UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No.__)*
Lillian Vernon Corporation
(Name of Issuer)
Common Stock, $.01 Par Value
(Title of Class of Securities)
532430105
(CUSIP Number)
Andrew Gregor
Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
Telephone: (914) 637-5630
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
June 13, 1995
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement[ ]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Exhibit Index on Sequential
Page Number __
Total of Sequentially Numbered
Pages ___
Page 1 of __
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 2 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS Equity Partners III, L.P., a Delaware limited partnership
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* PN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 3 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS Capital Partners, L.P., a California limited partnership
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION California
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* PN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 4 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS Holdings, Inc., a California corporation
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION California
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* CO
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO.532430105 PAGE 5 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS Equity Partners International, L.P., a Delaware limited partnership
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* PN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 6 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS&Co. International, L.P., a Cayman Islands exempted limited partnership
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* PN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 7 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
FS International Holdings Limited, a Cayman Islands exempted company
limited by shares
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* CO
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 8 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
Ronald P. Spogli
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION United States
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* IN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 9 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
John M. Roth
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION United States
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* IN
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<TABLE>
SCHEDULE 13D
CUSIP NO. 532430105 PAGE 10 OF PAGES
<S> <C> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
VB Investment Corporation, a Delaware corporation
- ------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x]
(b) [ ]
- ------------------------------------------------------------------------------
3. SEC USE ONLY
- ------------------------------------------------------------------------------
4. SOURCE OF FUNDS* oo (see Item 3)
- ------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
- ------------------------------------------------------------------------------
NUMBER OF 7. SOLE VOTING POWER -0-
SHARES ------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER 4,321,561 (see Item 5)
OWNED BY ------------------------------------------------------
EACH 9. SOLE DISPOSITIVE POWER -0-
REPORTING ------------------------------------------------------
PERSON WITH 10. SHARED DISPOSITIVE POWER -0-
- ------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 4,321,561 (see Item 5)
- ------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
- ------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 43.0%
- ------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON* CO
- -------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
Item 1. Security and Issuer.
This statement on Schedule 13D (this "Statement") relates to the Common
Stock, $.01 par value per share, CUSIP Number 532430105 (the "Issuer Common
Stock"), of Lillian Vernon Corporation, a Delaware corporation (the "Issuer"),
which has its principal executive offices at 543 Main Street, New Rochelle, New
York 10801.
Item 2. Identity and Background.
This Statement is filed pursuant to the Joint Reporting Agreement
attached hereto as Exhibit 1 on behalf of FS Equity Partners III, L.P., a
Delaware limited partnership ("FSEP III"), FS Capital Partners, L.P., a
California limited partnership ("Capital Partners"), FS Holdings, Inc., a
California corporation ("FS Holdings"), FS Equity Partners International, L.P.,
a Delaware limited partnership ("FSEP International"), FS&Co. International,
L.P., a Cayman Islands exempted limited partnership ("FS&Co. International"), FS
International Holdings Limited, a Cayman Islands exempted company limited by
shares ("International Holdings"), Ronald P. Spogli ("Spogli"), John M. Roth
("Roth") and VB Investment Corporation, a Delaware corporation ("VB Investment,"
and together with FSEP III, Capital Partners, FS Holdings, FSEP International,
FS&Co. International, International Holdings, Spogli and Roth, the "Filing
Persons.")
FS Holdings is the general partner of Capital Partners, which is the
general partner of FSEP III. International Holdings is the general partner of
FS&Co. International which is the general partner of FSEP International.
FSEP III, Capital Partners and FS Holdings each has its principal
business address and its principal office at 11100 Santa Monica Boulevard, Suite
1900, Los Angeles, California 90025. FSEP III was formed to make private equity
investments. Capital Partners and FS Holdings were each formed to organize and
manage the transactions in which FSEP III is the principal investor.
