. Mr. Ross also serves as a Director of Sussex. Mr.
Ross has served as the Vice Chairman and a Director of JG since 1983.
Wallace W. Schroeder has served as a Director of JG since 1982. Mr.
Schroeder served as an outside consultant to the Company from September 1987 to
May 1988. Mr. Schroeder also served as the Vice President -- Chief Financial
Offer of the Company from July 1986 to September 1987.
The Company, the Parent and the Purchaser have agreed pursuant to the
Merger Agreement that, following the election or appointment of the Purchaser's
designees and prior to the Effective Time, (i) any amendment or termination of
the Merger Agreement by the Company or the Board, (ii) any extension by the
3
<PAGE> 4
Company or the Board of the time for the performance of any of the obligations
or other acts of the Parent or the Purchaser or (iii) any waiver of any of the
Company's rights under the Merger Agreement will require the concurrence of, and
will be effective if and only if approved by, a majority of the directors of the
Company then in office who were also directors of the Company as of the date of
the Merger Agreement.
It is contemplated that, except for Fred Berk, President and Chief
Executive Officer of the Company, the current directors of the Company will
resign upon the closing of the Offer.
BOARD MEETINGS -- COMMITTEES OF THE BOARD
The Board met four times during the fiscal year ended January 31, 1995. The
Board presently maintains an Audit Committee, an Executive Committee and a Stock
Option and Compensation Committee, but not a Nominating Committee.
The Executive Committee consists of Messrs. Hellman, Rootberg and Ross and
exercises the powers of the Board in certain business transactions and affairs
of the Company during the intervals between meetings of the Board. The Executive
Committee met once during the fiscal year ended January 31, 1995.
The Stock Option and Compensation Committee consists of Messrs. Hellman,
Rootberg and Ross and determines salary and bonus arrangements for all executive
officers of the Company, including the Chief Executive Officer. In addition,
stock options for officers, managers and other key employees are awarded at the
discretion of the Stock Option and Compensation Committee. The Stock Option and
Compensation Committee met once during the fiscal year ended January 31, 1995.
The Audit Committee consists of Messrs. Bynoe, Jamison and Schroeder. Its
functions include reviewing the independent auditors, recommending to the Board
the engagement and discharge of independent auditors, reviewing with the
independent auditors the plan and results of auditing engagements, approving or
ratifying each professional service provided by independent auditors and
estimated by management to cost more than 10% of the previous year's audit fee,
considering the range of audit and non-audit fees, reviewing the scope and
results of the Company's procedures for internal auditing and adequacy of
internal accounting controls and directing and supervising special
investigations. The Audit Committee met once during the fiscal year ended
January 31, 1995.
During the fiscal year ended January 31, 1995, no director attended fewer
than 75% of the aggregate of (i) the total number of meetings of the Board (held
during the period for which he has been a director) and (ii) the total number of
meetings held by all committees of the Board on which he served (during the
periods that he served).
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth certain information concerning the
beneficial ownership of the Company Common Stock as of September 20, 1995 by
each stockholder who is known by the Company to own beneficially in excess of 5%
of the outstanding Company Common Stock. Except as otherwise indicated, all
4
<PAGE> 5
persons listed below have sole voting and investment power with respect to their
shares of the Company Common Stock. The Company Common Stock constitutes the
only class of equity securities outstanding.
<TABLE>
<CAPTION>
SHARES OF COMPANY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING SHARES
- ------------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
Sussex Group, Ltd........................................... 1,250,000 31.8%
1615 West Chicago Avenue
Chicago, IL 60622
Jupiter Industries, Inc..................................... 950,000 24.1%
919 North Michigan Avenue
Chicago, IL 60611
</TABLE>
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company Common Stock as of August 31, 1995 by each
director of the Company, by each of the executive officers listed in the Summary
Compensation Table, and by all directors and executive officers of the Company
as a group. Unless otherwise noted in the footnotes following the table, the
persons as to whom the information is given have sole voting and investment
power with respect to the shares of the Company Common Stock shown as
beneficially owned.
<TABLE>
<CAPTION>
SHARES OF COMPANY PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING SHARES
- ------------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
Fred Berk+*................................................. 29,000(1) **
Peter C.B. Bynoe+........................................... 0 0
William Hellman+............................................ 32,500 **
Charles Jamison+............................................ 0 0
Michael Kurzman+............................................ 0 0
Philip Rootberg+*........................................... 10,000 **
Edward W. Ross+............................................. 0 0
Wallace W. Schroeder+....................................... 1,500 **
Joseph Albanese*............................................ 7,100(2) **
John Alecci*................................................ 7,100(3) **
Timothy Costello*........................................... 4,200(4) **
Al Melchiano*............................................... 6,000(5) **
All directors and officers (8 persons)...................... 97,400(6) 2.4%
</TABLE>
- -------------------------
(1) This number includes 28,000 shares issuable upon exercise of currently
exercisable employee stock options.
(2) This number includes 6,600 shares issuable upon exercise of currently
exercisable employee stock options.
(3) This number includes 6,400 shares issuable upon exercise of currently
exercisable employee stock options.
(4) This number includes 4,200 shares issuable upon exercise of currently
exercisable employee stock options.
(5) This number includes 6,000 shares issuable upon exercise of currently
exercisable employee stock options.
(6) This number includes 51,200 shares issuable upon exercise of currently
exercisable employee stock options.
+ Director
* Executive Officer
** Less than 1%
5
<PAGE> 6
EXECUTIVE OFFICERS
The following provides certain information regarding the executive officers
of the Company who are appointed by and serve at the pleasure of the Board:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
William Hellman......... 74 Chairman of the Board(1)
Fred Berk............... 52 President and Chief Executive Officer(1)
Philip Rootberg......... 77 Vice President and Treasurer(1)
Joseph Albanese......... 37 Vice President and Chief Financial Officer(2)
John Alecci............. 45 Vice President -- MIS(3)
Timothy Costello........ 47 Vice President -- Warehouse Distribution(4)
Jack Disanza............ 42 Vice President -- Store Operations(5)
Al Melchiano............ 50 Vice President -- Advertising and Marketing(6)
</TABLE>
- -------------------------
(1) See information under "Board of Directors of the Company."
(2) Joseph Albanese has been a Vice President and the Chief Financial Officer
since April 1989. Mr. Albanese served as the Controller from May 1988 to
April 1989. Mr. Albanese also served as the Controller at Belco Pollution
Control Corporation, an engineering subsidiary of Foster Wheeler
Corporation, from March 1982 to April 1988.
(3) John Alecci has been the Vice President -- MIS since April 1990. Mr. Alecci
served as a Director of MIS from November 1988 to April 1990. Mr. Alecci
also served as a Consultant for the Company from April 1988 to October 1988.
Mr. Alecci was a partner of XDS, Inc., a data processing consultant firm,
from August 1978 to December 1986. From January 1987 to November 1988, Mr.
Alecci was an independent data processing consultant.
(4) Timothy Costello has been the Vice President -- Warehouse Distribution since
April 1989. Mr. Costello served as Director of Warehouse Distribution from
April 1988 to April 1989. Mr. Costello also served as the Regional
Distribution Manager for Midas International, an automobile aftermart
manufacturer, from April 1984 to April 1988.
(5) Jack Disanza has been the Vice President -- Store Operations since December
1994. Mr. Disanza served as the Vice President -- Store Operations for
General Vision Services Corp. from September 1993 to November 1994. Mr.
Disanza also served as the Vice President -- Store Operations for Duty Free
Shoppers, Ltd. from December 1990 to September 1994. From April 1985 to
December 1990, Mr. Disanza was the Vice President of Stores for The Fur
Vault Inc.
(6) Al Melchiano has been the Vice President -- Advertising and Marketing since
July 1991. Mr. Melchiano served as the President of Showcase Interiors from
April 1990 to June 1991. Mr. Melchiano also served as the General Manager of
Cabot House from January 1989 to March 1990. From January 1986 to December
1988, Mr. Melchiano was the President of Rapids Furniture Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and each of the four other highest compensated executive officers of the
Company (determined as of the end of the last fiscal year) for the fiscal years
ended January 31, 1995, 1994 and 1993 (the "Named Executive Officers").
6
<PAGE> 7
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#) ($)
- ----------------------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Fred Berk(1)............................. 1995 $241,667 $109,667 20,000 $ 7,965
President and Chief 1994 198,333 87,570 10,000 5,396
Executive Officer 1993 185,000 66,258 -- 4,020
Al Melchiano(2).......................... 1995 110,833 44,639 5,000 10,325
Vice President -- 1994 101,750 38,920 5,000 5,761
Marketing and Advertising 1993 97,084 29,448 5,000 6,338
Joseph Albanese(2)....................... 1995 100,833 44,639 5,000 9,777
Vice President -- 1994 91,750 38,920 5,000 2,632
Chief Financial Officer 1993 87,333 29,448 2,000 508
Timothy Costello(2)...................... 1995 100,833 44,639 5,000 10,002
Vice President -- 1994 91,750 38,920 5,000 2,825
Warehouse Distribution 1993 87,333 29,448 1,000 567
John Alecci(2)........................... 1995 93,333 44,639 5,000 9,962
Vice President -- MIS 1994 84,167 38,920 5,000 2,673
1993 78,667 29,448 3,000 543
</TABLE>
- -------------------------
(1) Fred Berk entered into an employment agreement with the Company as of August
5, 1990 providing for his employment as the President and Chief Executive
Officer. On March 31, 1994, Mr. Berk's contract was extended for a
three-year term effective April 1, 1994 at a base salary of $250,000, plus a
share of the Company's bonus pool. The contract was amended on April 30,
1995 to provide certain benefits in the event there is a change in ownership
or control of the Company and to increase Mr. Berk's base salary to
$275,000, plus a share of the Company's bonus pool. In the event of a change
in ownership or control of the Company, if either the Company or Mr. Berk
chooses to terminate the existing employment contract, Mr. Berk is entitled
to a sum equal to twenty-four months salary as severance pay. In the event
the Company and Mr. Berk cannot mutually agree on an extension prior to the
end of the agreement, he will receive as severance pay a sum equal to six
months salary.
(2) The Company and this employee have entered into a severance agreement
providing certain benefits to the employee if ownership or control of the
Company changes and the employee's employment terminates within a specified
time period. In such case, each employee's employment terminates within a
specified time period. In such case, the employee is entitled to a sum equal
to twelve months salary as severance pay.
(3) The amounts shown represent Company contributions to the account of the
Named Executive Officer pursuant to the Company's 401(k) plan, car
allowances and the cost of group term life insurance in excess of $50,000.
OPTIONS
The following table provides certain information concerning individual
grants of stock options under the Option Plan (as hereinafter defined) made
during the fiscal year ended January 31, 1995 to each of the Named Executive
Officers.
7
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK
SECURITIES OPTIONS OR BASE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN ($ PER EXPIRATION -------------------
NAME GRANTED FISCAL YEAR SHARE) DATE 5%($) 10%($)
- ---------------------------------- --------- ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Fred Berk......................... 20,000 38.5% $ 7.94 3/31/04 $99,800 $253,000
Al Melchiano...................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
Joseph Albanese................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
Timothy Costello.................. 5,000 9.6% 7.94 3/31/04 24,950 63,250
John Alecci....................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
</TABLE>
- -------------------------
(1) The Option Plan provides that the optionee may purchase 20% of the shares of
stock on and after the first anniversary of the date of issuance and after
each of the four succeeding anniversaries of that date.
(2) Based upon the per share market price on the date and an annual appreciation
at the rate stated of such market through the expiration date of such stock
options. Gains, if any, are dependent upon the actual performance of the
Company Common Stock, as well as the continued employment of the executive
officers through the vesting period. There is no assurance that the stock
price will appreciate at the rates shown in the table. The potential
realizable values indicated have not taken into account amounts required to
be paid as income tax under the Internal Revenue Code and any applicable
state laws.
The following table provides certain information concerning each exercise
of stock options under the Option Plan during the fiscal year ended January 31,
1995 by each of the Named Executive Officers and the fiscal year end value of
unexercised stock options held by such persons under the Option Plan:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS
ACQUIRED VALUE (#) AT FISCAL YEAR END ($)(1)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred Berk.................... -- -- 22,000 33,000 $ 133,000 $44,500
Al Melchiano................. -- -- 3,000 12,000 11,500 21,000
Joseph Albanese.............. -- -- 4,200 10,800 21,100 15,900
Timothy Costello............. -- -- 2,000 10,400 7,700 14,200
John Alecci.................. -- -- 3,800 11,200 17,900 17,600
</TABLE>
- -------------------------
(1) Dollar values were calculated by determining the difference between the fair
market value of the underlying securities at fiscal year end and the
exercise price of the stock options.
The Company has agreed in the Merger Agreement that, except as otherwise
requested by the Parent and for rights outstanding under the Option Plan, the
Company shall use its reasonable efforts to purchase all outstanding stock
options with respect to the Company Common Stock prior to the expiration of the
Offer, at a price, with respect to each such stock option, equal to the positive
difference, if any, of (x) the product of (i) the aggregate number of shares of
the Company Common Stock subject to such stock option (without regard to any
vesting schedule that might otherwise apply) times (ii) the Offer Price, minus
(y) the aggregate exercise price for all of the shares of the Company Common
Stock subject to such stock option (without regard to any vesting schedule that
might otherwise apply). The Stock Option and Compensation Committee of the Board
has approved the termination of the Option Plan and the purchase or termination
of outstanding stock options issued thereunder as contemplated by the Merger
Agreement.
8
<PAGE> 9
1986 STOCK OPTION PLAN
On August 29, 1986, the Company's Board adopted the Company's 1986 Stock
Option Plan which was approved by the Company's sole shareholder, Sussex, on
August 19, 1986, and amended and restated in November 1990 (the "Option Plan").
The Option Plan, as amended by the stockholders at the June 21, 1994 annual
meeting, permits the granting of options to officers and key employees of the
Company to purchase up to an aggregate of 400,000 shares of the Company Common
Stock, subject to adjustment under certain circumstances. One or all such stock
options may be "incentive stock options" within the meaning of the Internal
Revenue Code, as amended. All stock options granted under the Option Plan have
an exercise price of not less than the fair market value of the shares on the
date of grant. As of August 31, 1995, 140,200 shares of the Company Common Stock
were subject to outstanding options, and there were 33 participants.
The Option Plan is administered by the Stock Option and Compensation
Committee of the Board which has sole authority to determine, among other
things, the persons to whom options will be granted and the time or times when
options become exercisable.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
See "Executive Compensation."
In a memorandum of understanding addressed to Fred Berk (the "Berk
Understanding"), the Parent has, through its affiliate Arnold's, indicated its
desire that the Surviving Corporation continue to employ Mr. Berk after
consummation of the Merger. The Berk Understanding provides that Mr. Berk will
be elected to the Board of the Parent and appointed the President and Chief
Operating Officer of the Parent and will continue to serve as the President and
Chief Executive Officer of the Company as the Surviving Corporation after the
Merger. The Berk Understanding also provides that Mr. Berk's base salary shall
be $325,000 per annum (the "Berk Base Salary"). In addition, Mr. Berk will be
eligible to earn an annual bonus of up to 75% of the Berk Base Salary for
achieving the Surviving Corporation's annual earnings before interest, taxes,
depreciation and amortization ("EBITDA") target. Further, Mr. Berk will be
eligible to earn an additional 1% of the Berk Base Salary for each 1% by which
the Surviving Corporation's actual annual EBITDA exceeds its annual EBITDA
target. Mr. Berk will also be eligible to participate in the Parent's management
stock option plan (the "Parent Management Stock Option Plan"). The Parent
Management Stock Option Plan will be effected shortly after consummation of the
Merger, and the Board of Directors of the Parent has authorized up to 5% of the
stock of the Parent for inclusion in the Parent Management Stock Option Plan. A
copy of the Berk Understanding has been filed as Exhibit 6A to this Schedule
14D-9.
In letters of understanding addressed to Joseph Albanese, John Alecci,
Timothy Costello, Jack Disanza and Al Melchiano, the Parent has, through its
affiliate Arnold's, indicated its desire that the Surviving Corporation continue
to employ Messrs. Albanese, Alecci, Costello, Disanza and Melchiano after
consummation of the Merger, in each case upon the terms suggested therein.
The letter of understanding with Joseph Albanese (the "Albanese
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Albanese Understanding at least 60 days
prior to the end of the applicable year (the "Albanese Employment Period").
During the Albanese Employment Period, Mr. Albanese's base salary shall be
$115,000 per annum (the "Albanese Base Salary"). In addition, Mr. Albanese will
be eligible to earn an annual bonus of up to 50% of the Albanese Base Salary for
achieving the Surviving Corporation's annual EBITDA target. Further, Mr.
Albanese will be eligible to earn an additional 1% of the Albanese Base Salary
for each 1% by which the Surviving Corporation's actual annual EBITDA exceeds
its annual EBITDA target. Mr. Albanese will also be eligible to participate in
the Parent Management Stock Option Plan. The Parent Management Stock Option Plan
will be effected shortly after consummation of the Merger, and the Board of
Directors of the Parent has authorized up to 5% of the stock of the Parent for
inclusion in the Parent Management Stock Option Plan. A copy of the Albanese
Understanding has been filed as Exhibit 6B to this Schedule 14D-9.
The letter of understanding with John Alecci (the "Alecci Understanding")
dated September 7, 1995 provides for a term of one year with automatic one year
extensions unless the Surviving Corporation provides written notice
9
<PAGE> 10
of its intention not to renew the Alecci Understanding at least 60 days
prior to the end of the applicable year (the "Alecci Employment Period").
During the Alecci Employment Period, Mr. Alecci's base salary shall be $107,000
per annum (the "Alecci Base Salary"). In addition, Mr. Alecci will be eligible
to earn an annual bonus of up to 50% of the Alecci Base Salary for achieving
the Surviving Corporation's annual EBITDA target. Further, Mr. Alecci will be
eligible to earn an additional 1% of the Alecci Base Salary for each 1% by
which the Surviving Corporation's actual annual EBITDA exceeds its annual
EBITDA target. Mr. Alecci will also be eligible to participate in the Parent
Management Stock Option Plan. The Parent Management Stock Option Plan will be
effected shortly after consummation of the Merger, and the Board of Directors
of the Parent has authorized up to 5% of the stock of the Parent for inclusion
in the Parent Management Stock Option Plan. A copy of the Alecci Understanding
has been filed as Exhibit 6C to this Schedule 14D-9.
The letter of understanding with Timothy Costello (the "Costello
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Costello Understanding at least 60
days prior to the end of the applicable year (the "Costello Employment
Period"). During the Costello Employment Period, Mr. Costello's base salary
shall be $115,000 per annum (the "Costello Base Salary"). In addition, Mr.
Costello will be eligible to earn an annual bonus of up to 50% of the Costello
Base Salary for achieving the Surviving Corporation's annual EBITDA target.
Further, Mr. Costello will be eligible to earn an additional 1% of the Costello
Base Salary for each 1% by which the Surviving Corporation's actual annual
EBITDA exceeds its annual EBITDA target. Mr. Costello will also be eligible to
participate in the Parent Management Stock Option Plan. The Parent Management
Stock Option Plan will be effected shortly after consummation of the Merger,
and the Board of Directors of the Parent has authorized up to 5% of the stock
of the Parent for inclusion in the Parent Management Stock Option Plan. A copy
of the Costello Understanding has been filed as Exhibit 6D to this Schedule
14D-9.
The letter of understanding with Jack Disanza (the "Disanza
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Disanza Understanding at least 60 days
prior to the end of the applicable year (the "Disanza Employment Period").
During the Disanza Employment Period, Mr. Disanza's base salary shall be
$115,000 per annum (the "Disanza Base Salary"). In addition, Mr. Disanza will
be eligible to earn an annual bonus of up to 50% of the Disanza Base Salary for
achieving the Surviving Corporation's annual EBITDA target. Further, Mr.
Disanza will be eligible to earn an additional 1% of the Disanza Base Salary
for each 1% by which the Surviving Corporation's actual annual EBITDA exceeds
its annual EBITDA target. Mr. Disanza will also be eligible to participate in
the Parent Management Stock Option Plan. The Parent Management Stock Option
Plan will be effected shortly after consummation of the Merger, and the Board
of Directors of the Parent has authorized up to 5% of the stock of the Parent
for inclusion in the Parent Management Stock Option Plan. A copy of the Disanza
Understanding has been filed as Exhibit 6E to this Schedule 14D-9.