FSEP International, FS&Co. International and International Holdings each
has its principal business address and its principal office at c/o Paget-Brown &
Company, Ltd., West Winds Building, Third Floor, P.O. Box 1111, Grand Cayman,
Cayman Islands, B.W.I. FSEP International was formed to make private equity
investments. FS&Co. International and International Holdings were each formed
to organize and manage the transactions in which FSEP International is the
principal investor.
Bradford M. Freeman ("Freeman"), Spogli, William M. Wardlaw ("Wardlaw"),
J. Frederick Simmons ("Simmons") and Roth are the directors, executive officers
and sole shareholders of FS Holdings and International Holdings. The principal
occupation of each of Freeman, Spogli, Wardlaw, Simmons and Roth is to serve as
the directors and executive officers of Freeman Spogli & Co. Incorporated, a
Delaware corporation formed to make private equity investments ("FS&Co."). Each
of Freeman, Spogli, Wardlaw and Simmons has his principal business address and
his principal office at 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025. Roth has his principal business address and his principal
office at 599 Lexington Avenue, 18th Floor, New York, New York 10022.
VB Investment has as its principal business address and its principal
office at 11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California
90025. VB Investment was recently formed for the purpose of engaging in the
Merger (as defined below in Item 4). Spogli is the President, Wardlaw is the
sole director, a Vice President and Assistant Secretary, Roth is a Vice
President and Mark J. Doran ("Doran") is Secretary of VB Investment. Doran's
principal occupation is as an employee of FS&Co. His principal business address
and principal office are at 599 Lexington Avenue, 18th Floor, New York, New York
10022.
During the last five years, none of FSEP III, Capital Partners, FS
Holdings, FSEP International, FS&Co. International, International Holdings, VB
Investment, Freeman, Spogli, Wardlaw, Simmons, Roth or Doran has been convicted
in a criminal proceeding (excluding traffic violations and similar misdemeanors)
or was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgement, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to federal or state securities laws or finding
any violation with respect to such laws. Each of Freeman, Spogli, Wardlaw,
Simmons, Roth and Doran is a citizen of the United States.
By virtue of the execution of the Agreement (described below in Item 6),
the Filing Persons may be considered members of a group that includes Lillian
Vernon ("Lillian"), David C. Hochberg ("David") and Fred P. Hochberg ("Fred,"
and collectively with Lillian and David, the "Vernon Filing Persons").
Item 3. Source and Amount of Funds or Other Consideration.
The Filing Persons have not made any purchases in connection with the
execution of the Agreement (described in Item 6(C) hereof).
Item 4. Purpose of Transaction.
FSEP III and FSEP International have entered into the Agreement
(described in Item 6(C) hereof) with the Vernon Filing Persons to facilitate the
consummation of the Merger.
Pursuant to the terms and conditions of an Agreement and Plan of Merger,
dated as of June 13, 1995 (the "Merger Agreement") between VB Investment and the
Issuer, VB Investment will merge with and into the Issuer (the "Merger") and the
Issuer shall be the surviving corporation. Pursuant to the Merger, at the
Effective Time (as defined in the Merger Agreement), each share of Issuer Common
Stock shall be canceled and converted into the right to receive $19.00 cash
payable to the holder thereof, except that approximately 17% and 10% of the
shares of Issuer Common Stock held by Lillian and David, respectively, shall
remain outstanding. FSEP III and FSEP International shall together hold
approximately 70% of Issuer Common Stock and certain members of management of
the Issuer will own approximately 3% of Issuer Common Stock after the Merger.
The Merger Agreement contains customary representations and warranties,
covenants and termination provisions.