The letter of understanding with Al Melchiano (the "Melchiano
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Melchiano Understanding at least 60
days prior to the end of the applicable year (the "Melchiano Employment
Period"). During the Melchiano Employment Period, Mr. Melchiano's base salary
shall be $122,000 per annum (the "Melchiano Base Salary"). In addition, Mr.
Melchiano will be eligible to earn an annual bonus of up to 50% of the
Melchiano Base Salary for achieving the Surviving Corporation's annual EBITDA
target. Further, Mr. Melchiano will be eligible to earn an additional 1% of the
Melchiano Base Salary for each 1% by which the Surviving Corporation's actual
annual EBITDA exceeds its annual EBITDA target. Mr. Melchiano will also be
eligible to participate in the Parent Management Stock Option Plan. The Parent
Management Stock Option Plan will be effected shortly after consummation of the
Merger, and the Board of Directors of the Parent has authorized up to 5% of the
stock of the Parent for inclusion in the Parent Management Stock Option Plan. A
copy of the Melchiano Understanding has been filed as Exhibit 6F to this
Schedule 14D-9.
10
<PAGE> 11
COMPENSATION OF COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Stock Option and Compensation Committee has performed the function of
determining executive officer compensation. During the fiscal year ended January
31, 1995, the Stock Option and Compensation Committee was comprised of three
members, two of whom are also officers and one who is a non-employee of the
Company. William Hellman, Chairman of the Board, and Philip Rootberg, Vice
President and Treasurer, each serve on the Stock Option and Compensation
Committee. Edward Ross also serves as Chairman of the Stock Option and
Compensation Committee. This Committee met once in fiscal 1995.
COMPENSATION OF DIRECTORS
Each Director who is not an officer of the Company receives an annual fee
of $5,000 plus $500 for each Board meeting attended, and is also compensated for
all committee meetings at a rate equal to one-half of that set from time to time
for Board meetings. Outside directors may also be compensated for attendance at
meetings with the executives of the Company and for related services on behalf
of the Company, in the discretion of the Executive Committee.
The Board established a Special Committee of the Board of Directors
(the "Special Committee") to help the Board review the Company's strategic
alternatives, and subsequent to the Company's public announcement that it had
retained The Chicago Corporation to advise it in considering the possible sale
of the Company, the Special Committee assisted the Board in conducting the sale
process. In connection with their services as members of the Special Committee,
the Company will pay directors Peter C.B. Bynoe and Michael Kurzman each a fee
of $10,000.
BOARD STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board's Stock Option and Compensation Committee determines salary and
bonus arrangements for all executive officers of the Company, including the
Chief Executive Officer.
Compensation of store managers and buyers consists of a base salary, which
is related to the size of the profit center managed, plus a bonus based on a
pre-set formula related to sales and gross margins produced by such profit
center. Compensation of other department managers consists of a base salary
which is related to the duties and responsibilities of the position consistent
with industry and regional pay guides.
The Chief Executive Officer's compensation, as well as that of the next
four most highly compensated officers, is comprised of a base salary which is
directly related to the responsibilities of the position and a bonus based on a
pre-set formula related to annual pre-tax profits. The Chief Executive Officer
and the four most highly compensated officers which comprise the executive staff
work together as a corporate team and bear the principal burden of corporate
management decisions -- the Chief Executive Officer, of course, bearing final
responsibility. Thus, the executive staff participates in a separate and more
heavily weighted bonus award. Determination of executive staff bonuses is made
only after all store managers and buyers bonuses have been computed and deducted
from pre-tax earnings. From the remaining profit before taxes, a bonus pool is
created for payment to the executive staff. Total bonuses accrued in fiscal 1995
for the executive staff, store managers and buyers amounted to $412,000.
The compensation of the Chief Executive Officer is directly related to the
performance and profitability of the Company. A significant portion of the Chief
Executive Officer's compensation is based on his bonus which is directly related
to the pre-tax profits of the Company. For fiscal 1995, the bonus of the Chief
Executive Officer increased 25% while the pre-tax profits of the Company
increased 21%.
Based upon a review of publicly available information on regional companies
reporting comparable amounts of annual gross revenues, the Stock Option and
Compensation Committee believes that the cash compensation (salary and bonus)
paid to the Chief Executive Officer of the Company is comparable to the
compensation of the chief executive officers of such regional companies.
The Company has maintained employee compensation programs designed to
compensate its officers, managers and other key employees in relationship to the
profitability of the Company through its bonus
11
<PAGE> 12
programs. In addition, stock options for officers, managers and other key
employees are awarded at the discretion of the Board's Stock Option and
Compensation Committee. The stock option program is designed to give additional
incentive to the officers, managers and other key employees to enhance the value
of the Company to all shareholders.
William Hellman
Philip Rootberg
Edward Ross
12
<PAGE> 13
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company Common Stock against the
cumulative total return of the NASDAQ Stock Market Index and the NASDAQ Retail
Trade Index for the period of five years commencing January 31, 1990 and ending
January 31, 1995. The graph assumes that the value of the investments in the
Company Common Stock and each index was $100 on January 31, 1990.
COMPARISON OF FIVE YEAR TOTAL RETURN AMONG
HUFFMAN KOOS INC.
NASDAQ STOCK MARKET AND
NASDAQ RETAIL TRADE INDICES
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD NASDAQ STOCK RETAIL TRADE
(FISCAL YEAR COVERED) HUFFMAN KOOS MARKET INDEX STOCKS
<S> <C> <C> <C>
1990 100 100 100
1991 58 102 120
1992 125 156 210
1993 358 176 189
1994 433 203 203
1995 483 180 192
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of the Company Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms which they file.
To the Company's knowledge, based solely on review of information furnished
to the Company, reports filed through the Company and representations that no
other reports were required, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent beneficial owners
were complied with during the fiscal year ended January 31, 1995.
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CERTAIN TRANSACTIONS
The Company participates in the Sussex and JG medical, casualty, property
and liability insurance programs. The Company's annual cost of insurance during
the year ended January 31, 1995 (fiscal 1995) was approximately $2,621,000.
JG charges the Company for administration services performed on behalf of
the Company. Charges for such services for fiscal 1995 were $768,000.
Effective October 28, 1993, JG, Sussex and Jupiter entered into a Stock
Purchase and Loan Agreement. Under the terms of the agreement, JG, through
Sussex, borrowed $5,075,000 from Jupiter on October 29, 1993. The note was
repaid per the terms of the agreement on February 4, 1994 by the transfer of
700,000 shares of the Company Common Stock from Sussex to Jupiter, along with
interest at the prime rate. Effective November 30, 1994, Sussex and Jupiter
entered into a Stock Purchase Agreement whereby Sussex sold an additional
100,000 shares of the Company Common Stock to Jupiter for $800,000. As a result
of the transactions described above, Sussex and Jupiter now own approximately
35.6% and 20.3% of the Company Common Stock, respectively.
The Stock Purchase and Loan Agreement and Stock Purchase Agreement (the
"Agreements") contain an option which allows Sussex to repurchase any or all of
the 800,000 shares on or prior to February 4, 1996 at a purchase price ranging
from $7.25 to $8.00 per share, plus interest. The Agreements also contain a
provision which requires Jupiter to vote the 800,000 shares of the Company
Common Stock for the election of a majority of the Board as Sussex shall direct.
As a result of this voting provision, JG, through Sussex, retained effective
control of the Company.
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
DATED SEPTEMBER 18, 1995
The parties to this agreement are Huffman Koos Inc., a Delaware corporation
("HK"), HK Acquisition Company, Inc., a Delaware corporation ("SUB"), and
Breuner's Home Furnishings Corporation, a Delaware corporation and holder of all
of the issued and outstanding capital stock of SUB ("Parent").
The boards of directors of each of HK, SUB and Parent have (i) approved
that certain stockholders agreement dated the date hereof (the "Stockholders
Agreement") among Parent, SUB, Jupiter Industries, Inc. ("Jupiter"), and Sussex
Group, Ltd. ("Sussex" and, together with Jupiter, the "Majority Sellers"),
pursuant to which, among other things, subject to the terms and conditions
thereof, the Majority Sellers have agreed to tender their shares (the "Majority
Shares") of common stock, par value $.01 per share (the "Common Stock"), of HK
in the Offer (as defined below), vote the Majority Shares in favor of the Merger
(as defined below) and give to Parent or SUB an option to purchase the Majority
Shares at a purchase price of $9.375 per Share, (ii) determined that it is
advisable and in the best interests of their respective companies and
stockholders that SUB shall make a tender offer (the "Offer") to acquire all of
the outstanding shares (the "Shares") of Common Stock at $9.375 per share, or
any greater amount per Share paid pursuant to the Offer (the "Per Share
Amount"), (iii) adopted and approved this agreement and the transactions
contemplated hereby, including but not limited to the merger (the "Merger") of
SUB with and into HK pursuant to the Delaware General Corporation Law (the
"GCL"), upon the terms and conditions contained in this agreement, and (iv)
resolved to recommend acceptance of the Offer and approval and adoption of this
agreement, if necessary, by their respective stockholders.
Now, therefore, the parties hereto agree as follows:
1. THE OFFER.
1.1 The Offer.
(a) Provided that this agreement shall not have been terminated in
accordance with section 8 and that no circumstances exist that would result in a
failure to satisfy any of the conditions set forth in section 1.1(c)(i) through
(vi), SUB shall commence the Offer as soon as practicable, but in no event later
than the fifth business day after the date of initial announcement of this
agreement and the Offer. SUB shall accept for payment Shares that have been
validly tendered, and not withdrawn, pursuant to the Offer at the earliest time
following expiration of the Offer that all conditions to the Offer shall have
been satisfied or waived by SUB. SUB shall have the right to increase the Per
Share Amount payable in the Offer or to make any other changes in the terms and
conditions of the Offer; provided that, unless previously approved by HK in
writing, no change may be made that (x) decreases the Per Share Amount payable
in the Offer, (y) changes the form of consideration to be paid in the Offer or
(z) imposes conditions to the Offer in addition to those set forth in section
1.1(c) or broadens the scope of those conditions; and further provided that (I)
SUB shall have the right in its sole discretion to extend the Offer for up to a
maximum of five additional business days if after 20 business days there shall
not have been tendered sufficient Shares to consummate a Short Form Merger as
described in section 2.9(c), (II) SUB may extend the Offer for such additional
number of trading days as may be reasonably necessary to allow Shares tendered
under "signature guarantees" to be delivered, and (III) if Parent or SUB
determines, upon the advice of outside legal counsel, that any supplement or
amendment to the Offer Documents (as defined in section 1.1(b)) is required to
be circulated to the offerees, then Parent or SUB shall have the right to extend
the offer for such additional number of days as may be necessary under
applicable law as determined by Parent and SUB, on the advice of counsel. The
Per Share Amount shall be paid net to the seller in cash, less any required
withholding of taxes, upon the terms and subject to the conditions of the Offer.
(b) As soon as practicable on the date of commencement of the Offer, SUB
shall file with the Securities and Exchange Commission (the "SEC") a tender
offer statement on Schedule 14D-1 with respect to the
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Offer which will contain the offer to purchase and form of the related letter of
transmittal (together with any supplements or amendments thereto, collectively,
the "Offer Documents"). The Offer Documents will comply in all material respects
with the provisions of applicable federal securities laws and the securities
laws of the state of Delaware. The information provided and to be provided by
HK, Parent and SUB for use in the Offer Documents shall not, on the date filed
with the SEC and on the date first published or sent or given to the Company's
stockholders, as the case may be, 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. Parent, SUB and the Company each
shall promptly correct any information provided by it for use in the Offer
Documents if and to the extent that it shall become false or misleading in any
material respect and SUB shall take all necessary steps to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws and the securities laws of the state of Delaware.
(c) Any other provision of this agreement or the Offer notwithstanding, SUB
shall not be required to accept for payment or pay for, and may delay the
acceptance for payment of, or the payment for, any Shares, and may terminate the
Offer and not accept for payment or pay for any Shares, unless all of the
following conditions shall have been satisfied:
(i) no statute, rule, regulation, executive order, decree, court
order, ruling or preliminary or permanent injunction shall have been
enacted, entered, promulgated or enforced by any local, state or federal
court or governmental authority in the United States that prohibits,
restrains, enjoins or materially restricts the Offer or the consummation of
the Offer or the Merger;
(ii) any waiting period applicable to the consummation of the Offer or
the Merger under the HSR Act (as defined in section 5.4) shall have
terminated or expired;
(iii) there shall not have occurred or been threatened any event or
series of events or any condition or circumstance arisen that, individually
or in the aggregate, has had or is reasonably likely to have a Material
Adverse Effect (as defined in section 9.8) on HK, determined by reference
to the business, assets, results of operations or financial condition of HK
at July 31, 1995;
(iv) the representations and warranties of HK contained in this
agreement shall be true and correct in all material respects on and as of
the date of consummation of the Offer as though made on and as of that
date, except (i) for changes occurring after the date of this agreement
that are specifically permitted by this agreement, including changes
resulting from conduct permitted under section 5.1, and (ii) that those
representations and warranties that address matters only as of a particular
date shall remain true and correct as of that date; and Parent and SUB
shall have been furnished with a certificate of HK to the effect of the
matters referred to above (and only excepting the matters referred to in
items (i) and (ii) above) executed by its Chairman in form and substance
satisfactory to Parent and SUB;
(v) HK shall have performed and complied in all material respects with
all obligations, covenants, agreements and conditions required by this
agreement to be performed or complied with by it prior to or on the date of
consummation of the Offer, and Parent and SUB shall have been furnished
with a certificate of HK to that effect executed by its Chairman in form
and substance satisfactory to Parent and SUB;
(vi) Parent and/or SUB shall have obtained financing pursuant to the
Financing Commitment Letter referred to in section 4.4 or other financing
arrangements on terms not materially more adverse to the borrower than the
terms of the Financing Commitment Letter (the "Financing Condition"); and
(vii) at least 90% of the outstanding Shares shall have been tendered
in the Offer (the "90% Minimum Condition").
The conditions set forth above are for the sole benefit of SUB and Parent
only and may be asserted by SUB and Parent regardless of the circumstances
giving rise to any such condition (including the termination of this agreement
by SUB or Parent) or may be waived by SUB or Parent, in whole or in part at any
time and
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from time to time, in their sole discretion. The failure by SUB or Parent at any
time to exercise any of the rights set forth in this provision shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time. Any determination
by SUB or Parent with respect to any of the conditions referred to (including,
without limitation, the satisfaction of such conditions) shall be final and
binding on the parties.
1.2 HK Action.
(a)(i) HK hereby approves of and consents to the Offer and represents and
warrants that HK's board of directors, at a meeting duly called and held, has,
subject to the terms and conditions set forth herein, (A) approved the
Stockholders Agreement, (B) determined that this agreement and the transactions
contemplated hereby, including the Offer and the Merger, are fair to, and in the
best interests of, the stockholders of HK, (C) approved this agreement and the
transactions contemplated hereby, including the Offer and the Merger, in all
respects and determined that such approval of the Offer, this agreement and the
Merger constitutes approval thereof for all purposes under sections 203(a) and
251(b) of the GCL and for purposes of any other applicable provision of the GCL
and any other state statutes that might be deemed applicable to the transactions
contemplated hereby and (D) resolved to recommend that the stockholders of HK
accept the Offer, tender their Shares thereunder to SUB and approve and adopt
this agreement and the Merger. HK consents to the inclusions of such
recommendation and approval in the Offer Documents.
(ii) The board of directors of HK shall not (x) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or SUB, its
approval or recommendation of the Offer, this agreement or the Merger, provided,
however, that to the extent required by the fiduciary obligations of such board
of directors, as determined in good faith by a majority of the "disinterested"
members thereof based on the advice of outside counsel, in the case of a
"superior proposal" (as defined below), HK's board of directors shall have the
right to withdraw such approval or recommendation; or (y) approve or recommend,
or propose to approve or recommend, any takeover proposal. If any of the
foregoing actions is taken by the board of directors of HK, Parent or SUB shall
have, and HK shall have (subject to the limitation on HK's right set forth in
section 8.1(c)), the right to terminate this agreement pursuant to section 8.1.
For purposes of this agreement, "superior proposal" means a bona fide proposal
made by a third party to acquire HK pursuant to a tender or exchange offer, a
merger, a sale of all or substantially all its assets or otherwise on terms
which a majority of the disinterested members of the board of directors of HK
determines in its good faith judgment to be more favorable to HK's stockholders
than the Offer and the Merger (based on the written opinion, with only customary
qualifications, of HK's financial advisor that the value of the consideration
provided for in such proposal exceeds the value of the consideration provided
for in the Offer and the Merger) and for which financing, to the extent
required, is then committed or which, in the good faith judgment of a majority
of such disinterested members (based on the written advice of HK's financial
advisor), is reasonably capable of being obtained by such third party. For
purposes of this agreement, "disinterested" shall mean disinterested with
respect to Parent and SUB. In determining "value of consideration," due
consideration shall be given to the cash equivalent of each specific component
of consideration, including but not limited to the form and timing thereof.
(iii) HK further represents that The Chicago Corporation (the "Financial
Advisor") has delivered to the board of directors of HK its written opinion
dated as of September 18, 1995 that based upon and subject to matters set forth
in the opinion and based upon such other matters as the Financial Advisor
considers relevant, the consideration to be received by the holders of Shares
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view as of such date. HK has been authorized by the Financial Advisor
to permit, subject to the prior review and consent by the Financial Advisor
(such consent not to be unreasonably withheld), the inclusion of the fairness
opinion (or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as
defined below) and the Proxy Statement (as defined below). Moreover, HK shall
use its best efforts to cause the Financial Advisor to deliver an updated
fairness opinion, to the same effect as the opinion described above, to Parent
or SUB in connection with any Long Form Merger referred to in and pursuant to
section 1.3.
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(b) HK shall file with the SEC as soon as practicable on the date of
commencement of the Offer a solicitation/recommendation statement on Schedule
14D-9 (together with any amendments or supplements thereto, the "Schedule
14D-9") containing the recommendation described in section 1.2(a)(i) and shall
mail the Schedule 14D-9 to the stockholders of HK promptly after the
commencement of the Offer. The Schedule 14D-9 shall comply in all material
respects with the provisions of applicable federal securities laws and, on the
date filed with the SEC and on the date first published, sent or given to HK'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 is made by HK with
respect to information supplied by Parent or SUB for inclusion in the Schedule
14D-9. HK, Parent and SUB each shall promptly correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading in any material respect and HK shall take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC
and disseminated to the holders of Shares, in each case as and to the extent
required by applicable federal securities laws.
(c) In connection with the Offer, HK shall promptly furnish Parent and SUB
with mailing labels, security position listings and any available listing or
computer files containing the names and addresses of the record holders of the
Shares as of a recent date and shall furnish SUB with such additional
information and assistance (including, without limitation, updated lists of
stockholders, mailing labels and lists of securities positions) as SUB or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Shares. 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 Merger, Parent and SUB shall, and
shall use their best efforts to cause their affiliates, associates, agents and
advisors to (it being understood that "best efforts" for this purpose shall
include terminating the relationship with any agent and advisor that fails to
comply in this regard), keep such information confidential and use the
information contained in any such labels, listings and files only in connection
with the Offer and the Merger and, if this agreement should be terminated,
deliver to HK all copies of such information in their possession.
1.3 Long Form Merger. If SUB does not purchase Shares pursuant to the
Offer due to the failure solely of the 90% Minimum Condition to have been
satisfied, then the parties shall, subject to section 6, consummate the Merger
pursuant to section 2 in accordance with the provisions of section 251 of the
GCL (a "Long Form Merger"). The period after the termination of the Offer and
during which this agreement remains in effect shall be referred to hereinafter
as the "Extension Period".
1.4 Board of Directors and Committees; Section 14(f).
(a) Promptly upon the purchase by SUB of Shares pursuant to the Offer or
the Majority Shares pursuant to the Stockholders Agreement (unless as a result
of such Purchase SUB owns at least 90% of the Shares then outstanding) and from
time to time thereafter, and subject to the last sentence of this section
1.4(a), SUB shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the board of directors of HK as will
give SUB representation on the board equal to the product of the number of
directors on the board (giving effect to any increase in the number of directors
pursuant to this section 1.4) and the ratio that the combined voting power of
the Shares so purchased bears to the total combined voting power of all
outstanding Shares on a fully-diluted basis, and, upon request by SUB, HK shall
use its best efforts either, at HK's election, to increase promptly the size of
the board or to secure promptly the resignation of such number of directors as
is necessary to enable SUB's designees to be elected to the board and to cause
SUB's designees to be so elected. At such times, and subject to the last
sentence of this section 1.4(a), HK will use its best efforts to cause persons
designated by SUB to constitute the same percentage as is on the board of each
committee of the board. Notwithstanding the foregoing, HK shall use its best
efforts to ensure that two of the members of the board as of the date hereof
shall remain members of the board until the Effective Time (as defined in
section 2.2), and Parent and SUB shall not remove such members and, if
necessary, shall vote to keep such members on the board.
(b) HK's obligation to appoint designees to its board shall be subject to
section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 promulgated thereunder. HK
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shall promptly take all action required pursuant to such section and Rule in
order to fulfill its obligations under this section 1.4 and shall include in the
Schedule 14D-9 such information with respect to HK and its officers and
directors as is required under such section and Rule in order to fulfill its
obligations under this section 1.4. SUB shall supply to HK in writing, and shall
be solely responsible for, any information with respect to itself and its
nominees, officers, directors and affiliates required by such section and Rule.
(c) Following the election or appointment of SUB's designees pursuant to
this section 1.4 and prior to the Effective Time, if there shall be any
directors of HK who were directors as of the date hereof, any amendment of this
agreement, any termination of this agreement by HK, any extension by HK of the
time for the performance of any of the obligations or other acts of SUB or
Parent or waiver of any of HK's rights hereunder, will require the concurrence
of a majority of such directors.
2. THE MERGER.
2.1 Surviving Corporation. Upon the terms and subject to the conditions
set forth in section 6, and in accordance with the GCL, at the Effective Time
SUB shall be merged with and into HK. As a result of the Merger, the separate
corporate existence of SUB shall cease and HK shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). The effect of the
Merger shall be as provided in the applicable provisions of the GCL.
2.2 Effective Time. As promptly as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in section 6, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger with the Secretary of State of Delaware in such form as required by, and
executed in accordance with the relevant provisions of, the GCL. Prior to the
filing referred to in this section 2.2, a closing shall be held at the offices
of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
New York (or such other place as the parties may agree) for the purpose of
confirming all of the foregoing. The Merger shall become effective at such time
as the certificate of merger is duly filed with the Secretary of State of
Delaware, or at such later time as is specified in the certificate of merger
(the time the Merger becomes effective being referred to herein as the
"Effective Time").
2.3 Certificate of Incorporation; By-Laws.
(a) The certificate of incorporation of HK, as in effect immediately prior
to the Effective Time, shall be the certificate of incorporation of the
Surviving Corporation until thereafter amended as provided by law, except that
article 4 thereof shall be amended to provide that the authorized capital stock
of the Surviving Corporation shall consist solely of 1,000 shares of common
stock, par value $.01 per share.
(b) The by-laws of HK, as in effect immediately prior to the Effective
Time, shall be the by-laws of the Surviving Corporation, until thereafter
amended as provided by law, the certificate of incorporation of the Surviving
Corporation and such by-laws.
2.4 Directors and Officers. The directors of SUB, immediately prior to
the Effective Time, shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation, and the officers of SUB, immediately prior
to the Effective Time, shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
2.5 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of SUB, HK, or the holders of any of
the following securities:
(i) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to section
2.5(ii) and any Dissenting Shares, as defined in section 2.6(a)) shall be
converted automatically into the right to receive the Per Share Amount in
cash (the "Merger Consideration") payable to the holder thereof, without
interest and less any required withholding taxes, upon surrender of the
certificate formerly representing such Share;
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(ii) Each Share held in the treasury of HK, or owned by Parent, SUB or
any subsidiary of Parent or SUB, immediately prior to the Effective Time
shall be canceled and cease to exist without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(iii) Each share of common stock, par value $.01 per share, of SUB
issued and outstanding immediately prior to the Effective Time shall, upon
surrender of the certificate formerly representing such Shares, be
converted into and become one validly issued, fully paid and nonassessable
share of common stock, par value $.01 per share, of the Surviving
Corporation.
2.6 Dissenting Shares.
(a) Notwithstanding any provision of this agreement to the contrary, any
Shares held by a holder who has properly demanded and perfected the right for
appraisal of such Shares in accordance with the GCL and who, as of the Effective
Time, has not effectively lost such right to appraisal ("Dissenting Shares"),
shall not be converted into or represent a right to receive the Per Share
Amount, but the holder thereof shall only be entitled to such rights as are
granted by the GCL.
(b) Notwithstanding the provisions of section 2.6(a), if any holder of
Shares who asserts the right for appraisal or demands payment for such Shares
under the GCL shall effectively lose the right to appraisal, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
Shares shall automatically be converted into and represent only the right to
receive the Per Share Amount pursuant to section 2.5(i) without interest thereon
and less any required withholding taxes, upon surrender of the certificate or
certificates representing such Shares.
(c) HK shall give Parent (i) prompt notice of any demands for appraisal
received by it and of withdrawals of such demands received by it and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the GCL. HK shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demands for
appraisal or settle or offer to settle any such demands.
2.7 Surrender of Shares; Stock Transfer Books.
(a) Prior to the Effective Time, Parent shall designate an agent reasonably
satisfactory to HK to act as Paying Agent in connection with the Merger (the
"Paying Agent") for purposes of effecting the exchange, for the Per Share
Amount, of certificates that, prior to the Effective Time, represented Shares
entitled to receive the Per Share Amount pursuant to section 2.5. At or before
the Effective Time, Parent shall take all steps necessary to provide the Paying
Agent, in trust for the benefit of the holders of Shares, with immediately
available funds in an aggregate amount (the "Payment Fund") equal to the
aggregate Per Share Amount to be paid to the holders of Shares pursuant to
section 2.5. The Payment Fund shall be invested by the Payment Agent, as
directed by Parent, in direct obligations of the United States of America, or
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal thereof and interest thereon,
and any earnings with respect to the Payment Fund shall be paid to Parent as and
when requested by Parent and Parent shall replace any principal lost through any
investment made with respect to the Payment Fund. The parties agree that the
Surviving Corporation shall pay all charges and expenses, including those of the
Paying Agent, in connection with the exchange of the certificates formerly
representing Shares as contemplated hereby.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed (or delivered upon request in person) to each record holder,
as of the Effective Time, of an outstanding certificate or certificates that are
converted pursuant to section 2.5(i) into the right to receive the Per Share
Amount and that immediately prior to the Effective Time represented Shares (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for payment
of the Per Share Amount therefor less any federal, state or local taxes required
to be withheld from such payment. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the holder of
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such Certificate shall be entitled to receive in exchange therefor the Per Share
Amount, less such taxes withheld, for each Share formerly represented by such
Certificate, and such Certificate shall then be canceled. Until so surrendered
and exchanged, each Certificate shall, after the Effective Time, be deemed to
evidence only the right to receive the Per Share Amount without interest thereon
and less such taxes. If payment of the Per Share Amount 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 Per Share
Amount 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 in accordance with the provisions of this section 2.7(b), each
Certificate (other than Certificates representing Shares held by Parent, SUB or
any other subsidiary of Parent, and other than Certificates representing
Dissenting Shares) shall represent for all purposes only the right to receive
for each Share represented thereby the consideration provided for under this
agreement.
(c) At any time following six 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 Per Share
Amount payable upon due surrender of their Certificates without interest
thereon. Notwithstanding the foregoing, neither the Surviving Corporation, the
Parent nor the Paying Agent shall be liable to any holder of a Certificate for
the Per Share Amount delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of HK shall be closed
and thereafter there shall be no further registration or transfers of Shares on
the records of HK. From and after the Effective Time, the holders of
Certificates 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 applicable law.
2.8 Employee Stock Options. Immediately prior to or at the Effective
Time, HK shall (i) take all necessary action to provide that (subject to receipt
of the consents referred to in the penultimate sentence of this section 2.8, if
required), immediately prior to the Effective Time, each outstanding stock
option (each, an "Option") granted under the Huffman Koos Inc. 1986 Stock Option
Plan, as amended (the "Option Plan"), shall be canceled and each holder of a
canceled Option shall be entitled to receive from HK, as of such date, in
cancellation and settlement of the Option, whether or not such Option was
exercisable at the time of such cancellation, only an amount equal to the
excess, if any, of the Per Share Amount over the per Share exercise price of
such Option, multiplied by the number of Shares covered by such Option (the
"Option Settlement Amount"), reduced by any applicable withholding taxes or
other amounts required by law to be paid or withheld by HK, and (ii) pay to each
person who formerly held such an Option the Option Settlement Amount, reduced by
such taxes or other amounts; provided, however, that with respect to any person
subject to section 16(a) of the Exchange Act, any such amount to be paid shall
be paid as soon as practicable after the first date payment can be made without
liability for such person under section 16(b) of the Exchange Act. Such Options
and any rights granted in connection with any such Option shall be canceled upon
the payment of the Option Settlement Amount. At the Effective Time, any such
Options with respect to which the holder thereof has not consented, if
necessary, to cancellation in exchange for the receipt of the Option Settlement
Amount will be converted into, and thereafter represent only the right to
receive, the Option Settlement Amount. Prior to the purchase of Shares pursuant
to the Offer, HK shall use its reasonable efforts to (x) obtain any requisite
consents or releases from holders of Options and (y) make any amendments to the
terms of the Option Plan or any awards granted thereunder that are necessary in
addition to such consents to give effect to the transactions contemplated by
this section 2.8. Notwithstanding any other provision of this section 2.8,
payment in respect of or delivery of Shares pursuant to the exercise of any
Options may be withheld until any necessary consents are obtained.
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2.9 Stockholder's Meeting.
(a) Except as provided below in section 2.9(c), after the consummation,
expiration or termination of the Offer, unless Parent or SUB terminates this
agreement, then HK, acting through its board of directors, shall in accordance
with applicable law:
(i) duly call, give notice of, convene and hold an annual or special
meeting of its stockholders (the "Stockholders' Meeting"), to be held as
soon as practicable after the consummation, expiration or termination of
the Offer for the purposes of considering and taking action upon this
agreement;
(ii) subject to its fiduciary duties as determined in good faith by a
majority of its board of directors, based as to legal matters on the
opinion of legal counsel, include in any proxy or similar materials
distributed to HK's stockholders in connection with the Merger, including
any amendments or supplements thereto (the "Proxy Statement"), the
recommendation of the board that stockholders of HK vote in favor of the
approval and adoption of this agreement and the written opinion of the
Financial Advisor that based upon and subject to matters set forth in the
opinion and based upon such other matters as the Financial Advisor
considers relevant, the consideration to be received by the holders of
Shares pursuant to the Merger is fair to such holders from a financial
point of view as of the date of the opinion; and
(iii) use all reasonable efforts (A) to obtain and furnish the
information required to be included by it in any Proxy Statement and, after
consultation with Parent and SUB, respond promptly to any comments made by
the SEC with respect to any Proxy Statement and any preliminary version
thereof and cause any Proxy Statement to be mailed to its stockholders at
the earliest practicable time following the expiration or termination of
the Offer, and to the National Association of Securities Dealers, Inc. (the
"NASD") within five days thereafter, and (B) subject to a determination,
after consulting outside legal counsel of its fiduciary duty to HK's
stockholders under applicable law, to obtain the necessary approvals by its
stockholders of this agreement and the transactions contemplated hereby.
(b) At the Stockholders' Meeting, Parent, SUB and their affiliates shall
vote all Shares owned by them in favor of approval and adoption of this
agreement and the transactions contemplated hereby.
(c) If at any time after the satisfaction or waiver of the conditions set
forth in section 6.1(b) Parent and SUB own 90% or more of the Shares then
outstanding then the provisions of sections 2.9(a) and (b) shall not apply and,
as soon as practicable after the satisfaction or waiver of the conditions set
forth in section 6.1(b), the parties hereto will cause the Merger to be
consummated by filing the Certificate of Merger with the Secretary of State of
Delaware and make all other filings or recordings required by section 253 of the
GCL in connection with the Merger. Such Merger in accordance with section 253 of
the GCL is referred to herein as the "Short Form Merger."
3. REPRESENTATIONS AND WARRANTIES OF HK. HK represents and warrants to
Parent and SUB that:
3.1 Organization, Good Standing, etc. HK is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware,
has all requisite power to own its properties and to carry on its business as
now being conducted and is duly qualified to do business and is in good standing
in all other jurisdictions in which qualification as a foreign corporation is
required, except for such failures to be qualified and in good standing, if any,
which when taken together with all other such failures would not in the
aggregate have a Material Adverse Effect. HK has heretofore delivered to SUB and
Parent accurate and complete copies of the certificate of incorporation and
by-laws, as currently in effect, of HK. Other than HKI Subsidiary One, Inc., a
Delaware corporation ("HK1"), HK has no subsidiaries. HK1 has no assets and no
liabilities except for a note and mortgage receivable on certain real property
owned by HK.
3.2 Authority Relative to this Agreement; Consents and Approvals. HK has
all necessary 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 have been duly and validly authorized by the board of
directors of HK and no other corporate proceedings on the part of HK are
necessary to authorize this agreement or to consummate the transactions
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contemplated hereby (other than, with respect to the Merger and subject to
section 2.9(c), the approval and adoption of this agreement by the holders,
including SUB, of a majority of the then outstanding Shares). This agreement has
been duly and validly executed and delivered by HK and constitutes a valid,
legal and binding agreement of HK, enforceable against HK in accordance with its
terms.
3.3 Capitalization.
(a) The authorized capital stock of HK consists of 10,000,000 Shares, of
which 3,938,400 Shares (which excludes 90,000 Shares held in treasury by HK) are
issued and outstanding as of the date hereof. All of the outstanding Shares are,
and all Shares issuable upon due exercise of Options will be, when issued in
accordance with the terms of such Options, duly authorized, validly issued,
fully paid and non-assessable. HK has 5,000,000 shares of preferred stock
authorized, none of which are issued or outstanding.
(b) Section 3.3 of the disclosure schedule attached to this agreement (the
"Schedule") sets forth the number, class, record owners, grant and expiration
dates and exercise prices of Shares that are subject to options (including all
Options issued pursuant to the Option Plan) or warrants, and the holders of all
debt instruments of HK and the amount outstanding thereon.
(c) Except for the Stockholders Agreement, or as described in the SEC
Reports (as defined in section 3.6) or in section 3.3 of the Schedule, there are
no stockholders agreements, voting trusts or other agreements or understandings
with respect to the voting of any Shares known to HK. Except for the Options
described in section 3.3 of the Schedule, (i) HK is not a party to or bound by
any written or oral contract or agreement that grants to any person an option,
warrant or right of first refusal or other right of any character to acquire at
any time, or upon the happening of any stated events, any shares of or interest
in HK, whether or not presently authorized, issued or outstanding and (ii) there
are outstanding no (A) shares of capital stock or other voting securities of HK,
(B) securities of HK convertible into or exchangeable for shares of capital
stock or voting securities of HK, (C) options or other rights to acquire from
HK, and no obligations of HK to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of HK and (D) equity equivalents, interests in the ownership or
earnings of HK or other similar rights (collectively, "Company Securities").
Except as provided in HK's certificate of incorporation, there are no
outstanding obligations of HK to repurchase, redeem or otherwise acquire any
Company Securities.
(d) The Shares constitute the only class of equity securities of HK
registered or required to be registered under the Exchange Act.
3.4 Effect of Agreement. The execution and delivery of this agreement by
HK and the consummation of the Merger have been duly authorized by the Board of
Directors of HK, do not require the consent, waiver, approval or authorization
of or filing with any person or public authority other than the approval of its
stockholders at the meeting of such stockholders referred to in section 2.9, the
filings with the SEC and the NASD contemplated by section 2.9(a) and the filings
with the Federal Trade Commission (the "FTC") and the U.S. Department of Justice
("Justice") contemplated by section 5.4, and the consents, waivers or approvals
from persons to specified contracts listed in section 3.4 of the Schedule and
will not, subject to obtaining the aforesaid consents, waivers or approvals and
making the aforesaid filings, and except such as would not have a Material
Adverse Effect, violate any law, statute, regulation, injunction, order or
decree of any governmental agency or authority or court, or conflict with or
result in a breach of or constitute a default under any of the terms or
provisions of any mortgage, note, bond or indenture or obligation to which HK is
a party or by which it or any of its properties may be bound. Subject to
securing the consents, waivers or approvals as set forth in section 3.4 of the
Schedule, and except as contemplated by this agreement or as may arise under
applicable law, the execution and delivery of this agreement by HK and the
consummation of the Merger will not give to others any interests or rights,
including rights of termination or cancellation, in or with respect to any
property, asset, contract, agreement, license or other commitment or instrument
of HK, except such as would not have a Material Adverse Effect.
3.5 Contracts and Commitments. Section 3.5 of the Schedule sets forth a
complete list of all contracts and agreements, written or oral, to which HK is a
party or by which any of its assets or properties is bound (i) that involve any
customer that accounted for more than one percent of the net revenues of HK for
the year
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ended January 31, 1995, (ii) that contain any covenant limiting the freedom of
HK to engage in any line of business or in any geographic area or to compete
with any entity, (iii) that involve any mortgages, leases or real property,
notes, bonds or indentures or agreements of guarantee or indemnification running
from HK to any person or entity, (iv) that require future payments by HK which
exceed $100,000 individually or $1,000,000 in the aggregate and are not
cancelable without penalty and (v) that HK has entered into with any of its
vendors. HK is not in breach or violation of or in default in any material
respects (x) under any of the terms or provisions of any mortgage, lease, note,
bond, indenture, commitment, contract, agreement (written or oral), license or
other instrument to which it is a party or by which it or any of its properties
is bound,(y) under any law, judgment or decree or any order, rule or regulation
applicable to it or to any of these properties or (z) in the payment of any of
its obligations for borrowed funds, and there exists no known condition or known
event that, after notice or lapse of time or both, would constitute a default in
connection with any of the foregoing by HK, or to HK's knowledge, any other
party.
3.6 SEC Reports; Financial Statements. HK has filed all required forms,
reports and documents with the SEC since February 1, 1992 (collectively, the
"SEC Reports"), each of which has complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, each as in effect on the dates so
filed. HK heretofore has delivered to Parent a true and complete copy (including
any amendments thereto) of (i) its Annual Report on Form 10-K for the year ended
January 31, 1995 (the "10-K"), (ii) its Quarterly Report on Form 10-Q for the
quarter ended July 31, 1995 (the "10-Q") and (iii) all definitive proxy
statements relating to meetings of HK's stockholders (whether annual or special)
held since February 1, 1994. None of such forms, reports or documents,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements contained in the 10-K and the
10-Q fairly present the financial condition of HK as at the dates thereof and
the results of operations for the periods indicated therein, all in conformity
with generally accepted accounting principles applied on a consistent basis
(except as otherwise stated therein). For the purposes of this agreement, all
financial statements of HK shall be deemed to include any notes to such
financial statements.
3.7 Absence of Liabilities. HK does not have any liabilities or
obligations, either accrued, absolute, contingent or otherwise which have not
been (i) reflected in the balance sheet as of July 31, 1995 (including any
related notes and schedules) included in the 10-Q (the "Balance Sheet"), (ii)
disclosed in the SEC Reports, (iii) that individually or in the aggregate would
not have a Material Adverse Effect, (iv) specifically described in the Schedule,
(v) incurred in the ordinary course of business since July 31, 1995 or (vi)
under this agreement.
3.8 Absence of Certain Changes or Events. Since July 31, 1995: (i) HK has
not sustained any damage, destruction or loss by reason of fire, flood, accident
or other calamity (whether or not covered by insurance), except such as would
not have a Material Adverse Effect; (ii) there have been no changes in the
financial condition of HK, except such as would not have a Material Adverse
Effect; (iii) HK has not, except as disclosed in section 3.8 of the Schedule,
borrowed any money; (iv) HK has not paid any obligation or liability (fixed or
contingent) except current liabilities included in the Balance Sheet and current
liabilities incurred since July 31, 1995 in the ordinary course of business or
pursuant to the terms of this agreement; (v) HK has not declared any dividend or
other distribution on or with respect to any Shares; (vi) HK has not purchased,
redeemed or otherwise acquired for a consideration, directly or indirectly, any
Shares; (vii) HK has not disposed of, or agreed to dispose of, any material
property or asset, other than in the ordinary course of business and for a
consideration at least equal to the fair value of such property or asset, nor
has it leased to others, or agreed so to lease, any property or asset except in
the ordinary course of business and for a consideration at least equal to the
fair rental value of such property or asset nor has it transferred or granted
any other rights under any lease, license or agreement; (viii) HK has not made
any expenditures or commitments for the purchase, acquisition, construction or
improvement of a capital asset except in the ordinary course of business and in
an aggregate amount not exceeding $100,000; (ix) HK has not amended its
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certificate of incorporation or, except as disclosed in Section 3.8 of the
Schedule, its by-laws; (x) HK has not made any change in its accounting methods,
principles or practices; (xi) HK has not made any revaluation of any of its
assets, including any write down or write off of inventory or accounts
receivable other than in the ordinary course of business; and (xii) HK has not
entered into any other transaction or contract other than in the ordinary course
of business, other than this agreement.