If the Merger Agreement is terminated (i) by either the Issuer or VB
Investment because Issuer's Board of Directors has (a) withdrawn or modified its
approval or recommendation of the Merger or (b) recommended another transaction,
(ii) by VB Investment if another entity, person or group acquires shares of
Issuer Common Stock, or shall have been granted any option or right to acquire
shares of Issuer Common Stock, representing more than 30% of the then
outstanding voting power of the Issuer or (iii) by VB Investment, if an entity,
person or group announces an Acquisition Proposal (as defined in the Merger
Agreement) involving a majority of the Issuer Common Stock and at the
stockholders meeting (a) such Acquisition Proposal remains outstanding and (b)
the Merger is not approved and adopted by the affirmative vote of the
stockholders of the Issuer and within 12 months of such termination the Issuer
shall consummate a transaction involving more than 50% of the Issuer Common
Stock pursuant to an Acquisition Proposal, then, in each such event, the Issuer
shall promptly pay to FS&Co. $3.5 million as a termination fee.
If the Merger Agreement is terminated for any of the reasons set forth
in clauses (i), (ii) or (iii) in the preceding paragraph, or because the Issuer
fails to comply in a material respect with any covenants or agreements in the
Merger Agreement to be complied with or performed by it or if the
representations and warranties of the Issuer shall not be true in all material
respects (other than (i) termination as a result of the failure of certain
representations and warranties to be true and correct after the date hereof, or
(ii) the failure of representations and warranties to be true and correct, and
such failure does not, individually or in the aggregate (A) have a Material
Adverse Effect (as defined in the Merger Agreement) or (B) prevent or materially
delay the consummation of the Merger), then the Issuer shall promptly pay to
FS&Co. all reasonable out-of-pocket expenses incurred by VB Investment and
FS&Co. in connection with the Merger up to a maximum aggregate amount of $1.5
million.
The Merger Agreement contains customary conditions to the Merger
including stockholder approval, compliance with the waiting period requirements,
if applicable, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
the truth and correctness of representations and warranties, performance of all
required obligations, and receipt of the Debt Financing (as defined in Item 6(B)
hereof).
The foregoing description is qualified in its entirety by the Merger
Agreement which is attached hereto as Exhibit 2 and incorporated by reference.
If the Merger is consummated as contemplated by the Merger Agreement,
then (i) each of the outstanding shares of the Issuer Common Stock (other than
certain shares held by Lillian and David, which will remain outstanding) will be
converted into the right to receive cash, (ii) the Issuer's Board of Directors
will be declassified and will consist of seven members, one of whom will be
designated by Lillian and two of whom will be jointly designated by FSEP III,
FSEP International and Lillian, with one of such members to be a current outside
member of the Issuer's Board of Directors, (iii) the Issuer will not pay a
regular quarterly dividend, (iv) the Issuer Common Stock will no longer by
listed on the American Stock Exchange and (v) the registration of the Issuer
Common Stock under Section 12(b) of the Exchange Act will be terminated.
Other than as described above, none of the Filing Persons presently has
any plans or proposals that relate to or would result in any of the actions
described in subparagraphs (a) through (j) of Item 4 of Schedule 13D (although
they reserve the right to develop such plans).
Item 5. Interest in the Securities of the Issuer.
The percentages of outstanding Issuer Common Stock reported in this Item
5 are based on the assumptions that there are 9,706,838 shares of Issuer Common
Stock outstanding, which is the number of outstanding shares reported by the
Issuer on its Annual Report on Form 10-K (the "Form 10-K") filed with the
Commission on May 24, 1995, plus an aggregate of 351,667 options to purchase
Issuer Common Stock held by the Vernon Filing Persons and exercisable within 60
days of the date hereof. Based on such Form 10-K, the Vernon Filing Persons are
collectively the beneficial owners of 4,321,561 shares of Issuer Common Stock
(the "Vernon Shares"), which represent approximately 43.0% of the outstanding
Issuer Common Stock. As of June 13, 1995, each of the Filing Persons may be
deemed to be the beneficial owner of the Vernon Shares within the meaning of
Rule 13d-3 of the Exchange Act. The responses of the Filing Persons to Items 7
through 11 of the cover pages hereto are herein incorporated by reference.