3.9 Tax and Other Returns. Except as set forth in section 3.9 of the
Schedule, HK and its subsidiaries have duly and timely filed all U.S. federal
Tax (as defined below) returns and all other Tax filings required to be filed
including, but not limited to, all foreign, state and local Tax returns and
filings (all such federal, foreign, state and local returns and filings being
complete and correct in all material respects), except for such state and local
returns and filings with respect to which the failure to file would not have a
Material Adverse Effect, have duly paid or made provision for the payment of all
Taxes (including any interest or penalties) that are due and payable (whether or
not shown on any such tax returns) and paid all payments of estimated Tax due
and all Taxes required to be withheld and collected. Except as disclosed in
section 3.9 of the Schedule, the liability for Taxes reflected in HK's balance
sheet at July 31, 1995 is sufficient for the payment of all unpaid Taxes
(including interest and penalties), whether or not disputed, accrued or
applicable for the period then ended and for all years and periods ended prior
thereto. The federal, state, local and foreign Tax returns of HK and its
subsidiary have not been audited by the Internal Revenue Service ("IRS") or any
other taxing authority. Except as set forth in section 3.9 of the Schedule, HK
and its subsidiaries (i) have not executed or filed with the IRS or any other
taxing authority a waiver or a consent providing for an extension of time with
respect to the assessment of any Tax or deficiency; (ii) have not granted powers
of attorney with respect to any Tax matter that is currently in force and (iii)
are not currently under, or have not received notice of commencement of, any
audit by any taxing authority, and are not parties to any judicial proceeding
with respect to Taxes. HK and its subsidiary have not made any payments, are not
obligated to make any payments and are not parties to any agreement that under
certain circumstances could obligate them to make any payments that will not be
deductible under section 280G of the Internal Revenue Code of 1986 (the "Code").
HK and its subsidiaries are not, and have not been United States real property
holding corporations within the meaning of section 897(c)(2) of the Code during
the applicable period specified in section 897(c)(1)(A)(ii) of the Code. Except
as set forth in section 3.9 of the Schedule, HK and its subsidiary have not
filed consents pursuant to 341(f) of the Code or agreed to have 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is defined
in 341(f)(4) of the Code) owned by HK or its subsidiary. HK and its subsidiary
are not parties to any tax allocation or sharing agreement. HK and its
subsidiary are not and have never been (nor do HK and its subsidiary have any
liability for unpaid Taxes because they once were) members of an affiliated
group. For purposes of this agreement, the term "Taxes" (or "Tax", where the
context requires) shall mean all federal, state, local, foreign or other income,
gross receipts, sales, use, ad valorem, franchise, capital, profits, license,
and other withholding, employment, payroll, transfer, conveyance, documentary,
stamp, property, value added, customs duties, minimum taxes and any other taxes,
fees, charges, levies, excises, duties, or assessments of any kind whatsoever,
together with additions to tax or additional amounts, interest and penalties
relating thereto.
3.10 Employment Arrangements. Section 3.10 of the Schedule lists each
employment, severance, change of control, commission or consultant contract,
written or oral, with any present or former officer, director or employee, or
any collective bargaining agreement to which HK is a party. Except as disclosed
in section 3.10 of the Schedule since April 30, 1995 there has been no change in
any such plan or arrangement or in compensation to any director or officer, or
any change, either material in amount or other than in the ordinary course of
business, in compensation to any other employee of HK. Except as disclosed in
section 3.10 of the Schedule, since February 1, 1990 there have been no strikes,
work stoppages, work slowdowns or other labor unrest against HK or at any of its
locations in any material respect. HK's relations with its employees are good.
3.11 Property. HK has good and marketable title in fee simple to all of
the real property reflected on the Balance Sheet or acquired after the date
thereof and good and marketable title to all of the other tangible properties
and assets (other than properties and assets sold or otherwise disposed of for
fair value after the date thereof in the ordinary course of business) free and
clear of all mortgages, liens, pledges, restrictions, charges
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or encumbrances of any nature whatsoever, except (i) liens for taxes not yet
delinquent; (ii) liens for taxes and assessments not in excess of $25,000
individually or $100,000 in the aggregate being contested in good faith by
appropriate proceedings; (iii) such imperfections of title and encumbrances, if
any, as do not materially detract from the value of, or materially interfere
with the present use of, such property; and (iv) for those listed in section
3.11 of the Schedule. Each lease of real property, and each lease of personal
property requiring payments of $100,000 or more per annum to which HK is a party
(as lessor or lessee) is valid and effective and there are no known defaults
thereunder by any party thereto. No executive officers of HK have received
notice of any material violation of any zoning regulation, ordinance or other
law, order, regulation or requirement relating to real property owned or leased
by HK.
3.12 Patents, Trademarks, etc. HK owns, or is licensed to use, all
trademarks, trade names, copyrights and patents used in or necessary for the
conduct of its business as currently conducted which are material to its
business, assets, results of operations or financial condition. Section 3.12 of
the Schedule correctly lists all such trademarks, trade names, copyrights and
patents. The use by HK of such trademarks, trade names, copyrights or, to the
best of HK's knowledge, patents does not infringe upon or conflict with any
patent, trademark, trade name or copyright of others.
3.13 Litigation. HK is not a party to or threatened with any litigation,
governmental or other proceeding or investigation that, if adversely determined,
would have a Material Adverse Effect, other than any such matter arising in the
ordinary course fully covered by HK's insurance policies, and there is no
outstanding order, writ, injunction or decree of any court or governmental
agency against or affecting HK.
3.14 Proxy Statement. When the Proxy Statement referred to in section 2.9
or any amendment or supplement thereto shall be mailed to stockholders of HK,
and at all times subsequent to such mailing up to and including the Closing Date
(as promptly amended or supplemented, if so required), such Proxy Statement and
all amendments or supplements thereto, (i) will comply in all material respects
with the provisions of the Exchange Act, and all rules and regulations of the
SEC promulgated thereunder, and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein in light of the circumstances
under which they were made, not misleading, provided that no representation or
warranty is made with respect to information included in the Proxy Statement
based on information supplied by Parent or SUB specifically for inclusion
therein.
3.15 Brokers' and Finders' Fees. Section 3.15 of the Schedule lists the
only agent, broker, person or firm acting on behalf of HK or under its authority
which has claimed or is or will be entitled to any commission or broker's or
finder's fee from HK in connection with the Merger.
3.16 Insurance. Section 3.16 of the Schedule lists and briefly describes
all policies of fire, liability, workmen's compensation, life, business
interruption and other types of insurance held by HK.
3.17 Pension, Retirement and Profit Sharing Plans.
(a) Section 3.17(a) of the Schedule lists each Benefit Plan (as defined
below) and each Multiemployer Plan (as defined below). HK has provided to the
Parent true and complete copies of the following: (1) each of the Benefit Plans;
(2) summary plan descriptions of each of the Benefit Plans; (3) each trust
agreement, insurance policy or other instrument relating to the funding of each
of the Benefit Plans; (4) the two most recent Forms 5500 with respect to each of
the Benefit Plans; (5) the most recent audited financial statement for each of
the Benefit Plans; (6) each policy of fiduciary liability insurance and related
agreements maintained in connection with the Benefit Plans; and (7) the most
recent determination letter issued by the Internal Revenue Service (the "IRS")
with respect to each of the Benefit Plans that is intended to qualify under
section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Except as set forth in section 3.17(a) of the Schedule, each Benefit Plan has
complied and currently is in compliance, both as to form and operation, with the
applicable provisions of the Code and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), in all material respects. Each Benefit Plan
intended to qualify under section 401 of the Code is the subject of a favorable
determination letter issued by the IRS (which has not revoked or threatened to
revoke such letter) regarding the qualified status of the plan.
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(b) HK has complied with and performed all contractual obligations and all
obligations under applicable federal, state and local laws, rules and
regulations (domestic and foreign) required to be performed by it under or with
respect to any of Benefit Plans or any related trust agreement or insurance
contract, except where the failure to so comply or perform would not have a
Material Adverse Effect. All contributions and other payments required to be
made by HK to any Benefit Plan prior to the date hereof have been made. No
Benefit Plan is, and within the past six years HK has not maintained a plan that
is, subject to Part 3 of Title I of ERISA, section 412 of the Code or Title IV
of ERISA (a "Defined Benefit Plan"). No Benefit Plan has any accumulated funding
deficiency whether or not waived. There is no claim, investigation, suit,
action, dispute, grievance, charge, complaint, restraining or injunctive order,
litigation or proceeding pending, threatened or anticipated (other than routine
claims for benefits) against or relating to any Benefit Plan or against the
assets of any Benefit Plan. HK has not communicated (whether orally or in
writing) generally to employees or specifically to any employee regarding any
future increase of benefit levels (or creations of new benefits) with respect to
any Benefit Plan beyond those reflected in the copies of the Benefit Plans
provided to Parent, or the adoption or creation of any new benefit plan.
(c) Except as set forth in section 3.17(c) of the Schedule, HK has not
participated in or had an obligation to contribute to any Multiemployer Plan, or
incurred any withdrawal liability in respect of any Benefit Plan. In the event
HK were to withdraw as of the Effective Time from all Multiemployer Plans to
which it contributes, it would not incur any withdrawal liability except as set
forth in section 3.17(c) of the Schedule.
(d) No event or transaction in respect of a Benefit Plan (including,
without limitation, any "prohibited transaction" within the meaning of section
4975 of the Code or section 406 of ERISA) has occurred with respect to which HK,
directly or indirectly (through any indemnification agreement or otherwise), is
or could be expected to be subject to any liability or tax of any kind,
including, without limitation, under ERISA and the Code, except such as would
not have a Material Adverse Effect.
(e) Except as set forth in section 3.17(e) of the Schedule, no transaction
contemplated by this agreement will (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Benefit Plan,
trust funding a Benefit Plan or agreement with any employee that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in compensation or
benefits or obligation to fund benefits, (ii) result in any liability to the
PBGC under Title IV of ERISA, or (iii) result in the triggering or imposition of
any restrictions or limitations on the right or ability of HK or SUB to amend or
terminate any Benefit Plan or trust and receive the full amount of any excess
assets remaining or resulting from such amendment or termination, subject to
applicable taxes. Each Benefit Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms and in
accordance with the applicable provisions of the Code and ERISA, without any
losses, damages, liabilities, costs or expenses (other than incidental costs of
affecting such amendment or termination) to HK, SUB or any of their respective
affiliates.
(f) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(g) Except as set forth in section 3.17(g) of the Schedule, HK does not
maintain or contribute to any Benefit Plan which provides, and does not have any
liability or obligation to provide, life insurance, medical or other employee
welfare benefits to any employee (or such employee's beneficiary) upon such
employee's retirement or termination of employment, except as may be required by
federal, state or local laws, rules or regulations (domestic and foreign), and
HK has never represented, promised or contracted to any employee that such
employee would be provided with life insurance, medical or other employee
welfare benefits upon such employee's retirement or termination of employment,
except to the extent required by federal, state or local laws, rules or
regulations (domestic and foreign).
(h) "Benefit Plan" shall mean any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, welfare, workmen's compensation or other
insurance, severance, separation or other employee
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benefit plan, practice, policy or arrangement of any kind, including, but not
limited to, any "employee benefit plan" within the meaning of section 3(3) of
ERISA (other than a Multiemployer Plan) established by HK or to which HK
contributes or has contributed (including Benefit Plans not now maintained by
HK; Benefit Plans to which HK contributes or has contributed, and Benefit Plans
not now maintained by HK or to which HK does not now contribute, but with
respect to which HK has or may have any liability), and (ii) a "Multiemployer
Plan" shall have the meaning set forth in sections 3(37) and 4001(a)(3) of ERISA
.
3.18 Environmental Compliance.
(a) (i) HK is in compliance with all applicable federal, state and local
laws and regulations relating to pollution or the protection of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) (collectively, "Environmental
Laws"), except for non-compliance that individually or in the aggregate would
not have a Material Adverse Effect on HK, which compliance includes, but is not
limited to, the possession by HK of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof; (ii) HK has not received written notice of
and, to the best knowledge of HK, is not the subject of any action, cause of
action, claim, investigation, demand or notice by any person or entity alleging
liability under or non-compliance with any Environmental Law (an "Environmental
Claim") that individually or in the aggregate would have a Material Adverse
Effect on HK and (iii) except as set forth in section 3.18 of the Schedule, to
the best knowledge of HK, there are no circumstances that are reasonably likely
to prevent or interfere with such compliance in the future or give rise to an
Environmental Claim that individually or in the aggregate would have a Material
Adverse Effect on HK.
(b) There are no Environmental Claims which individually or in the
aggregate would have a Material Adverse Effect on HK that are pending or, to the
best knowledge of HK, threatened against HK or, to the best knowledge of HK,
against any person or entity whose liability for any Environmental Claim HK has
or may have retained or assumed either contractually or by operation of law.
(c) There has been no spill, discharge, leak, emission, injection,
disposal, escape, dumping or release of any kind on, beneath, above or into the
real property owned, leased, used, or in which any other interest is maintained
by HK at the Effective Time or previously owned by, used by or leased to HK
(collectively, the "Property"), of any pollutants, contaminants, hazardous
substances, hazardous chemicals, toxic substances, hazardous wastes, infectious
wastes, radioactive materials, petroleum (including crude oil or any fraction
thereof), or asbestos fibers (collectively referred to herein as "Hazardous
Materials"), including but not limited to those defined in any Environmental
Law, except such of the foregoing occurrences as would not, individually or in
the aggregate, have a Material Adverse Effect on HK.
(d) (i) To the best knowledge of HK, there is no current storage, disposal,
generation, manufacture, refinement, transportation, production or treatment of
any Hazardous Materials at, upon or from the Property; (ii) no friable asbestos
fibers or materials or polychlorinated biphenyls (PCBs) on the Property and
(iii) no underground storage tanks located on the Property except such as would
not, individually or in the aggregate, have a Material Adverse Effect.
(e) No Hazardous Materials managed or handled by HK have come to be located
at any site that is listed or proposed for listing pursuant to the Federal
Comprehensive Environmental Response, Compensation and Liability Act, or
analogous state law ("CERCLA") that could lead to claims against HK for clean-up
costs, remedial work, damages to natural resources or for personal injury claims
under Environmental Laws.
(f) No property operated by HK or for which HK could have legal
responsibility is listed or proposed for listing pursuant to CERCLA.
3.19 Inventories. The inventories set forth on HK's balance sheet dated
July 31, 1995 are and all inventories held at the Effective Time will be
properly valued at the lower of cost (last-in, first-out for inventories) or
market using the retail method of valuation and in accordance with generally
accepted accounting principles consistently applied and, except for obsolete
items which have been fully written off or reserved for, consist of items of a
quality and quantity currently usable and saleable in the ordinary course of
business without markdown or discount.
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4. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and SUB
represent and warrant as follows:
4.1 Organization, Good Standing, etc. Each of Parent and SUB is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, has all requisite power and authority to own its
properties and to carry on its business as now being conducted.
4.2 Authorization of Agreement. The execution and delivery of this
agreement by Parent and SUB and the consummation of the Merger have been duly
authorized by the board of directors of Parent and SUB and by Parent as the sole
stockholder of SUB, do not require the consent, approval or authorization of or
filing with any person or public authority other than the filings with FTC and
Justice contemplated by section 5.4 and will not violate any law, statute,
regulation, injunction, order or decree of any governmental agency or authority
or court or conflict with or result in a breach of or constitute a default under
any of the terms or provisions of any mortgage, note, bond or indenture or
material obligation to which either Parent or SUB is a party or by which either
of them or any of their properties may be bound.
4.3 Proxy Statement. When the Proxy Statement referred to in section 2.9
or any amendment or supplement thereto shall be mailed to holders of securities
of HK, and at all times subsequent to such mailing up to and including the
Closing Date (as promptly amended or supplemented, if so required), such Proxy
Statement and all amendments or supplements thereto, with respect to all
information set forth therein provided by Parent and SUB for inclusion therein,
(i) will comply in all material respects with the provisions of the Exchange
Act, and all rules and regulations of the SEC promulgated thereunder, and (ii)
will not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading, in light of the circumstances under which they
were made.
4.4 Financing Commitment. Parent has, on or prior to the date hereof,
furnished to HK a true and complete copy of the commitment letter dated
September 11, 1995 (the "Financing Commitment Letter") from Nomura Holding
America Inc. ("Nomura"), pursuant to which, subject to the terms and conditions
thereof, Nomura has committed to provide all of the financing ("Financing")
necessary to purchase the Shares pursuant to the Offer and the Merger pursuant
to a Short Form Merger. The Financing Commitment Letter is in full force and
effect as of the date of this agreement. Parent believes as of the date of this
agreement that it will be able to obtain the Financing on terms and conditions
substantially as set forth in the Financing Commitment Letter.
4.5 No Litigation. There is no action, suit, proceeding or investigation,
pending or, to the knowledge of Parent or SUB, threatened, involving Parent or
SUB or any of Parent's subsidiaries, at law or in equity, or before any federal,
state, foreign, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, that in the aggregate is reasonably likely to
prevent or materially impair or materially delay the consummation of the
transactions contemplated hereby.
4.6 Brokers and Finders. Except as disclosed to HK in writing, no agent,
broker, person or firm acting on behalf of Parent or under its authority has
claimed or is or will be entitled to any commission or broker's or finder's fee
from Parent in connection with the Merger.
5. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
5.1 Conduct of Business of HK.
(a) Except as contemplated by this agreement, during the period from the
date hereof to the Effective Time, HK shall operate in all respects in the
ordinary course and in a manner consistent with past practices; without limiting
the generality of the foregoing, HK shall not, without the prior written consent
of Parent or SUB, take any of the following actions:
(i) amend or propose to amend its certificate of incorporation or
by-laws or create any subsidiary;
(ii) authorize for issuance, issue (other than issuances of Shares
pursuant to the exercise of Options), sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or
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granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities or
equity equivalents (including, without limitation, any stock options,
warrants or stock appreciation rights);
(iii) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, warrants, stock or property or any combination thereof) in respect of
its capital stock or redeem or otherwise acquire any of its securities;
(iv) (A) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to HK except for
the renewal of HK's revolving line of credit as described in section 5.1 of
the Schedule; (B) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to HK; (C) make
any loans, advances or capital contributions to or investments in any other
person (other than customary loans or advances to employees in the ordinary
course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (D) pledge or otherwise
encumber shares of capital stock of HK or (E) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material Lien (as defined below) thereupon;
(v) except as may be contemplated by this agreement, enter into, adopt
or amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or any other
employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner, or
(except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to HK, and as required under
existing agreements or in the ordinary course of business generally
consistent with past practice) increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights
or performance units) or pay or agree to pay any management fee or other
payment to any Majority Seller or any of their affiliates;
(vi) acquire, sell, lease or dispose of any assets outside the
ordinary course of business consistent with past practice, or enter into
any commitment or transaction outside the ordinary course of business
consistent with past practice or waive any rights that may exist under any
confidentiality agreement to which HK may be a party;
(vii) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
methods, principles or practices used by it;
(viii) revalue any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business;
(ix) (A) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise), any corporation, partnership or other business
organization or division thereof or any equity interest therein; (B) enter
into any contract or agreement other than in the ordinary course of
business consistent with past practice; (C) authorize any new capital
expenditure or expenditures which individually is in excess of $100,000 or,
in the aggregate, are in excess of $500,000; provided, that none of the
foregoing shall limit any capital expenditure already included in HK's 1995
capital expenditure budget previously provided to Parent or SUB or (D)
enter into or amend any contract, agreement, commitment or arrangement
providing for the taking of any action that would be prohibited hereunder;
(x) make any tax election or settle or compromise any income tax
liability of HK;
(xi) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in, or contemplated
by, the financial statements (or the notes thereto) of HK or incurred in
the ordinary course of business consistent with past practice;
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(xii) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby; or
(xiii) take, or agree in writing or otherwise to take, any of the
actions described in sections 5.1(i) through 5.1(xii) or any action that
would make any of the representations or warranties of HK contained in this
agreement untrue or incorrect as of the date when made or would result in
any of the conditions set forth in section 1.1(c) not being satisfied. For
purposes of this agreement, "Lien" means, with respect to any asset
(including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset.
(b) In addition, HK shall use all commercially reasonable efforts to
continue its current business relationships (including all rights of exclusivity
with respect to any product or products) with all significant vendors and
suppliers.
(c) Anything to the contrary notwithstanding, at the closing of the Offer
or Merger HK shall be permitted to pay the reasonable fees and expenses of
Winston & Strawn, its legal counsel, provided that invoices and detailed support
with respect to such fees and expenses have been provided to Parent prior to the
closing.
5.2 Other Agreements of HK.
(a) Simultaneously with the execution and delivery of this agreement, the
Majority Sellers are delivering to Parent the Stockholders Agreement duly
executed by the Majority Sellers. In addition, prior to the consummation of the
Offer or the Merger, HK shall have terminated any and all management agreements
and any other arrangements pursuant to which HK paid fees or expenses of any
kind to any stockholder or other affiliate, all without liability of any kind to
such persons, and shall deliver to Parent satisfactory evidence of that
termination. In addition, HK shall cause each such person to refund to HK, prior
to any closing hereunder, a pro rata amount of all fees paid under any such
management and other agreements that may have been prepaid by HK (with such pro
rata amount determined based on the number of elapsed days over the period for
which such payment relates).
(b) HK shall give to Parent and to its counsel, accountants and other
representatives full access, during normal business hours, to all of the
employees, agents, properties (including for the purpose of conducting any
environmental reviews thereof), books, contracts, commitments and records of HK
and shall furnish all such information concerning its business and properties as
Parent reasonably may request. If no Closing occurs, Parent shall keep such
information confidential according to the terms of that certain Confidentiality
Agreement dated April 25, 1995 (the "Confidentiality Agreement") and not release
same to any third party without the written consent of HK.
(c) HK shall use all reasonable efforts to obtain all consents and other
approvals as may be required to enable it to perform its obligations hereunder.
(d) HK shall cause its officers, directors and employees to, and shall use
its best efforts (it being understood that for this purpose "best efforts" shall
include termination of any relationship with any representative, advisor,
attorney, accountant or agent who fails to comply) to cause its representatives,
advisors, attorneys, accountants and agents to (i) immediately cease any
existing discussions or negotiations, if any, with any corporation, partnership,
person (which includes a "person" as such term is defined in section 13(d)(3) of
the Exchange Act) or other entity or group other than Parent and SUB, any
affiliates or associate of Parent and SUB or any designees of Parent and SUB
(each, a "Third Party") conducted heretofore with respect to a tender offer or
exchange offer for any Shares, any acquisition of more than 25% of the assets
of, or more than 25% of the equity interest in, HK or any merger, consolidation
or other business combination with HK (each, a "Business Combination") and (ii)
shall not, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with or provide any information to any
Third Party concerning any Business Combination; provided, that nothing in this
section 5.2(d) shall be deemed to prohibit HK from (x) furnishing information
and access, in each case only in response to unsolicited requests therefor, to
any Third Party pursuant to confidentiality agreements or (y) participating in
discussions and negotiating with such entity or group concerning any Business
Combination involving HK or any division of HK if, in the case of either (x) or
(y), such Third Party has submitted an unsolicited bona fide written proposal to
the Board
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relating to any such Business Combination and the Board by a majority vote
determines in its good faith judgment, after consulting legal counsel, that
failing to take such action would be inconsistent with the Board's fiduciary
duty to HK's stockholders under applicable law. The Board shall provide a copy
of any such written proposal to Parent or SUB immediately after receipt thereof
and thereafter keep Parent and SUB promptly advised of any amended proposal with
respect thereto. Nothing contained in this section 5.2(d) shall prohibit HK from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act, or from making any disclosure to HK
stockholders if, in the good faith judgment of the board of directors of HK
based on the recommendation of outside legal counsel, failure to do so would be
inconsistent with applicable laws; provided that HK does not, except as
permitted by section 1.2(a)(ii), withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, a takeover proposal.
(e) HK shall cause all necessary documents to be prepared and submitted to
(i) the New York State Department of Taxation and Finance required under the New
York Real Estate Transfer Tax (NY Tax Law Article 31) and New York Tax on Gains
Derived from Certain Real Property Transfers (NY Tax Law Article 31-B) and (ii)
any other relevant tax authorities to which transfer taxes are required to be
paid. In furtherance of this agreement, HK and Parent shall cause any required
Forms TP-580, TPO-581 and TP-584 to be prepared and submitted.
(f) Anything in this agreement (including any matter referred to in
section 3.11) notwithstanding, HK shall cause First American Title Insurance
Company to issue (at standard title insurance premiums) to HK, at the
consummation of the Offer and/or at the Closing (as directed by the Buyer), an
ALTA Owner's Policy (10/17/92) with a TIRSA Non-Imputation Endorsement (Stock
Acquisition) (8/15/94), with respect to each of (i) the East Brunswick, New
Jersey owned real estate, which policy shall be in the amount of $4,000,000 and
contain only those exceptions listed in section 5.2(f)-1 of the Schedule plus an
exception as to real estate taxes and assessments not yet due and payable; and
(ii) the Livingston, New Jersey owned real estate, which policy shall be in the
amount of $4,500,000 and contain only those exceptions listed in section
5.2(f)-2 of the Schedule plus an exception as to real estate taxes and
assessments not yet due and payable.
(g) HK shall cooperate with Parent and SUB in their efforts to satisfy on
or before the Effective Time all requirements of the definitive financing
agreements which are conditions to closing all transactions constituting the
Financing and to drawing down the cash proceeds thereunder.
5.3 Agreements of Parent.
(a) Parent shall supply HK with all information relating to Parent and SUB
as shall be required for inclusion in the Proxy Statement.
(b) Parent shall use all reasonable efforts to obtain all consents and
other approvals as may be required to enable it and SUB to perform their
respective obligations hereunder.
(c) Parent shall use its reasonable best efforts to obtain all financing
needed to effect the Merger on terms reasonably satisfactory to Parent.
(d) Parent and SUB shall each use its reasonable best efforts to satisfy
on or before the Effective Time all requirements of the definitive financing
agreements which are conditions to closing all transactions constituting the
Financing and to drawing down the cash proceeds thereunder. The obligations
contained herein are not intended, nor shall they be construed, to benefit or
confer any rights upon any person, firm or corporation other than HK, Parent and
SUB, respectively.
5.4 H-S-R Filings. HK and Parent each shall file timely with FTC and
Justice all notices, reports and other documents required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and shall
promptly submit any additional information or documentary material requested by
any such governmental agency or department.
5.5 Public Announcements. Neither HK nor Parent shall without prior
written consent of the other (or, in the case of an announcement required by
applicable securities law, without prior written notice to and consultation with
the other) issue any press release or otherwise make any public statement or
furnish any
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written statement to its stockholders concerning the transactions contemplated
by this agreement, except as may be required by applicable legal requirements.
6. CONDITIONS PRECEDENT TO THE CLOSING.
6.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party hereto to effect the Merger is subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) this agreement shall have been adopted by the requisite affirmative
vote of the stockholders of HK or SUB shall have acquired sufficient Shares in
the Offer to effect a Short Form Merger;
(b) no statute, rule, regulation, executive order, decree, court order,
ruling or preliminary or permanent injunction shall have been enacted, entered,
promulgated or enforced by any local, state or federal court or governmental
authority in the United States that prohibits, restrains, enjoins or materially
restricts the consummation of the Merger;
(c) any waiting period applicable to the consummation of the Merger under
the HSR Act shall have terminated or expired;
(d) the Financing Condition shall have been satisfied; provided, however,
that this condition shall be deemed to have been waived if Parent or SUB has
purchased any Shares pursuant to the Offer.
6.2 Additional Conditions to the Obligations of Parent and SUB to Effect
the Merger. The obligations of each of Parent and SUB to effect the Merger are
also subject to the satisfaction of the following additional conditions;
provided, however, that the following conditions shall be deemed to have been
waived if Parent or SUB has purchased any Shares pursuant to the Offer:
(a) there shall not have occurred or been threatened any event or series
of events or any condition or circumstance arisen that, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
HK, determined by reference to the business, assets, results of operations or
financial condition of HK at July 31, 1995;
(b) the representations and warranties of HK contained in this agreement
shall be true and correct in all material respects on and as of the date of
consummation of the Merger as though made on and as of that date, except (i) for
changes occurring after the date of this agreement that are specifically
permitted by this agreement, including changes resulting from conduct permitted
under section 5.1, and (ii) that those representations and warranties that
address matters only as of a particular date shall remain true and correct as of
that date; and Parent and SUB shall have been furnished with a certificate of HK
to the effect of the matters referred to above (and only excepting the matters
referred to in items (i) and (ii) above) executed by its Chairman in form and
substance satisfactory to Parent and SUB; and
(c) HK shall have performed and complied in all material respects with all
obligations, covenants, agreement and conditions required by this agreement to
be performed or complied with by it prior to or on the date of consummation of
the Merger, and Parent and SUB shall have been furnished with a certificate of
HK to that effect executed by its Chairman in form and substance satisfactory to
Parent and SUB.
6.3 Additional Conditions to the Obligations of HK to Effect the
Merger. The Obligations of HK to effect the Merger are also subject to the
satisfaction of the following additional conditions; provided, however, that the
following conditions shall be deemed to have been satisfied if Parent or SUB has
purchased any Shares pursuant to the Offer:
(a) the representations and warranties of Parent and SUB contained in this
agreement shall be true and correct in all material respects on and as of the
date of consummation of the Merger as though made on and as of that date, except
(i) for changes occurring after the date of this agreement that are specifically
permitted by this agreement, and (ii) that those representations and warranties
that address matters only as of a particular date shall remain true and correct
as of that date; and HK shall have been furnished with a certificate of each of
Parent and SUB to the effect of the matters referred to above (and only
excepting the matters referred to in
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items (i) and (ii) above) executed by their respective Chairmen in form and
substance satisfactory to HK; and
(b) Parent and SUB shall have performed and complied in all material
respects with all obligations, covenants, agreements and conditions required by
this agreement to be performed or complied with by them prior to or on the date
of consummation of the Merger, and HK shall have been furnished with a
certificate of Parent and SUB to that effect executed by their respective
Chairmen in form and substance satisfactory to HK.
6.4 Materiality of Representations and Warranties. Notwithstanding
anything contained herein, no condition involving the accuracy of
representations and warranties made by HK as of the date hereof or the Effective
Time shall be deemed not fulfilled, and Parent and SUB shall not be entitled to
fail to consummate the transactions contemplated by this agreement or terminate
this agreement on such basis, if the respects in which such representations and
warranties are untrue, in the aggregate, would not be reasonably likely to
result in a Material Adverse Effect on HK, determined by reference to the
business, assets, results of operations or financial condition of HK at July 31,
1995. Notwithstanding anything contained herein, no condition involving the
accuracy of representations and warranties made by Parent and SUB as of the date
hereof or the Effective Time shall be deemed not fulfilled, and HK shall not be
entitled to fail to consummate the transactions contemplated by this agreement
or terminate this agreement on such basis, if the respects in which such
representations and warranties are untrue, in the aggregate, would not be
reasonably likely to result in a Material Adverse Effect on the ability of
Parent and SUB to perform their respective obligations hereunder.
7. AMENDMENT OF AGREEMENT; WAIVERS.
7.1 Amendment. At any time, whether before or after submission to or
approval by the stockholders of HK as provided herein, this agreement may be
amended by an instrument in writing executed by the parties.
7.2 Waiver. Any party hereto may waive in writing compliance by the
others with any of the covenants and conditions contained in this agreement
(except such as may be imposed by law); such waiver shall be signed, in the case
of HK, by any one of its President and Vice Presidents, and in the case of
Parent or SUB, by any one of its President and Vice Presidents.
8. TERMINATION.
8.1 Termination. This agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, and the Offer may be
abandoned at any time prior to acceptance for payment of the tendered Shares:
(a) by mutual written consent of Parent, SUB and HK;
(b) by Parent, SUB or HK if any statute, rule, regulation, executive
order, decree, court order, ruling or preliminary or permanent injunction shall
have been enacted, entered, promulgated or enforced by any local, state or
federal court or governmental authority in the United States that prohibits,
restrains, enjoins or materially restricts the consummation of the Merger or
that would make the acquisition or holding by Parent or SUB of the Shares or
shares of common stock of the Surviving Corporation illegal; provided, that
prior to invoking this provision in respect of any such injunction, the party
seeking to invoke this provision shall use all commercially reasonable efforts
to have any such injunction vacated;
(c) by Parent, SUB or HK, if the board of directors of HK shall have
withdrawn or modified, or proposed to withdraw or modify, in a manner adverse to
Parent or SUB, its approval or recommendation of the Offer, this agreement or
the Merger pursuant to section 1.2(a)(ii); provided, however, that HK may not
exercise this right until after one business day following the expiration or
termination of the Offer (as it may have been extended pursuant to the
penultimate sentence of section 1.1(a)) and may then exercise this right if and
only if SUB has not then purchased at least 90% of the outstanding Shares;
(d) by Parent and SUB, on the one hand, or HK, on the other hand, if the
90% Minimum Condition is satisfied and, due to an occurrence or circumstance
that would result in failure to satisfy any of the other conditions to the Offer
pursuant to section 1.1(c) above, SUB shall have failed to pay for Shares
pursuant to the Offer after one business day following the expiration or
termination of the Offer (or such later day to which the Offer is extended
pursuant to the penultimate sentence of section 1.1(a)), except that the
foregoing
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right may not be exercised by a party in the event that such failure has been
caused by or results from the failure of that party to perform in any material
respect any of its respective covenants or agreements contained in this
agreement;
(e) by Parent and SUB, on the one hand, or HK, on the other hand, if the
Financing Commitment Letter is no longer in full force and effect and, within
ten business days thereafter, Parent fails to deliver to HK reasonable evidence
that it has obtained a financing commitment (on terms not materially more
adverse than the terms and conditions of the Financing Commitment Letter) to
enable it to consummate the Long Form Merger.
(f) by either the Parent or HK if the consummation of the Merger has not
occurred on or before March 1, 1996, except that the foregoing right may not be
exercised by a party in the event that such failure has been caused by or
results from the failure of that party to perform in any material respect any of
its respective covenants or agreements contained in this agreement.
8.2 Procedure and Effect to Termination. In the event of termination of
this agreement as provided in this section 8, notice thereof shall be promptly
given by the terminating party to the other parties and thereafter this
agreement shall be of no further force or effect and there shall be no liability
on the part of any party with respect thereto except (i) as otherwise expressly
provided in section 5.2(b) and section 9.1 and (ii) for any willful breach of
this agreement that occurs prior to termination (and nothing in this agreement,
including but not limited to section 9.1(b), shall diminish or impair the right
of any of the parties to assert any claim or cause of action pursuant to this
clause (ii)).
9. MISCELLANEOUS.
9.1 Fees and Expenses.
(a) HK shall pay to Parent a fee of $1,500,000 (the "Termination Fee"),
payable in immediately available funds, plus an amount equal to the Expenses (as
defined in section 9.1(b)), but not more than $1,850,000 of such Expenses,
within one business day after any termination of this agreement pursuant to
section 8.1(c).
(b) For purposes of this section 9.1, "Expenses" shall mean all reasonable
out-of-pocket fees and expenses incurred or paid by or on behalf of Parent or
SUB or any of their affiliates in connection with the Offer, the Merger or the
consummation of any of the transactions contemplated by this agreement,
including all fees and expenses of counsel, investment banking firms, lending
institutions, accountants, experts and consultants; the $500,000 cash fee
payable to SUB's proposed lender pursuant to the Financing Commitment Letter
shall be deemed to be a reasonable Expense for purposes of this section 9.1.
(c) Except as set forth in this section 9.1, each party to this agreement
shall bear its own costs and expenses related hereto.
(d) HK shall not pay any legal, accounting and other costs, fees and
expenses incurred by or on behalf of any of the stockholders of HK in connection
with the transactions contemplated hereby.
9.2 Nonsurvival of Representations, Warranties. None of the
representations and warranties in this agreement or in any instrument delivered
pursuant to this agreement shall survive the Effective Time. This section 9.2
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time or termination.
9.3 Notices. All notices and other communications under this agreement
shall be in writing and may be given by any of the following methods: (a)
personal delivery; (b) facsimile transmission; (c) registered or certified mail,
postage prepaid, return receipt requested; or (d) reputable overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given hereunder):
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If to the Parent or Sub, to it at:
7069 Consolidated Way
San Diego, CA 92121
Attention: Michael Solomon
Telecopy No.: (619) 268-0021
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Attention: Edward R. Mandell, Esq.
Telecopy No.: (212) 704-6288
If to HK, to it at:
c/o JG Industries, Inc.
1615 West Chicago Avenue, 4th Floor
Chicago, IL 60622
Attention: William Hellman
Telecopy No.: (312) 787-5625
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Robert F. Wall, Esq.
Telecopy No.: (312) 558-5700
All such notices and communications shall be deemed given upon (a) actual
receipt thereof by the addressee, (b) actual delivery thereof to the appropriate
address, (c) in the case of a facsimile transmission, upon transmission thereof
by the sender and issuance by the transmitting machine of a confirmation slip
confirming that the number of pages constituting the notice have been
transmitted without error and (d) in the case of overnight delivery service, the
day after such notice is given to such service for delivery. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed given.
9.4 Headings. The headings in this agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this agreement.
9.5 Governing Law. The agreement shall be construed, and the rights of
the parties hereto determined, in accordance with the internal laws of the state
of Delaware.
9.6 Assignment. This agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns,
provided that this agreement shall not be assignable by any party hereto except
with the written consent of the other parties. Nothing in this agreement,
express or implied, is intended to confer upon any person, other than the
parties hereto and their successors and permitted assigns, any rights or
remedies under or by reason of this agreement, other than section 2.5, section
2.7, section 2.8, section 9.7 and section 9.12.
9.7 Officers' and Directors' Insurance; Indemnification.
(a) For six years from the Effective Time, the Parent and the Surviving
Corporation shall use all reasonable efforts to cause to be maintained in effect
HK's current directors' and officers' insurance and indemnification policy or an
equivalent policy or policies (so long as no lapse in coverage occurs as a
result of such substitution) relating to actions, alleged actions, omissions,
and alleged omissions occurring on or prior to
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<PAGE> 23
the Effective Time (the "D&O Insurance"), on terms no less favorable than those
of such current policy in terms of coverage and amounts so long as the annual
premium(s) therefor are not in excess of 150% of the last annual premium(s) paid
prior to the date hereof (the "Maximum Premium"); provided, however, that if the
existing D&O Insurance expires, is terminated or canceled during such six-year
period, HK or the Surviving Corporation, as the case may be, shall use
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for annualized premium(s) not in excess of the Maximum
Premium.
(b) After the Effective Time, the Parent and the Surviving Corporation
shall indemnify and hold harmless the present and former directors and officers
of HK (and those persons becoming directors or officers of HK prior to the
Effective Time) (collectively, together with their respective heirs and
representatives, the "Indemnified Parties") to the maximum extent permitted
under Delaware law as from time to time may be in effect and (subject to any
limitations in effect from time to time under Delaware law) under HK's
certificate of incorporation and by-laws as in effect on the date hereof (true,
complete and correct copies of which have been previously provided to Parent and
SUB) from all claims by any person or persons, with respect to acts, omissions
or other matters whether occurring prior to, on or at the Effective Time,
relating to (i) the fact that he or she is or was a director, officer, employee
or agent of HK or any of its Subsidiaries or (ii) acts, omissions and other
matters arising from or relating to this agreement, the Stockholders Agreement
or the transactions contemplated hereby or thereby, and (subject to any
limitations in effect from time to time under Delaware law) will advance
expenses to such directors and officers promptly upon receipt of written request
therefor and delivery of the undertaking required by section 145(e) of the GCL
(or any successor provision), and such indemnification shall (to the maximum
extent permitted by applicable law) be mandatory rather than permissive;
provided, that such indemnification obligations shall continue in full force and
effect for the later of (i) a period of seven years from the Effective Time or
(ii) the expiration of the applicable statute of limitations.