Pursuant to the Agreement (described in Item 6(C) hereof), the Vernon
Filing Persons will vote all shares of Issuer Common Stock held by them for the
Merger and against certain other transactions specified in the Agreement. The
Vernon Filing Persons have granted a proxy to Spogli and Roth to vote their
Issuer Common Stock as described above. The Vernon Filing Persons have agreed
that they will not transfer, exchange or pledge, hypothecate or encumber in any
way (with certain exceptions) the shares of Issuer Common Stock beneficially
owned by the Vernon Filing Persons, except as required pursuant to the Merger.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
A. Joint Reporting Agreement.
The Filing Persons have executed a Joint Reporting Agreement
dated June 13, 1995 which is attached hereto as Exhibit 1 and incorporated
herein by reference, pursuant to which they have agreed to file one joint
statement on behalf of all of them with respect to the subject matter of this
Statement.
B. Merger Agreement.
On June 13, 1995, VB Investment and the Issuer entered into the
Merger Agreement as discussed in Item 4 above. Prior to the consummation of the
Merger, FSEP III and FSEP International will make a capital call on each of
their respective limited partners to generate approximately $52 million to fund
VB Investment. This amount will be used to fund a portion of the cash payments
to the Issuer's stockholders in the Merger. Additional funds will be obtained
by the Issuer from a new $110 million term loan credit facility and a $50
million revolving credit facility being arranged by VB Investment on behalf of
the Issuer through Merrill Lynch Capital Corporation (the "Debt Financing"). A
copy of the commitment letter with respect to such facility is attached hereto
as Exhibit 3.
C. Agreement.
On June 13, 1995, an Agreement, dated as of June 13, 1995 (the
"Agreement") was executed by each of the Vernon Filing Persons, FSEP III and
FSEP International.
Pursuant to the Agreement, each of the Vernon Filing Persons has
agreed to vote all shares of Issuer Common Stock held by her or him (i) in favor
of the Merger and (ii) against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (a) a merger,
consolidation or other business combination involving the Issuer or its
subsidiaries, (b) a sale, lease or transfer of a material amount of assets of
the Issuer or its subsidiaries, (c) a reorganization, recapitalization,
dissolution or liquidation of the Issuer or its subsidiaries, (d) any material
change in the present capitalization of the Issuer or any amendment of the
Issuer's Certificate of Incorporation, or (e) any other action which could
reasonably be expected to impede, interfere with, delay, postpone, discourage or
materially adversely affect the Merger or the transactions contemplated by the
Merger Agreement. These voting provisions terminate 10 months from the date of
the Agreement, except for the provisions in clauses (c) and (d), which terminate
6 months from the date of the Agreement. In the Agreement, each of the Vernon
Filing Persons grants to and appoints Spogli and Roth her or his irrevocable
proxy and attorney-in-fact to vote her or his shares of Issuer Common Stock in
accordance with the foregoing.
The Agreement also provides that none of the Vernon Filing Persons shall
(i) transfer, exchange or pledge, hypothecate or encumber in any way the shares
of Issuer Common Stock beneficially owned by her or him (with certain
exceptions), (ii) solicit or initiate negotiations with any other party
concerning (a) a tender offer, merger or sale of any or substantially all assets
involving the Issuer or (b) any sale of shares of capital stock or an option or
warrant to purchase shares of capital stock or any Acquisition Transaction (as
defined therein).
The foregoing description is qualified in its entirety by the
Agreement which is attached hereto as Exhibit 4 and incorporated herein by
reference.
D. Stockholders Agreement.
The Agreement contemplates that, upon consummation of the
Merger, FSEP III and FSEP International (collectively, the "FS Stockholder") and
Lillian and David will enter into a Stockholders Agreement (the "Stockholders
Agreement"), with respect to the shares of Issuer Common Stock owned by each of
them. The Stockholders Agreement will provide (among other things) for certain
rights of first refusal, tag along rights, rights of first offer and bring along
rights, all as more specifically described therein. In addition, the
Stockholders Agreement will provide that the Board of Directors of the Issuer
will be comprised of seven directors, with Lillian designating one director and
Lillian and the FS Stockholder jointly designating two directors, with one of
such members to be a current outside member of the Issuer's Board of Directors.
Without the affirmative vote or written consent of the director nominated by
Lillian, the Issuer may not, subject to certain exceptions, take certain
actions, including (i) sell assets with a value in excess of $50 million, (ii)
purchase assets with a value in excess of $75 million, (iii) incur indebtedness
over a stated amount, and (iv) engage in a public offering of Issuer Common
Stock within one year of the consummation of the Merger. These approval rights
terminate after two years or if Lillian is no longer entitled to nominate a
director pursuant to the Stockholders Agreement. The Stockholders Agreement
will also provide for certain registration rights.
The foregoing description is qualified in its entirety by the
form of the Stockholders Agreement which is attached hereto as Exhibit 5 and
incorporated herein by reference.
E. Limited Partnership Agreements.
Capital Partners is the sole general partner of FSEP III under
an Amended and Restated Agreement of Limited Partnership dated as of August 25,
1993, as amended (the "FSEP III Agreement"). The FSEP III Agreement provides
for the formation of FSEP III as a partnership to invest the funds of the
partnership in private equity investments. Capital Partners, as general partner
of FSEP III, has the exclusive right and power to manage the business and
affairs of the partnership, including the power to purchase and dispose of
Issuer Common Stock owned by FSEP III. The general partner and limited partners
of FSEP III have certain rights to receive the proceeds of the sales of
securities, if any, in accordance with the FSEP III Agreement. FS Holdings is
the sole general partner of Capital Partners and has the exclusive right and
power to manage the business and affairs of Capital Partners. Freeman, Spogli,
Wardlaw, Simmons and Roth are the directors, executive officers and sole
shareholders of FS Holdings.
FS&Co. International is the sole general partner of FSEP
International under an Agreement of Limited Partnership dated as of February 25,
1994 (the "FSEP International Agreement"). The FSEP International Agreement
provides for the formation of FSEP International as a partnership to invest the
funds of the partnership in private equity investments. FS&Co. International,
as general partner of FSEP International, has the exclusive right and power to
manage the business and affairs of the partnership, including the power to
purchase and dispose of Issuer Common Stock owned by FSEP International. The
general partner and limited partners of FSEP International have certain rights
to receive the proceeds of the sales of securities, if any, in accordance with
the FSEP International Agreement. International Holdings is the sole general
partner of FS&Co. International and has the exclusive right and power to manage
the business and affairs of FS&Co. International. Freeman, Spogli, Wardlaw,
Simmons and Roth are the directors, executive officers and sole shareholders of
International Holdings.
Item 7. Material to be Filed as Exhibits.
The Filing Persons file as exhibits the following:
Exhibit 1. Joint Reporting Agreement among FSEP III, Capital Partners,
FS Holdings, FSEP International, FS&Co. International, International Holdings,
Spogli, Roth and VB Investment dated June 13, 1995.
Exhibit 2. Agreement and Plan of Merger between VB Investment and the
Issuer dated as of June 13, 1995.
Exhibit 3. Commitment Letter of Merrill Lynch Capital Corporation dated
June 13, 1995.
Exhibit 4. Agreement among FSEP III, FSEP International and each of the
Vernon Filing Persons dated as of June 13, 1995.
Exhibit 5. Form of Stockholders Agreement among the Issuer, FSEP III,
FSEP International, Lillian and David.
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.
Dated: June 13, 1995
FS EQUITY PARTNERS III, L.P.,
a Delaware limited partnership
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS CAPITAL PARTNERS, L.P.,
a California limited partnership
By: FS Holdings, Inc.