(c) The obligations of the Parent and the Surviving Corporation under this
section 9.7 shall not be terminated or modified in such a manner as to adversely
affect any Indemnified Party to whom this section 9.7 applies without the
consent of each Indemnified Party (it being expressly agreed that the
Indemnified Parties to whom this section 9.7 applies shall be third party
beneficiaries of this provision). If Parent or SUB exercise the options granted
in the Stockholders Agreement, then it will become liable in the same manner
under this section 9.7 as if the Effective Time shall have occurred.
(d) If the Surviving Corporation or any of its successors or assigns (i)
reorganizes or consolidates with or merges into any other person and is not the
resulting, continuing or surviving corporation or entity of such consolidation
or merger or (ii) liquidates, dissolves or transfers 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 the Surviving
Corporation assume the obligations set forth in this section 9.7.
9.8 Material Adverse Effect. As used herein, "Material Adverse Effect"
means any change or effect that is or is reasonably likely to be materially
adverse to the business, assets, results of operations or financial condition of
HK or does or is reasonably likely to materially impair the ability of HK to
consummate the Merger.
9.9 Entire Agreement. This agreement and Schedule attached hereto and the
Confidentiality Agreement contain the entire agreement of the parties hereto
with respect to the Merger and the other transactions contemplated herein and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this agreement shall be
deemed to include the Schedule attached hereto.
9.10 Severability. If any one or more of the provisions of this agreement
shall be held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions of this agreement shall not be affected thereby. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this agreement invalid, illegal or unenforceable in any
respect. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
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<PAGE> 24
9.11 Parent Guarantee. Parent hereby unconditionally guarantees the
obligations of SUB set forth in this agreement.
9.12 Purchase of Shares Pursuant to Stockholders Agreement. Promptly
after purchase of the Shares pursuant to the Stockholders Agreement, other than
in connection with the consummation of the Offer, the Buyer (as defined therein)
and Parent shall take such steps as may be necessary to effect a Long Form
Merger in conjunction and cooperation with HK or, if such Long Form Merger is
not effected, to provide to each holder of Shares, other than Jupiter (as
defined therein) and Sussex (as defined therein), the opportunity to sell his,
her or its Shares to the Buyer or Parent at a price, in cash, net to the seller,
of not less than the purchase price which Buyer or Parent has paid for the
Shares pursuant to the Stockholders Agreement.
<TABLE>
<S> <C>
Attest: HUFFMAN KOOS INC.
/S/ JOSEPH ALBANESE By: /S/ WILLIAM HELLMAN
- ------------------- -----------------------------
Secretary Name: William Hellman
Title: Chairman of the Board
BREUNER'S HOME FURNISHINGS
CORPORATION
Attest:
/S/ TERRY M. THEODORE By: /S/ MICHAEL H. SOLOMON
- --------------------- -----------------------------
Secretary Name: Michael H. Solomon
Title: Chairman of the Board
HK ACQUISITION COMPANY, INC.
Attest:
/S/ TERRY M. THEODORE By: /S/ MICHAEL H. SOLOMON
- --------------------- -----------------------------
Secretary Name: Michael H. Solomon
Title: Chairman of the Board
</TABLE>
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<PAGE> 1
EXHIBIT B
STOCKHOLDERS AGREEMENT
DATED SEPTEMBER 18, 1995
The parties to this agreement are HK Acquisition Company, Inc., a Delaware
corporation (the "Buyer"), Breuner's Home Furnishings Corporation, a Delaware
corporation ("Parent"), Jupiter Industries, Inc., a Tennessee corporation
("Jupiter"), and Sussex Group, Ltd., a Delaware corporation ("Sussex" and,
together with Jupiter, the "Sellers").
Jupiter owns 800,000 shares (the "Jupiter Shares") and Sussex owns
1,400,000 shares (the "Sussex Shares") of the common stock, par value $.01 per
share (the "Common Stock"), of Huffman Koos Inc., a Delaware corporation (the
"Company"). The Jupiter Shares and the Sussex Shares together represent an
aggregate of 55.9% of the outstanding shares of the Common Stock as of this
date. The Jupiter Shares, the Sussex Shares and any additional shares that
either of the Sellers may acquire prior to any tender pursuant to section 1
hereof, prior to any vote pursuant to section 2 hereof, or prior to any purchase
pursuant to section 3 hereof, as applicable, are collectively referred to as the
"Shares."
Simultaneously with the execution and delivery of this agreement, the
Buyer, Parent and the Company are executing an agreement and plan of merger (the
"Merger Agreement") providing for a tender offer by the Buyer for all of the
outstanding Common Stock (the "Offer") for $9.375 per share in cash (such
amount, or any greater amount per share paid pursuant to the Offer, being
hereinafter referred to as the "Per Share Amount") and the subsequent merger of
the Buyer with and into the Company (with the Company as the surviving
corporation), or other acquisition of the Company by Parent (collectively, the
"Acquisition"). To induce the Buyer and Parent to enter into the Merger
Agreement, the Sellers wish to agree to tender their shares in the Offer, vote
their Shares in favor of the Merger Agreement, grant to the Buyer options to
purchase the Shares and agree to the other matters provided in this agreement,
all on the terms set forth below.
It is therefore agreed as follows:
1. TENDER OF SHARES. (a) Within ten business days after the commencement
by the Buyer of the Offer, each of the Sellers shall tender to the paying agent
or depositary designated in the offer to purchase document (and related letter
of transmittal) distributed by the Buyer in connection with the Offer (i) a
completed and signed letter of transmittal with respect to the Shares, complying
with the terms of the Offer, (ii) the certificates representing the Shares and
(iii) all other documents or instruments required to be delivered pursuant to
the terms of the Offer. So long as the consideration in the Offer is in cash and
is at least equal to the Per Share Amount, neither of the Sellers shall withdraw
the tender effected in accordance with this section 1(a) under any circumstances
unless (i) the Offer expires or is terminated in accordance with the Merger
Agreement or (ii) this agreement terminates pursuant to its terms.
(b) Each of the Sellers shall execute and deliver all such further
documents and instruments as the Buyer may reasonably request to vest in the
Parent and the Buyer the power to carry out the provisions of this agreement.
2. AGREEMENT TO VOTE; PROXY.
2.1 Agreement to Vote. Until the Expiration Date (as defined in section
3(e)), each of the Sellers shall, at any meeting of the stockholders of the
Company, however called, or in connection with any written consent of the
stockholders of the Company, vote (or cause to be voted) the Shares (i) in favor
of the Acquisition, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this agreement; (ii) against any action
or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or this agreement; and (iii) against any
action or agreement (other than the Merger Agreement) that is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or materially and adversely affect the Acquisition or any of the other
transactions to be consummated pursuant to the Merger Agreement, including, but
not limited to: (A) any extraordinary corporate transaction, such as a
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merger, consolidation or other business combination involving the Company or its
subsidiaries; (B) a sale, lease or transfer of material assets of the Company or
its subsidiaries or a reorganization, recapitalization or liquidation of the
Company or its subsidiaries; (C) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing by the Buyer;
(D) any material change in the present capitalization or dividend policy of the
Company or any amendment of the Company's certificate of incorporation or
by-laws; or (E) any other material change in the Company's corporate structure
or business. Neither Seller shall enter into any agreement or understanding with
any person or entity prior to the Expiration Date to vote or give instructions
after the Expiration Date in any manner inconsistent with the preceding
sentence.
2.2 Proxy. Each of the Sellers hereby grants from the date of this
agreement until the Expiration Date to, and appoints, the Buyer and the Chairman
of the Board, the President, the Secretary and the Chief Financial Officer of
the Buyer, in their respective capacities as officers of the Buyer, and any
individual who shall hereafter succeed to any such office of the Buyer, and any
other designee of the Buyer, and each of those persons individually, as the
Seller's irrevocable proxy and attorney-in-fact (with full power of
substitution) to vote the Shares at any regular or special meeting of the
stockholders with respect to the Shares or take actions by written consent
solely for the matters indicated in section 2.1. Each of the Sellers intends
that the proxy it is granting pursuant to this provision be irrevocable and
coupled with an interest and each shall take such further action or execute such
other instruments as may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by it with respect to the Shares.
3. OPTION. (a) Jupiter and Sussex each hereby grants to the Buyer an
irrevocable option (collectively, the "Options") to purchase the Jupiter Shares
and the Sussex Shares, respectively, and any additional Shares that each may
acquire hereafter, at the cash purchase price of $9.375 per share (the "Purchase
Price"), exercisable by the Buyer in the manner provided in section 3(b) at any
time prior to the Expiration Date. The Options must be exercised simultaneously
by the Buyer and all the Shares must be purchased by the Buyer at the same time.
(b) The Options shall be exercisable (subject to the second following
sentence) by giving written notice to the Sellers specifying a date (not earlier
than one business day nor later than ten business days from the date such notice
is delivered to the Sellers) and place in either Chicago or New York City, at
the Buyer's option, for closing of the exercise of the Options (the "Closing").
Upon delivery of such notice, the Options shall be deemed to have been exercised
by the Buyer regardless of the actual date of Closing. The Options shall not be
exercised unless (i) all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase
of the Shares hereunder shall have expired or been waived, (ii) there shall not
be in effect any preliminary or final injunction or other order issued by any
court or governmental, administrative or regulatory agency or authority
prohibiting the exercise of the Options pursuant to this agreement and (iii) the
Offer shall have expired, been terminated, or been otherwise cancelled. Except
as contemplated by this agreement, until the Expiration Date, no transfer or
other disposition of the Shares shall take place other than pursuant to a tender
of the Shares in the Offer or other transaction in connection with the
Acquisition.
(c) At the Closing, the Buyer shall deliver to the Sellers an amount, in
immediately available funds, equal to the product of (i) the number of Shares to
be purchased pursuant to the terms of this agreement and (ii) the Purchase
Price, and the Sellers shall deliver or cause to be delivered to the Buyer
certificates representing all of the Shares being acquired, in proper form for
transfer on the books of the Company, free and clear of all Encumbrances (as
defined in section 4.2(b)). Each of the Sellers acknowledges that performance of
its obligations under this section 3 is of vital importance to the Buyer, that
damages are an inadequate remedy for breach of its obligations represented
hereby and, accordingly, that the only remedy for failure to fulfill such
obligations is that of specific performance.
(d) Promptly after any purchase of the Shares pursuant to this agreement,
other than in connection with the consummation of the Offer, the Buyer and
Parent shall take such steps as may be necessary to effect a long form merger
(pursuant to section 251 of the Delaware General Corporation Law) in conjunction
with and cooperation with the Company or, if such long form merger is not
effected, to provide to each holder of
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Common Stock, other than Jupiter and Sussex, the opportunity to sell his, her or
its shares to the Buyer or Parent at a price per share, in cash net to the
seller, not less than the Purchase Price.
(e) "Expiration Date" shall mean the date on which the Merger Agreement
terminates or expires.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to each of the Sellers that:
(a) The Buyer is a corporation duly organized and validly existing under
the laws of its jurisdiction of incorporation. The Buyer has duly executed and
delivered this agreement and this agreement is a valid and binding agreement of
the Buyer, enforceable against the Buyer in accordance with its terms.
(b) Except for applicable filings under the HSR Act and under the
Securities Exchange Act of 1934 or any applicable state blue sky authorities in
connection with the Offer (i) no filing with, and no permit, authorization,
consent or approval of, any public body or authority of the United States or any
foreign government or any subdivision thereof is necessary for, or is otherwise
intended by the Buyer to be made in connection with, the consummation by the
Buyer or any of its affiliates of the transactions contemplated by this
agreement and (ii) neither the execution and delivery of this agreement by the
Buyer nor the consummation by the Buyer of the transactions contemplated hereby
nor compliance by the Buyer or any of its affiliates with any of the provisions
hereof will (A) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws (or similar documents) of the Buyer or
any of its affiliates, (B) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which the Buyer or any
of its affiliates is a party or by which any of them or any of their properties
or assets may be bound or (C) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer, any of its affiliates or
any of their properties or assets, except in the case of (B) and (C) for
violations, breaches or defaults that would not in the aggregate materially and
adversely affect the Buyer and its affiliates taken as a whole or the ability of
the Buyer to perform its obligations under this agreement.
(c) The Buyer or its designee will acquire the Shares (and any Additional
Shares) for its own account and not with a view to any resale or distribution
thereof, and will not sell any Shares (or any Additional Shares) unless such
shares are registered under the Securities Act of 1933 and any applicable blue
sky laws, or unless an exemption from such registration is available.
(d) The Buyer has the requisite 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 have been duly and validly authorized by the
board of directors of the Buyer and no other corporate proceedings on the part
of the Buyer are necessary to authorize this agreement or to consummate the
transactions so contemplated.
4.2 Representations and Warranties of the Sellers. Each of the Sellers
hereby represents and warrants to the Buyer and Parent that:
(a) Such Seller is a corporation duly organized and validly existing under
the laws of its jurisdiction of incorporation. Such Seller has duly executed and
delivered this agreement and this agreement is a valid and binding agreement of
such Seller, enforceable against such Seller in accordance with its terms.
(b) As of the date hereof, except as described in the last sentence of this
section 4.2(b), such Seller has good and marketable title to its respective
Shares, in each case free and clear of all liabilities, claims, liens, options,
proxies, charges and encumbrances of any kind whatsoever (collectively,
"Encumbrances"). Upon exercise of the Options and payment for the Shares or upon
purchase of the Shares in connection with the Offer, the Buyer will acquire (the
matters referred to in the following sentence notwithstanding) good, valid and
marketable title to such Seller's Shares free and clear of all Encumbrances.
Sussex has granted a security interest in, and pledged, the Sussex Shares
pursuant to a pledge agreement with LaSalle National Bank (the "Bank"). Such
pledge agreement notwithstanding, Sussex and the Bank will tender the Sussex
Shares in
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accordance with the provisions of section 1 and will otherwise perform and
comply with each and every one of Sussex's covenants under this agreement,
including such covenants under sections 2 and 3, as if no such pledge agreement
existed.
(c) The execution and delivery of this agreement by such Seller and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other corporate proceedings on the part
of such Seller are necessary to consummate the transactions contemplated hereby,
and such Seller has all requisite corporate power and authority to enter into
this agreement and to consummate the transactions contemplated hereby. Except as
contemplated by this agreement, or as described in the last sentence of section
4.2(b), such Seller has or will have sole voting power and sole power of
disposition, or the sole power to direct voting and disposition, with respect to
all of its respective Shares to be purchased by the Buyer from such Seller, as
the case may be, with no restrictions on its voting rights or rights of
disposition pertaining thereto. Upon the exercise of the Options and payment for
the Shares, the Buyer will acquire the sole voting power and sole power of
disposition of all of the Shares purchased from such Seller pursuant to the
exercise of the Options. This agreement has been duly and validly executed and
delivered by such Seller and constitutes a valid and binding agreement of such
Seller, enforceable against such Seller in accordance with its terms.
(d) Neither the execution and delivery of this agreement nor the
consummation of the transactions contemplated hereby will (i) require such
Seller to file or register with, or obtain any material permit, authorization,
consent or approval of, any governmental agency or other entity, except as may
be required under the HSR Act or the Securities Exchange Act of 1934 or any
applicable state blue sky authorities, (ii) violate any provision of the
Certificate of Incorporation or By-laws (or equivalent documents) of such Seller
or the Company, (iii) either itself or with notice or lapse of time or both,
violate, or be in conflict with, or constitute a default under, or result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any material debt or obligation pursuant to, or
result in the creation or imposition of any lien, directly or indirectly, upon
any Shares under any material agreement or commitment to which such Seller is a
party or by which such Seller is bound or to which the property of such Seller
is subject, or (iv) violate any judgment, decree or order of any court or
governmental agency or other entity or any arbitration award binding upon such
Seller.
(e) Section 3.10(a) of the Schedule to the Merger Agreement lists every
employment or other agreement with any senior officer of the Company. The
Sellers have previously provided to the Buyer true and correct copies of any
agreements between them or any of their affiliates and the Company.
5. ADDITIONAL COVENANTS OF THE PARTIES.
5.1 Further Assurances. The parties shall use their reasonable best
efforts to take all action necessary in connection with the making of any
governmental filings (including any filings under the HSR Act) necessary or, in
the judgment of the Buyer, advisable, in connection with this agreement.
5.2 No Solicitation. Until the Expiration Date, each of the Sellers in
their capacities as stockholders shall not, and shall cause every investment
banker, financial advisor, attorney, accountant and other representative
retained by it not to, solicit, encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any proposal or agree to or endorse any proposal in connection with an
acquisition of all or substantially all of the outstanding capital stock or all
or substantially all of the assets of the Company. If a Seller receives or
becomes aware of any such proposal, then such Seller shall promptly inform the
Buyer of the terms and conditions of such proposal and the identity of the
person making it. The Sellers shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties to which
it, or any of its stockholders, directors, officers, attorneys or other agents
or representatives on its behalf, is a party in its capacity as a stockholder of
the Company, conducted heretofore with respect to any of the foregoing.
5.3 Restrictions on Transfer, Proxies and Non-Interference. Until the
Expiration Date, neither of the Sellers shall, except as contemplated by this
agreement, (i) sell, transfer, pledge, encumber, assign or
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otherwise dispose of, enforce or permit the execution of the provisions of any
redemption agreement with the Company or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, pledge, encumbrance, assignment or other disposition of,
any of the Shares, or any interest therein, (ii) grant any proxies or powers of
attorney, deposit any shares into a voting trust or enter into a voting
agreement with respect to any Shares or (iii) take any action that would make
any representation or warranty of such Seller contained herein untrue or
incorrect to any material extent or have the effect of preventing or disabling
such Seller from performing its obligations under this agreement.
5.4 Cooperation; Certain Matters. Upon purchase of the Shares pursuant to
this agreement or the Merger Agreement, each of the Sellers shall, at its sole
cost and expense, use all reasonable efforts to cooperate with and assist Parent
and the Company in connection with any audit, dispute or proceeding relating to
any deduction by the Company of any payment to either of the Sellers. This
cooperation will include furnishing all relevant records and documentation and
making available the appropriate officers and other persons to advise Parent and
the Company with respect to such matters and to appear in person as reasonably
necessary in connection with any such audits and other proceedings. Upon
purchase of the Shares pursuant to this agreement or the Merger Agreement,
Jupiter and Sussex shall be jointly and severally liable for all Environmental
Costs (as defined below) in connection with the matter described in section 3.18
of the Schedule to the Merger Agreement (the "Environmental Matter"), up to a
maximum aggregate liability of $500,000. In clarification of the foregoing, each
of Parent, on the one hand, and Jupiter and Sussex, on the other hand, shall pay
one-half of all Environmental Costs relating to the Environmental Matter but in
no event shall the Environmental Costs required to be paid by Jupiter and Sussex
exceed an aggregate of $500,000. Any Environmental Costs in excess of $1,000,000
(of which $500,000 will have been borne by Jupiter and Sussex and $500,000 will
have been borne by Parent) will not be the responsibility of Jupiter and Sussex.
If Parent is required or will be required to incur Environmental Costs, Parent
shall give reasonably prompt notice to Jupiter and Sussex. Thereafter, upon
presentation of invoices, Jupiter and Sussex shall pay to Parent, on demand,
one-half of all Environmental Costs. If Parent incurs and fully pays
Environmental Costs without prior contribution by Jupiter and Sussex, Parent
shall be entitled, upon presentation of proof of payment, to reimbursement, on
demand, by Jupiter and Sussex, of one-half of such expenses. No notice of claim
may be made by Parent for any Environmental Costs after three years from the
closing date of the Acquisition. Except as set forth below, Parent shall not
voluntarily initiate any remediation efforts with respect to the Environmental
Matter. Parent will only commence remediation efforts and incur Environmental
Costs if and to the extent required by a third party (i.e., by governmental
action, lawsuit or other third party event which reasonably requires Parent to
undertake further investigation and/or commence remediation action with respect
to the Environmental Matter) or if action is otherwise clearly required under
applicable law. "Environmental Costs" shall mean all costs and expenses incurred
in connection with the investigation, testing, remediation, encapsulation,
removal, treatment or disposal of material required under applicable law in
connection with the Environmental Matter and all costs, expenses, penalties or
fines incurred in connection with, in the defense of, or as a result of any
claim asserted by any third party, including but not limited to any governmental
agency, in connection with the Environmental Matter. Environmental Costs shall
include, but not be limited to, reasonable attorneys and consultants fees.