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS HOLDINGS, INC.,
a California corporation
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS EQUITY PARTNERS INTERNATIONAL, L.P.,
a Delaware limited partnership
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS&CO. INTERNATIONAL, L.P.,
a Cayman Islands exempted limited partnership
By: FS International Holdings Limited
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS INTERNATIONAL HOLDINGS LIMITED,
a Cayman Islands exempted company limited by shares
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
VB INVESTMENT CORPORATION,
a Delaware corporation
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
/s/ Ronald P. Spogli
Ronald P. Spogli
/s/ John M. Roth
John M. Roth
<TABLE>
EXHIBIT INDEX
<CAPTION>
Sequential
Page No.
<S> <C> <C>
Exhibit 1 Joint Reporting Agreement among FSEP III,
Capital Partners, FS Holdings, FSEP International,
FS&Co. International, International Holdings,
Spogli, Roth and VB Investment dated June 13, 1995.
Exhibit 2 Agreement and Plan of Merger between VB Investment
and the Issuer dated as of June 13, 1995.
Exhibit 3 Commitment Letter of Merrill Lynch Capital
Corporation dated June 13, 1995.
Exhibit 4 Agreement among FSEP III, FSEP International and
each of the Vernon Filing Persons dated as of June 13, 1995.
Exhibit 5 Form of Stockholders Agreement among the Issuer,
FSEP III, FSEP International, Lillian and David.
</TABLE>
JOINT REPORTING AGREEMENT
In consideration of the mutual covenants herein contained, each of the
parties hereto represents to and agrees with the other party as follows:
(a) Such party is eligible to file a statement or statements on
Schedule 13D pertaining to the Common Stock, $.01 par value per share, of
Lillian Vernon Corporation, to which this agreement is an exhibit, for filing of
the information contained herein.
(b) Such party is responsible for timely filing of such statement
and any amendments thereto and for the completeness and accuracy of the
information concerning such party contained herein, provided that no such party
is responsible for the completeness or accuracy of the information concerning
the other parties making the filing, unless such party knows or has reason to
believe that such information is inaccurate.
(c) Such party agrees that such statement is filed by and on behalf
of each party and that any amendment thereto will be filed on behalf of each
such party.
This Joint Reporting Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original instrument, but
all of such counterparts together shall constitute but one agreement.
Dated: June 13, 1995
FS EQUITY PARTNERS III, L.P.,
a Delaware limited partnership
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS CAPITAL PARTNERS, L.P.,
a California limited partnership
By: FS Holdings, Inc.
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS HOLDINGS, INC.,
a California corporation
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS EQUITY PARTNERS INTERNATIONAL, L.P.,
a Delaware limited partnership
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS&CO. INTERNATIONAL, L.P.,
a Cayman Islands exempted limited partnership
By: FS International Holdings Limited
Its: General Partner
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
FS INTERNATIONAL HOLDINGS LIMITED,
a Cayman Islands exempted company limited by shares
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
VB INVESTMENT CORPORATION,
a Delaware corporation
By: /s/ William M. Wardlaw
William M. Wardlaw
Title: Vice President
/s/ Ronald P. Spogli
Ronald P. Spogli
/s/ John M. Roth
John M. Roth
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Between
VB INVESTMENT CORPORATION
and
LILLIAN VERNON CORPORATION
Dated as of June 13, 1995
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. . . . . . . . . . . . . . . . 1
SECTION 1.02. Effective Time; Closing . . . . . . . . . 1
SECTION 1.03. Effect of the Merger. . . . . . . . . . . 2
SECTION 1.04. Certificate of Incorporation; By-laws.. . 2
SECTION 1.05. Directors and Officers. . . . . . . . . . 2
SECTION 1.06. Conversion of Securities. . . . . . . . . 2
SECTION 1.07. Employee Stock Options and Other
Equity Awards . . . . . . . . . . . . 3
SECTION 1.08. Dissenting Shares . . . . . . . . . . . . 3
SECTION 1.09. Surrender of Shares; Stock Transfer Books 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.01. Organization and Qualification;
Subsidiaries 6
SECTION 2.02. Certificate of Incorporation and By-laws. 6
SECTION 2.03. Capitalization. . . . . . . . . . . . . . 6
SECTION 2.04. Authority Relative to This Agreement. . . 7
SECTION 2.05. No Conflict; Required Filings and
Consents 8
SECTION 2.06. Compliance. . . . . . . . . . . . . . . . 8
SECTION 2.07. SEC Filings; Financial Statements . . . . 9
SECTION 2.08. Absence of Certain Changes or Events. . . 9
SECTION 2.09. Employee Benefits.. . . . . . . . . . . . 10
SECTION 2.10. Absence of Litigation . . . . . . . . . . 13
SECTION 2.11. Proxy Statement . . . . . . . . . . . . . 13
SECTION 2.12. Vote Required . . . . . . . . . . . . . . 13
SECTION 2.13. Brokers . . . . . . . . . . . . . . . . . 13
SECTION 2.14. Intellectual Property Rights. . . . . . . 13
SECTION 2.15. Real Property . . . . . . . . . . . . . . 14
SECTION 2.16. Environmental Matters . . . . . . . . . . 15
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . 16
SECTION 2.18. Related Party Agreements. . . . . . . . . 18
SECTION 2.19. Labor Matters . . . . . . . . . . . . . . 18
SECTION 2.20. Contracts.. . . . . . . . . . . . . . . . 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
SECTION 3.01. Corporate Organization. . . . . . . . . . 20
SECTION 3.02. Authority Relative to This Agreement. . . 20
SECTION 3.03. No Conflict; Required Filings and
Consents 20
SECTION 3.04. Financing.. . . . . . . . . . . . . . . . 21
SECTION 3.05. Proxy Statement . . . . . . . . . . . . . 21
SECTION 3.06. Brokers . . . . . . . . . . . . . . . . . 21
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company
Pending the Merger . . . . . . . . . . . 22
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Stockholders' Meeting . . . . . . . . . . 24
SECTION 5.02. Proxy Statement . . . . . . . . . . . . . 25
SECTION 5.03. Financing . . . . . . . . . . . . . . . . 25
SECTION 5.04. Access to Information; Confidentiality. . 25
SECTION 5.05. Employee Benefits Matters.. . . . . . . . 26
SECTION 5.06. Directors' and Officers' Indemnification
and Insurance 26
SECTION 5.07. No Solicitation of Transactions.. . . . . 27
SECTION 5.08. Notification of Certain Matters . . . . . 28
SECTION 5.09. Further Action. . . . . . . . . . . . . . 28
SECTION 5.10. Public Announcements. . . . . . . . . . . 29
SECTION 5.11. Environmental Assessment. . . . . . . . . 30
SECTION 5.12. Termination Fees and Expenses . . . . . . 30
SECTION 5.13. Management Shares . . . . . . . . . . . . 31
SECTION 5.14. Employee Options. . . . . . . . . . . . . 31
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Each Party's Obligations. . 31
SECTION 6.02. Conditions to Obligations of Investor.. . 31
SECTION 6.03. Conditions to Obligations of the Company. 32
ARTICLE VII
TERMINATION
SECTION 7.01. Termination . . . . . . . . . . . . . . . 33
SECTION 7.02. Effect of Termination . . . . . . . . . . 34
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations,
Warranties and Agreements 34