Section 7.9 notwithstanding, all disputes or actions relating to the
Environmental Matter or the obligation of Jupiter and Sussex to make payments
hereunder with respect to Environmental Costs shall be governed by and construed
in accordance with the internal laws of the state of New Jersey and Jupiter and
Sussex hereby consent to the jurisdiction of the courts of the state of New
Jersey as the situs for resolution of any claim arising in that connection.
5.5 Additional Shares. Until the Expiration Date, each of the Sellers
shall promptly notify the Buyer of the number of any additional Shares, if any,
acquired by the Seller or any of its affiliates.
5.6 Termination of Affiliate Agreements. Prior to the earliest of any
purchase of the Shares hereunder, the consummation of the Offer or the
consummation of the Merger, the Sellers shall, and shall cause the Company to,
terminate every management and other agreement referred to in the second
sentence of section 4.2(e) all without any liability of any kind to such
persons. In addition, the Sellers shall cause each such person to refund to the
Company, prior to any closing under the Merger Agreement, a pro rata amount of
all fees under any such management and other agreements that may have been
prepaid by the Company (with
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such pro rata amount determined based on the number of days elapsed over the
period for which such payment relates).
5.7 Stop Transfer Order. In furtherance of this agreement, concurrently
herewith, each of the Sellers hereby directs and authorizes the Company's
counsel to notify the Company's transfer agent that there is a stop transfer
order until the Expiration Date with respect to all of the Shares (and that this
agreement places limits on the voting and transfer of the Shares).
5.8 Expenses of the Sellers. The Buyer acknowledges that the Company will
pay the fees and expenses of the legal counsel employed by it in the negotiation
of any definitive agreement with respect to the acquisition of the Company by
the Buyer or its designee. However, each of the Sellers shall pay its own legal
fees and expenses, and all other fees and expenses incurred by such Seller, in
connection with this agreement, the transactions contemplated hereby and the
Acquisition or any other acquisition of the Company by the Buyer or any
affiliate or designee thereof.
5.9 Public Statements. Until the Expiration Date, the parties shall
consult with each other before issuing any press releases or otherwise making
any public statements with respect to the transactions contemplated herein and
shall not issue any such press release or make any such public statement without
the approval of the other parties, except as may be required by law or
applicable stock exchange rules.
6. SURVIVAL OF WARRANTIES. The representations and warranties of the
Sellers and of the Buyer contained herein shall survive the purchase of the
Shares pursuant to the Offer, the consummation of the Merger or the Closing
hereunder and shall not be deemed waived or otherwise affected by such purchase,
Merger or Closing or by any investigation made by the other parties hereto. Each
representation and warranty contained herein and therein shall survive such
purchase, Merger or Closing until the expiration of the applicable statute of
limitations, including extensions thereof, and termination of this agreement
shall not affect any of the rights of the parties with respect to breaches of
any agreements herein prior to termination.
7. MISCELLANEOUS.
7.1 Adjustments. In the event that the Company institutes any change in
the Shares by reason of stock dividends, stock splits, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
the number and kind of Shares subject to this agreement and the price to be paid
for such Shares shall be appropriately adjusted to reflect changes made in the
Shares.
7.2 Entire Agreement. This agreement contains the entire understanding of
the parties and supersedes any prior agreements and understandings between the
parties with respect to its subject matter. This agreement may be amended only
by a written instrument duly executed by the parties hereto.
7.3 Headings. The headings contained in this agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this agreement. Time is of the essence with respect to all provisions of this
agreement.
7.4 Assignment. This agreement may not be assigned by Seller, Parent or
Buyer; provided, however, that Parent or Buyer may assign this agreement to any
wholly owned subsidiary or person or entity owning 100% of the outstanding
common stock of Parent or Buyer but no such assignment shall affect the
obligations of Parent or Buyer under this agreement. Subject to the foregoing,
this agreement will be binding upon and inure to the benefit of the successors
and assigns of each of the parties hereto.
7.5 Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
B-6
<PAGE> 7
7.6 Notices. All notices and other communications under this agreement
shall be in writing and may be given by any of the following methods: (a)
personal delivery; (b) facsimile transmission; (c) registered or certified mail,
postage prepaid, return receipt requested; or (d) reputable overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given hereunder):
(a) If to the Buyer or Parent:
7069 Consolidated Way
San Diego, CA 92121
Attention: Michael Solomon
Telecopy No.: (619) 268-0021
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Attention: Edward R. Mandell, Esq.
Telecopy No.: (212) 704-6288
(b) If to Jupiter or Sussex, to it at:
c/o JG Industries, Inc.
1615 West Chicago Avenue, 4th Floor
Chicago, IL 60622
Attention: William Hellman
Telecopy No.: (312) 787-5625
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Robert F. Wall, Esq.
Telecopy No.: (312) 558-5700
All such notices and communications shall be deemed given upon the earliest to
occur of (a) actual receipt thereof by the addressee, (b) actual delivery
thereof to the appropriate address, (c) in the case of a facsimile transmission,
upon transmission thereof by the sender and issuance by the transmitting machine
of a confirmation slip confirming that the number of pages constituting the
notice have been transmitted without error and (d) in the case of overnight
delivery service, the day after such notice is given to such service for
delivery. In the case of notices sent by facsimile transmission, the sender
shall contemporaneously mail a copy of the notice to the addressee at the
address provided for above. However, such mailing shall in no way alter the time
at which the facsimile notice is deemed given.
7.7 Amendments. This agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
7.8 Severability. Whenever possible, each provision or portion of any
provision of this agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this agreement shall be
reformed, construed and
B-7
<PAGE> 8
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
7.9 Governing Law. This agreement shall be governed by and construed and
enforced in accordance with the laws of the state of Delaware, applicable to
agreements made and to be performed entirely in Delaware.
HK ACQUISITION COMPANY, INC.
By: /S/MICHAEL H. SOLOMON
-------------------------
Name: Michael H. Solomon
Title: Chairman
BREUNER'S HOME FURNISHINGS
CORPORATION
By: /S/MICHAEL H. SOLOMON
-------------------------
Name: Michael H. Solomon
Title: Chairman
JUPITER INDUSTRIES, INC.
By: /S/EDWARD W. ROSS
---------------------
Name: Edward W. Ross
Title: Chairman
SUSSEX GROUP, INC.
By: /S/WILLIAM HELLMAN
----------------------
Name: William Hellman
Title: Chairman
B-8
<PAGE> 1
EXHIBIT 4
THE CHICAGO CORPORATION
James C. Derks
Vice President
April 25, 1995
Private and Confidential
Mr. Steve Dollinger
Kidd, Kamm & Company
9454 Wilshire Boulevard
Suite 920
Beverly Hills, CA 90212
Dear Mr. Dollinger:
In connection with your consideration of a possible business
combination with, or any related transaction involving, the assets or business
of Huffman Koos Inc. ("HK" or the "Company") in one or a series of transactions
(each, a "Transaction"), the Company and/or its affiliates, agents, advisors or
other representatives (each, an "HK Representative") is prepared to furnish you
with certain confidential and proprietary information concerning the Company's
assets and business. The Chicago Corporation is acting as exclusive financial
advisor to the Company and is authorized to sign this Agreement on its behalf.
In consideraton of the opportunity to review any such information provided by
HK, you agree as follows:
1. You hereby agree to treat confidentially any information furnished
to you by HK or HK's Representatives (collectively, the "Evaluation Material");
provided, however, that the term "Evaluation Material" does not include
information which (i) is at the time of disclosure to you or later becomes
generally known to the public other than as a result of disclosure directly or
indirectly by you or your affiliates, agents, advisors or other representatives
(each, "your Representative"), (ii) becomes available to you on a
non-confidential basis from a source other than HK or HK's Representatives,
provided that such source is not and was not bound by a confidentiality
agreement with or other obligation of secrecy to HK or (iii) has already been
independently acquired or developed by you without violating any
confidentiality agreement with or obligation of secrecy to HK.
One First National Plaza
Suite 3350
Chicago, Illinois 60603
312-732-8200
INVESTMENT BANKING/INVESTMENT ADVICE/MEMBER OF ALL PRINCIPAL EXCHANGES
<PAGE> 2
April 25, 1995
Page 2 of 5
2. You agree to use the Evaluation Material only for the purpose of
evaluating the Transaction and you will not use the Evaluation Material in any
other way (including but not limited to direct or indirect disclosure to any
third parties); provided, however, that you may disclose any Evaluation
Material to your Representatives who need to know such information for the sole
purpose of evaluating the Transaction (provided that they shall be informed by
you of the confidential nature of such information and that prior to any such
disclosure such Representatives shall agree to be bound by this agreement). You
also agree that all communications by you and your Representatives shall be
through representatives of The Chicago Corporation. Under no circumstances
shall HK be contacted directly.
3. If at any time when the Evaluation Material is in your
possession or in the possession of your Representatives such information is
subpoenaed or demand for production is made by any other form of legal process
by any court, administrative or legislative body, or any other person or entity
purporting to have authority to subpoena or demand the Evaluation Material, the
person to whom the subpoena or demand is directed will not produce the
Evaluation Material without first giving written notice of the subpoena or
demand (including the delivery of a copy thereof) to William Hellman, Chairman
of the Board of HK within a reasonable time prior to the time when production
of the Evaluation Material is requested by the subpoena or demand. In any event,
the party to whom the subpoena or demand is directed shall request the person
or entity propounding the subpoena or demand to give HK a reasonable time to
object to such production. In the event that a protective order or other remedy
is not obtained, or that HK waives compliance with the provisions hereof, you
agree to furnish only the portion of the Evaluation Material which you are
advised by written opinion of your counsel is legally required and to use every
reasonable effort to obtain assurances that confidential treatment will be
accorded such Evaluation Material.
4. For a period of two years from the date hereof you and your
affiliates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) will not (and you and they will not assist or
encourage others to), directly or indirectly, unless specifically authorized in
writing in advance by HK:
(i) acquire or agree, offer, seek or propose to acquire
ownership (including, but not limited to, beneficial ownership as
defined in Rule 13d-3 under the Exchange Act) of any of HK's assets or
businesses or any securities issued by HK, or any rights or options to
acquire such ownership (including from a third party), or
<PAGE> 3
April 25, 1995
Page 3 of 5
(ii) seek or propose to influence or control HK management
or its policies (or request permission to do so) or
(iii) enter into any discussions, negotiations, arrangements
or understandings with any third party with respect to any of the
foregoing.
5. You shall not make any public disclosure concerning the subject
matter of this agreement or of your consideration of a Transaction, including
that Evaluation Material has been made available to you or that you are having
or have had discussions with HK; provided, however, that you may make such
disclosure if you have received the written opinion of your outside counsel
that such disclosure must be made by you in order that you not commit a
violation of applicable law, and you advise HK of your obligation to make such
disclosure, and provide HK with a copy of the opinion of counsel, the proposed
disclosure and an opportunity to discuss such disclosure with you and your
counsel as early as practicable prior to such disclosure.
6. The Company may elect at any time to terminate further access
by you to Evaluation Material, and you agree that, upon any such termination or
upon our request you will promptly (and in any case within 14 days of the
Company's request) return to us all copies of the Evaluation Material and will
destroy or cause to be destroyed all memoranda, notes and other writings
prepared by you or your Representatives based on the Evaluation Material. No
such actions will affect your obligations hereunder or those of your
Representatives, all of which obligations shall continue in effect. You agree
not to make copies of the Evaluation Material except as necessary to assist you
in your consideration of the Transaction.
7. From and after the date of this Agreement and continuing for a
period of eighteen months thereafter, you agree that no person involved in or
with a knowledge of the discussions between us with respect to a Transaction,
acting on your behalf or on behalf of your subsidiaries or affiliates (a
"Restricted Person"), shall, directly or indirectly, solicit to employ (whether
as an employee, officer, director, agent, consultant or independent contractor)
any person who is now employed by the Company or its Representatives. The term
"solicit for employment" includes any communication (written, telephone or
oral) from or initiated by a Restricted Person, or any search or other
recruitment entity or person employed by or at the direction of a Restricted
<PAGE> 4
April 25, 1995
Page 4 of 5
Person, to any employee of HK (except any such communication directly in
response to a written, telephonic or other contact initiated by such employee)
but does not include advertising to fill one or more positions in any newspaper
of general circulation or industry publication on a basis consistent with past
practice.
8. You agree that money damages would not be a sufficient remedy
for any breach of this agreement by you or your Representatives, and that in
addition to all other remedies HK shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach, and you
further agree to waive any requirement for the securing or posting of any bond
in connection with such remedy.
9. Neither HK nor any HK Representative makes any representation
or warranty as to the accuracy or completeness of the Evaluation Material.
Neither HK nor any HK Representative shall be subject to any liability
resulting from the use of the Evaluation Material by you or your
Representatives. Only those representations and warranties that are made in a
definitive agreement relating to the Transaction, when, as, and if it is
executed, and subject to such qualifications, limitations and restrictions as
may be specified in such agreement, will have legal effect. You also acknowledge
that to the extent the Evaluation Material consists of financial projections,
such projections may be based upon a number of assumptions and no assurance is
given that such assumptions are correct or that such projections will be
realized. Finally, HK is under no duty or obligation to provide you or your
Representatives with access to any information, and nothing herein is intended
to impose any such obligation upon HK or the HK Representatives.
10. This agreement may be executed in one or more counterparts,
each of which shall, for all purposes, be deemed an original and all such
counterparts, taken together, shall constitute one and the same agreement, even
though all of the parties may not have executed the same counterpart of this
agreement.
11. It is understood and agreed that no failure or delay by the
Company in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any right, power or
privilege hereunder.
12. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this letter agreement, which shall remain in full force and
effect.
13. This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflict
of laws, principles or rules. This agreement shall be binding on you and your
Representatives for a period of two years from the date hereof.
<PAGE> 5
April 25, 1995
Page 5 of 5
If you are in agreement with the foregoing, please so indicate by
signing and returning one copy of this agreement, which will constitute your
binding agreement with HK with respect to the matters set forth herein;
provided, however, that it is mutually understood and agreed that you or any of
your Representatives use of the Evaluation Material for any purpose shall
itself constitute your agreement and acceptance of the terms and restrictions
hereof.
Sincerely,
THE CHICAGO CORPORATION,
as representative and on behalf
of the Company
By: /s/ James Derks
---------------------
AGREED:
KIDD, KAMM & COMPANY
By: /s/ Steven Dollinger
---------------------------
Title: Associate
------------------------
Dated: 4/25/95
------------------------
<PAGE> 1
EXHIBIT 5
July 28, 1995
Arnold's Acquisition Corporation
c/o Kidd, Kamm Equity Partners, L.P.
9454 Wilshire Boulevard
Suite 920
Beverly Hills, California 90212
Gentlemen:
Our financial advisor, The Chicago Corporation, has distributed to you
and others on a confidential basis information about Huffman Koos Inc. (the
"Company"). You have indicated to The Chicago Corporation that, in addition to
such information, you wish to conduct a financial, business, regulatory and
legal "due diligence" investigation of the Company in order to determine
whether you or one of your affiliates would agree to enter into a definitive
agreement to acquire the Company.
The Company and its Board of Directors acknowledge that you will devote
substantial time and resources, and incur substantial expenses, in connection
with conducting such investigation. To induce you to incur such expenses, the
Company agrees that, until September 5, 1995, or such later date as may be
agreed to by the Company in its sole discretion (the "Exclusivity Period"), it
will not directly or indirectly through any officer, director, employee, agent,
advisor or otherwise (i) solicit, initiate or encourage submission of proposals
or offers from any corporation, partnership, persons or group relating to any
acquisition, purchase or option to purchase any stock of the Company, or any of
the assets of, or any equity interest in the Company, or any merger,
consolidation or other form of business combination or joint venture with the
Company or (ii) furnish to any person or entity any information with respect to
any of the foregoing without your prior written consent. However,
notwithstanding the foregoing, the Company and its Board of Directors shall not
be prohibited from entering into any negotiations which were not so solicited
or initiated to the extent
<PAGE> 2
Arnold's Acquisition Corporation
July 28, 1995
Page 2
such action is taken on the exercise of good faith judgment as to their
fiduciary duties to the shareholders of the Company, which judgment is based
upon the written advice of independent, outside legal counsel that a failure of
the Board of Directors of the Company to take such action would be likely to
constitute a breach of its fiduciary duties to the shareholders of the
Company. Each time, if any, that the Board of Directors of the Company
determines, upon written advice of such legal counsel and in the exercise of its
good faith judgment as to its fiduciary duties to the Company's shareholders,
that it must enter into negotiations with, or furnish any information that is
not publicly available to, any corporation, partnership, person or other
entity or group (other than you, one of your affiliates, or their authorized
representatives) concerning any acquisition proposal, the Company will
give you prompt notice of such determination (which shall include
a copy of the written advice of such legal counsel). The Company will notify
you promptly in writing if the Company or its Board of Directors becomes aware
that any inquiries or proposals are received by, any information is requested
from or any negotiations or discussions are sought to be initiated with the
Company or its Board of Directors with respect to any proposed purchase of
assets, equity interests or any proposed merger or other form of business
combination.
The Company agrees that should it or any of its employees, directors or
representatives during the Exclusivity Period either (a) receive an unsolicited
proposal for the purchase of assets, equity interests or any proposed merger or
other form of business combination (an "Acquisition Proposal") (other than from
you, one of your affiliates or their authorized representatives) which it does
not reject or (b) solicit or initiate any discussion for an Acquisition
Proposal (regardless of whether it results in any acquisition), then in either
case the Company shall pay to you an amount equal to all documented
out-of-pocket expenses (including, without limitation, fees and expenses of
counsel, accountants and financial advisors and fees and expenses paid to
financing sources) not in excess of $350,000 in the aggregate incurred by you
in connection with your "due diligence" investigation and attempted financing
of an offer for the Company.
The Company agrees that any proposal, written or oral, which it
receives from you will be kept and maintained confidential by the Company,
except to the extent required by the fiduciary duties discussed above or as
mutually agreed by us.
If the foregoing is acceptable to you, please sign the enclosed
counterpart of this letter and return it to the undersigned.
Peter C. B. Bynoe
---------------------------
Peter C. B. Bynoe
for and on behalf of Huffman
Koos Inc. and its Board
of Directors
Agreed to and accepted this
28th day of July, 1995.
Arnold's Acquisition Corporation
By Michael H. Solomon
--------------------------
<PAGE> 1
EXHIBIT 6A
September 7, 1995
FRED BERK
1. Elected to the Board of Parent Company.
2. Appointed President and Chief Operating Officer of Parent Company.
3. Continue to be President and CEO of Huffman Koos.
4. Reports to Michael Solomon, Chairman and CEO of Parent Company.
5. Base salary of $325,000.
6. Bonus Potential of up to 75% of base for achievement of EBITDA Target.
Additional (bonus without a cap) for exceeding annual EBITDA
Target (see attached Exhibit A). The annual EBITDA Target will be
established in conjunction with the Company's Management and approved
by the Board of Directors.
7. Participation in Management Stock Option Plan (currently
allocated up to 5% of Parent Company stock for use in the Management
Stock Option Plan).
8. Extend the 30-day separation option to begin 6 months after close of
acquisition.
<PAGE> 2
FRED BERK
ANNUAL BONUS PLAN
You can earn up to 75% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
- ------------------------- ---------------
90% -0-
91% 7.5%
92% 15%
93% 22.5%
94% 30%
95% 37.5%
96% 45%
97% 52.5%
98% 60%
99% 67.5%
100% 75%
101% 76%
102% 77%
103% 78%
---- -----
<PAGE> 1
EXHIBIT 6B
ARNOLD'S ACQUISITION CORP.
4750 KEARNY MESA ROAD
SAN DIEGO, CA 92111
September 7, 1995
Personal and Confidential
Mr. Joseph Albanese
Vice President - Chief Financial Officer
Huffman Koos Inc.
Route 4 and Main Street
River Edge, NJ 07661
Dear Joe:
We are pleased to offer you the opportunity to join our team at Huffman Koos
following the closing of our acquisition. We are well on the way to building a
national furniture company in which Huffman Koos will be a key component.
While we intend to prepare a formalized employment agreement with you as soon
as possible, we wanted to let you know what the key terms of this agreement
will cover. We hope you will be pleased and realize that we consider you to be
an important part of the Huffman Koos team.
- - Position: You will continue in your current position as Vice President -
Chief Financial Officer.
- - Employment Term: One year with automatic one year extensions unless Company
provides written notice of their intention not to renew this agreement at
least 60 days prior to the end of term.
- - Base Salary: Your base salary will be $115,000.00 per year.
- - Bonus: You will be eligible to earn an annual bonus of up to 50% of
your annual salary for achieving the annual profit target developed in
conjunction with the Company's management and approved by the Board of
Directors. You can earn an additional Bonus (with no cap) for exceeding
the annual target. See Exhibit A attached.
- - Stock Option Plan: As a key member of the Management Team, you will be
eligible to participate in the Parent Company's Management Stock Option Plan.
This plan will be in place shortly after the completion of this acquisition,
and the Board of Directors has authorized up to 5% of the shares of the
Parent Company for inclusion in this stock option plan.
<PAGE> 2
Mr. Joseph Albanese
September 7, 1995
Page 2
Joe, we look forward to building a large and profitable business
together, with corresponding financial rewards for all of us. Please let me
know if you have any questions. Also, I ask that you keep this letter and its
contents confidential. Thanks.
Sincerely,
Michael H. Solomon
Michael H. Solomon
Chairman and CEO
Arnold's Acquisition Corp.
MHS:ch
Enc: Exhibit A
<PAGE> 3
Joseph Albanese, Continued
EXHIBIT A
ANNUAL BONUS PLAN
You can earn up to 50% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
<TABLE>
<CAPTION>
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
- ------------------------- -------------------------
<S> <C>
90% -0-
91% 5%
92% 10%
93% 15%
94% 20%
95% 25%
96% 30%
97% 35%
98% 40%
99% 45%
100% 50%
101% 51%
102% 52%
103% 53%
... ...
</TABLE>
<PAGE> 1
EXHIBIT 6C
ARNOLD'S ACQUISITION CORP.
4750 KEARNY MESA ROAD
SAN DIEGO, CA 92111
September 7, 1995
Personal and Confidential
Mr. John Alecci
Vice President - MIS
Huffman Koos Inc.
Route 4 and Main Street
River Edge, NJ 07661
Dear John:
We are pleased to offer you the opportunity to join our team at Huffman Koos
following the closing of our acquisition. We are well on the way to building a
national furniture company in which Huffman Koos will be a key component.
While we intend to prepare a formalized employment agreement with you as soon
as possible, we wanted to let you know what the key terms of this agreement
will cover. We hope you will be pleased and realize that we consider you to be
an important part of the Huffman Koos team.
- - Position: You will continue in your current position as Vice President
- MIS.
- - Employment Term: One year with automatic one year extensions unless
Company provides written notice of their intention not to renew this
agreement at least 60 days prior to the end of term.
- - Base Salary: Your base salary will be $107,000.00 per year.
- - Bonus: You will be eligible to earn an annual bonus of up to 50% of
your annual salary for achieving the annual profit target developed in
conjunction with the Company's management and approved by the Board of
Directors. You can earn an additional Bonus (with no cap) for
exceeding the annual target. See Exhibit A attached.
- - Stock Option Plan: As a key member of the Management Team, you will
be eligible to participate in the Parent Company's Management Stock
Option Plan. This plan will be in place shortly after the completion
of this acquisition, and the Board of Directors has authorized up to
5% of the shares of the Parent Company for inclusion in this stock
option plan.
<PAGE> 2
Mr. John Alecci
September 7, 1995
Page 2
John, we look forward to building a large and profitable business together,
with corresponding financial rewards for all of us. Please let me know if you
have any questions. Also, I ask that you keep this letter and its contents
confidential. Thanks.
Sincerely,
Michael H. Solomon
Michael H. Solomon
Chairman and CEO
Arnold's Acquisition Corp.
MHS:ch
Enc: Exhibit A
<PAGE> 3
John Alecci, Continued
EXHIBIT A
ANNUAL BONUS PLAN
You can earn up to 50% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
<TABLE>
<CAPTION>
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
- ------------------------- ------------------------
<S> <C>
90% -0-
91% 5%
92% 10%
93% 15%
94% 20%
95% 25%
96% 30%
97% 35%
98% 40%
99% 45%
100% 50%
101% 51%
102% 52%
103% 53%
... ...
</TABLE>
<PAGE> 1
EXHIBIT 6D
ARNOLD'S ACQUISITION CORP.
4750 KEARNY MESA ROAD
SAN DIEGO, CA 92111
September 7, 1995
Personal and Confidential
Mr. Timothy Costello
Vice President - Warehouse Distribution
Huffman Koos Inc.
Route 4 and Main Street
River Edge, NJ 07661
Dear Tim:
We are pleased to offer you the opportunity to join our team at Huffman Koos
following the closing of our acquisition. We are well on the way to building a
national furniture company in which Huffman Koos will be a key component.
While we intend to prepare a formalized employment agreement with you as soon
as possible, we wanted to let you know what the key terms of this agreement
will cover. We hope you will be pleased and realize that we consider you to be
an important part of the Huffman Koos team.
- - Position: You will continue in your current position as Vice
President - Warehouse Distribution.
- - Employment Term: One year with automatic one year extensions unless Company
provides written notice of their intention not to renew this agreement at
least 60 days prior to the end of term.
- - Base Salary: Your base salary will be $115,000.00 per year.
- - Bonus: You will be eligible to earn an annual bonus of up to 50% of your
annual salary for achieving the annual profit target developed in conjunction
with the Company's management and approved by the Board of Directors. You can
earn an additional Bonus (with no cap) for exceeding the annual target. See
Exhibit A attached.
- - Stock Option Plan: As a key member of the Management Team, you will be
eligible to participate in the Parent Company's Management Stock Option Plan.
This plan will be in place shortly after the completion of this acquisition,
and the Board of Directors has authorized up to 5% of the shares of the
Parent Company for inclusion in this stock option plan.
<PAGE> 2
Mr. Timothy Costello
September 7, 1995
Page 2
Tim, we look forward to building a large and profitable business together, with
corresponding financial rewards for all of us. Please let me know if you have
any questions. Also, I ask that you keep this letter and its contents
confidential. Thanks.
Sincerely,
Michael H. Solomon
Michael H. Solomon
Chairman and CEO
Arnold's Acquisition Corp.
MHS:ch
Enc: Exhibit A
<PAGE> 3
Timothy Costello, Continued
EXHIBIT A
ANNUAL BONUS PLAN
You can earn up to 50% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
------------------------- ------------------------
90% -0-
91% 5%
92% 10%
93% 15%
94% 20%
95% 25%
96% 30%
97% 35%
98% 40%
99% 45%
100% 50%
101% 51%
102% 52%
103% 53%
... ...
<PAGE> 1
EXHIBIT 6E
ARNOLDS' ACQUISITION CORP.
4750 KEARNY MESA ROAD
SAN DIEGO, CA 92111
September 7, 1995
Personal and Confidential
Mr. John DiSanza
Vice President - Store Operations
Huffman Koos Inc.
Route 4 and Main Street
River Edge, NJ 07661
Dear Jack:
We are pleased to offer you the opportunity to join our team at Huffman Koos
following the closing of our acquisition. We are well on the way to building a
national furniture company in which Huffman Koos will be a key component.
While we intend to prepare a formalized employment agreement with you as soon
as possible, we wanted to let you know what the key terms of this agreement will
cover. We hope you will be pleased and realize that we consider you to be an
important part of the Huffman Koos team.
- -- Position: You will continue in your current position as Vice President -
Store Operations.
- -- Employment Term: One year with automatic one year extensions unless
Company provides written notice of their intention not to renew this
agreement at least 60 days prior to the end of term.
- -- Base Salary: Your base salary will be $115,000.00 per year.
- -- Bonus: You will be eligible to earn an annual bonus of up to 50% of your
annual salary for achieving the annual profit target developed in
conjunction with the Company's management and approved by the Board of
Directors. You can earn an additional Bonus (with no cap) for exceeding the
annual target. See Exhibit A attached.
- -- Stock Option Plan: As a key member of the Management Team, you will be
eligible to participate in the Parent Company's Management Stock Option
Plan. This plan will be in place shortly after the completion of this
acquisition, and the Board of Directors has authorized up to 5% of the
shares of the Parent Company for inclusion in this stock option plan.
<PAGE> 2
Mr. John DiSanza
September 7, 1995
Page 2
Jack, we look forward to building a large and profitable business together,
with corresponding financial rewards for all of us. Please let me know if you
have any questions. Also, I ask that you keep this letter and its contents
confidential. Thanks.
Sincerely,
Michael H. Solomon
Michael H. Solomon
Chairman and CEO
Arnold's Acquisition Corp.
MHS:ch
Enc: Exhibit A
<PAGE> 3
John DiSanza, Continued
EXHIBIT A
ANNUAL BONUS PLAN
You can earn up to 50% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
<TABLE>
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
<S> <C>
90% -0-
91% 5%
92% 10%
93% 15%
94% 20%
95% 25%
96% 30%
97% 35%
98% 40%
99% 45%
100% 50%
101% 51%
102% 52%
103% 53%
... ...
</TABLE>
<PAGE> 1
EXHIBIT 6F
ARNOLD'S ACQUISITION CORP.
4750 KEARNY MESA ROAD
SAN DIEGO, CA 92111
September 7, 1995
Personal and Confidential
Mr. Al Melchiano
Vice President - Marketing & Advertising
Huffman Koos Inc.
Route 4 and Main Street
River Edge, NJ 07661
Dear Al:
We are pleased to offer you the opportunity to join our team at Huffman Koos
following the closing of our acquisition. We are well on the way to building a
national furniture company in which Huffman Koos will be a key component.
While we intend to prepare a formalized employment agreement with you as soon
as possible, we wanted to let you know what the key terms of this agreement
will cover. We hope you will be pleased and realize that we consider you to be
an important part of the Huffman Koos team.
- - Position: You will continue in your current position as Vice President -
Marketing & Advertising.
- - Employment Term: One year with automatic one year extensions unless Company
provides written notice of their intention not to renew this agreement at
least 60 days prior to the end of term.
- - Base Salary: Your base salary will be $122,000.00 per year.
- - Bonus: You will be eligible to earn an annual bonus of up to 50% of your
annual salary for achieving the annual profit target developed in conjunction
with the Company's management and approved by the Board of Directors. You can
earn an additional Bonus (with no cap) for exceeding the annual target. See
Exhibit A attached.
- - Stock Option Plan: As a key member of the Management Team, you will be
eligible to participate in the Parent Company's Management Stock Option Plan.
This plan will be in place shortly after the completion of this acquisition,
and the Board of Directors has authorized up to 5% of the shares of the
Parent Company for inclusion in this stock option plan.
<PAGE> 2
Mr. Al Melchiano
September 7, 1995
Page 2
Al, we look forward to building a large and profitable business together, with
corresponding financial rewards for all of us. Please let me know if you have
any questions. Also, I ask that you keep this letter and its contents
confidential. Thanks.
Sincerely,
Michael H. Solomon
Michael H. Solomon
Chairman and CEO
Arnold's Acquisition Corp.
MHS:ch
Enc: Exhibit A
<PAGE> 3
Al Melchiano, Continued
EXHIBIT A
ANNUAL BONUS PLAN
You can earn up to 50% of your annual base salary in bonus for achieving the
company's annual EBITDA (earnings before interest, taxes, depreciation and
amortization) target as approved by the company's Board of Directors. Further,
you can earn an additional 1% of your annual base salary for each 1% by which
actual annual EBITDA exceeds the annual target. There will be no ceiling on
this total bonus potential.
<TABLE>
<CAPTION>
Actual Annual EBITDA Percent of Annual Salary
as a Percentage of Target Earned as Bonus
------------------------- ------------------------
<S> <C>
90% -0-
91% 5%
92% 10%
93% 15%
94% 20%
95% 25%
96% 30%
97% 35%
98% 40%
99% 45%
100% 50%
101% 51%
102% 52%
103% 53%
... ...
</TABLE>
<PAGE> 1
EXHIBIT (a)(7)
FOR IMMEDIATE RELEASE
CONTACTS:
BREUNER'S HOME FURNISHINGS CORPORATION
Michael H. Solomon
Chairman and Chief Executive Officer
(619) 268-3447
HUFFMAN KOOS INC.
Joseph Albanese
Chief Financial Officer
(201) 343-4300
HUFFMAN KOOS INC. AND
BREUNER'S HOME FURNISHINGS CORPORATION
ENTER INTO DEFINITIVE MERGER AGREEMENT
River Edge, New Jersey, September 19, 1995 -- Huffman Koos Inc. (NASDAQ:
HUFK) and Breuner's Home Furnishings Corporation announced today that they have
entered into a definitive merger agreement pursuant to which Breuner's will
acquire Huffman Koos. Under the merger agreement, HK Acquisition Company, Inc.,
a wholly owned subsidiary of Breuner's, will promptly commence a cash tender
offer for all of the outstanding shares of Huffman Koos common stock for $9.375
per share. Any shares not purchased in the tender offer will be acquired for the
same price in cash in a second-step merger. Huffman Koos has approximately
3,938,400 shares outstanding.
Huffman Koos is a full service, specialty retailer targeting middle and
upper middle income customers by offering high-quality, name-brand furniture at
competitive prices. Breuner's, through its wholly owned subsidiary Arnold's
Acquisition Corporation, operates 12 full line, better quality home furnishings
stores under the "Breuner's" name in Northern California and Nevada, and under
the "Arnold's" name in San Diego. Breuner's was recently formed by Kidd, Kamm &
Company and Michael H. Solomon to effect the transaction with Huffman Koos, and
is a holding company for its other furniture operations. The combination of
Breuner's and Huffman Koos will form one of the largest retailers of better home
furnishings in the United States with a significant and diversified presence in
the largest furniture markets in the country, California and the Greater New
York Metropolitan Area.
Fred Berk, the President and CEO of Huffman Koos, who will also be assuming
the position of President of Breuner's, stated that "I am looking forward to
working closely with Michael Solomon, Chairman and CEO of Breuner's, in building
the two organizations into one of the leading retailers in our industry."
Michael H. Solomon stated that "Huffman Koos and Breuner's are a perfect fit.
Together, the two companies have substantial operating advantages given similar
product lines, MIS systems, distribution structures and consumer financing
arrangements. All of us at Breuner's are excited about teaming up with Fred Berk
and the Huffman Koos management organization to build a leading retailer of
quality home furnishings on both the east and west coasts. Averaging 60,000
square feet and featuring such high quality lines as Thomasville, Henredon and
Lexington, Huffman Koos' large format stores are very similar to those operated
by Breuner's."
On April 19, 1995, Huffman Koos announced that it had retained The Chicago
Corporation to assist it in considering the possible sale of Huffman Koos and to
review other strategic alternatives.
Consummation of the tender offer is contingent upon the tender of 90% of
Huffman Koos outstanding shares, the expiration or termination of any applicable
waiting periods under the federal Hart-Scott-Rodino
<PAGE> 2
Antitrust Improvements Act, the receipt by Breuner's of sufficient financing for
the acquisition and other customary conditions. Breuner's has obtained a
commitment to provide the funding necessary for the acquisition subject to
customary conditions. If less than 90% of Huffman Koos outstanding shares are
tendered in Breuner's cash tender offer, the parties may, subject to the
satisfaction of certain conditions, complete the acquisition through a long-form
merger.
The Huffman Koos Board of Directors has unanimously approved the tender
offer and, accordingly, recommends that Huffman Koos' stockholders accept the
offer and tender their shares. Huffman Koos' two largest stockholders, Jupiter
Industries, Inc. and Sussex Group, Ltd., which together hold in the aggregate
approximately 55.9% of the total outstanding shares of Huffman Koos, have agreed
to tender their shares in the offer.
Jupiter and Sussex have also granted to HK Acquisition an option to
purchase, subject to certain customary conditions, their shares at $9.375 per
share. The option expires on the expiration of the merger agreement. Breuner's
and HK Acquisition have agreed that if HK Acquisition exercises the option,
Breuner's and HK Acquisition will cash out Huffman Koos' remaining stockholders
at the same price by merger or otherwise.
If the Huffman Koos Board of Directors in exercising its fiduciary duties
withdraws its approval or recommendation of the offer or the merger agreement,
in the case of a superior proposal, and the merger agreement is terminated, then
Huffman Koos is obligated to pay Breuner's a break-up fee of $1,500,000 plus
expenses not to exceed $1,850,000.
During its fiscal year ended January 31, 1995, Huffman Koos had net sales
of approximately $119.1 million, operating income of approximately $5.2 million
and over 500 employees.
<PAGE> 1
EXHIBIT 8
[LETTERHEAD OF HUFFMAN KOOS INC.]
September 25, 1995
Dear Stockholder:
I am pleased to report that on September 18, 1995, Huffman Koos Inc.
entered into an Agreement and Plan of Merger with Breuner's Home Furnishings
Corporation and one of its subsidiaries, HK Acquisition Company, Inc., that
provides for the acquisition of Huffman Koos at a price of $9.375 per share in
cash. Under the terms of the proposed transaction, HK Acquisition Company will
commence a tender offer for all outstanding shares of Huffman Koos Common Stock
at $9.375 per share. Following the successful completion of the tender offer,
upon approval as required by law, HK Acquisition Company will be merged with
Huffman Koos and all shares not purchased in the tender offer will be converted
into the right to receive $9.375 per share in cash in the merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS
OF HUFFMAN KOOS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT ALL HUFFMAN KOOS STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9 being filed with the Securities and Exchange Commission,
including, among other things, the opinion of The Chicago Corporation, financial
advisor to Huffman Koos, that the consideration of $9.375 per share to be
received by the stockholders pursuant to the offer and the merger is fair to
Huffman Koos stockholders from a financial point of view.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is HK
Acquisition Company's Offer to Purchase and related materials, including a
Letter of Transmittal for use in tendering your shares. We urge you to read the
enclosed materials carefully. The management and directors of Huffman Koos thank
you for the support you have given the Company.
On behalf of the Board of Directors,
Sincerely,
William Hellman
William Hellman
Chairman of the Board
<PAGE> 1
EXHIBIT 9
THE CHICAGO CORPORATION
September 18, 1995
The Board of Directors
Huffman Koos Inc.
Route 4 and Main Street
River Edge, New Jersey 07661
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view and as of the date hereof, to the stockholders of Huffman Koos Inc. (the
"Company") of the consideration to be received by such stockholders pursuant to
the terms of the Agreement and Plan of Merger dated as of September 18, 1995
(the "Merger Agreement"), by and among the Company, Breuner's Home Furnishings
Corporation ("Breuner's"), and HK Acquisition Company, Inc. ("SUB"), a direct
wholly-owned subsidiary of Breuner's. The Merger Agreement provides for a cash
tender offer (the "Offer") by SUB to acquire all of the issued and outstanding
shares of Common Stock, par value $.01 per share, (the "Common Stock") of the
Company including Common Stock issued in exchange for employee stock options, at
$9.375 per share, net to the stockholders in cash (the "Consideration"), and for
the subsequent merger of the SUB with and into the Company, pursuant to which
each outstanding share of Common Stock not purchased in the Offer will be
converted into the right to receive Consideration of $9.375 in cash (the
"Merger," and together with the Offer, the "Transaction").
In connection with rendering this opinion, we have reviewed certain
publicly available business and financial information of the Company, as well as
certain other information, including financial projections, provided to us by
the Company. We have discussed the past and current operations, financial
condition and prospects of the Company with members of the Company's senior
management. We reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things, the current and historical
market prices and trading histories of the Company's Common Stock and the
Company's historical and projected earnings. We also considered, to the extent
publicly available, the financial terms of certain other transactions recently
effected and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies we
considered appropriate. We also have considered such other information,
financial studies, analyses, investigations and financial, economic, market and
trading criteria as we deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets or liabilities of the
Company. With respect to the Company's financial projections, we have assumed
that they have been prepared reasonably on bases reflecting the best currently
available estimates and judgments of the Company's management and we express no
opinion with respect to such forecasts or the assumptions on which they are
based. Our opinion is necessarily based upon business, market, economic and
other conditions as they exist on, and can be evaluated, as of the date of this
letter.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Transaction. In the ordinary course of our business, we may actively trade
securities of the Company for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Our advisory services and the opinion expressed herein are provided solely
for the use of the Board of Directors of the Company in its evaluation of the
proposed Transaction and our opinion is not intended to be
<PAGE> 2
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Transaction. Our opinion may not be
published or otherwise used or referred to without our prior written consent,
except our opinion may be published in its entirety in the Company's Schedule
14D-9 filing made pursuant to this Transaction with the Securities and Exchange
Commission.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the stockholders of the Company
in the Offer and the Merger is fair to such stockholders from a financial point
of view.
Very truly yours,
THE CHICAGO CORPORATION