SECTION 8.02. Expenses. . . . . . . . . . . . . . . . . 35
SECTION 8.03. Amendment . . . . . . . . . . . . . . . . 35
SECTION 8.04. Waiver. . . . . . . . . . . . . . . . . . 35
SECTION 8.05. Notices . . . . . . . . . . . . . . . . . 35
SECTION 8.06. Certain Definitions . . . . . . . . . . . 36
SECTION 8.07. Severability. . . . . . . . . . . . . . . 37
SECTION 8.08. Entire Agreement; Assignment. . . . . . . 37
SECTION 8.09. Parties in Interest . . . . . . . . . . . 37
SECTION 8.10. Specific Performance. . . . . . . . . . . 37
SECTION 8.11. Governing Law . . . . . . . . . . . . . . 38
SECTION 8.12. Headings. . . . . . . . . . . . . . . . . 38
SECTION 8.13. Counterparts. . . . . . . . . . . . . . . 38
Glossary of Defined Terms
Location of
Defined Term Definition
Acquisition Proposal . . . . . . . . . . . . . . . . Section 5.07
affiliate. . . . . . . . . . . . . . . . . . . . . . Section 8.06(a)
Agreement. . . . . . . . . . . . . . . . . . . . . . Preamble
Benefit Plans . . . . . . . . . . . . . . . . . . . Section 2.09(a)
Blue Sky Laws. . . . . . . . . . . . . . . . . . . . Section 2.05(b)
Board . . . . . . . . . . . . . . . . . . . . . . . Recitals
business day . . . . . . . . . . . . . . . . . . . . Section 8.05(b)
CERCLA . . . . . . . . . . . . . . . . . . . . . . . Section 2.16(b)
Certificate of Merger. . . . . . . . . . . . . . . . Section 1.02
Certificates . . . . . . . . . . . . . . . . . . . . Section 1.09(b)
Claim. . . . . . . . . . . . . . . . . . . . . . . . Section 5.09(c)
Closing. . . . . . . . . . . . . . . . . . . . . . . Section 1.02
Closing Date . . . . . . . . . . . . . . . . . . . . Section 1.02
Code . . . . . . . . . . . . . . . . . . . . . . . . Section 2.09(d)
Commitment Letter. . . . . . . . . . . . . . . . . . Recitals
Company. . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Common Stock . . . . . . . . . . . . . . . . Section 1.06(a)
Company Preferred Stock. . . . . . . . . . . . . . . Section 2.03
Confidentiality Agreement. . . . . . . . . . . . . . Section 5.04(b)
control. . . . . . . . . . . . . . . . . . . . . . . Section 8.06(c)
Costs and Expenses . . . . . . . . . . . . . . . . . Section 5.12(b)
Debt Financing . . . . . . . . . . . . . . . . . . . Section 3.04
Delaware Law . . . . . . . . . . . . . . . . . . . . Recitals
Directors Plan . . . . . . . . . . . . . . . . . . . Section 1.07
Disclosure Schedule. . . . . . . . . . . . . . . . . Section 2.05
Dissenting Shares. . . . . . . . . . . . . . . . . . Section 1.08(a)
Effective Time . . . . . . . . . . . . . . . . . . . Section 1.02
Environmental Laws . . . . . . . . . . . . . . . . . Section 2.16(f)
Environmental Permits. . . . . . . . . . . . . . . . Section 2.16(a)
ERISA. . . . . . . . . . . . . . . . . . . . . . . . Section 2.09
Exchange Act . . . . . . . . . . . . . . . . . . . . Section 2.07(a)
Financing. . . . . . . . . . . . . . . . . . . . . . Section 3.04
FS & Co. . . . . . . . . . . . . . . . . . . . . . . Section 5.12
Government Antitrust Authority . . . . . . . . . . . Section 5.08(b)
Group. . . . . . . . . . . . . . . . . . . . . . . . Section 7.01(f)
HSR Act. . . . . . . . . . . . . . . . . . . . . . . Section 2.05(b)
Hazardous Materials. . . . . . . . . . . . . . . . . Section 2.16
Indemnified Parties. . . . . . . . . . . . . . . . . Section 5.06(b)
Intellectual Property. . . . . . . . . . . . . . . . Section 2.14
Investor . . . . . . . . . . . . . . . . . . . . . . Preamble
Investor Equity Contribution . . . . . . . . . . . . Section 3.04
Leased Property. . . . . . . . . . . . . . . . . . . Section 2.15(b)
Leases . . . . . . . . . . . . . . . . . . . . . . . Section 2.15(b)
Material Adverse Effect. . . . . . . . . . . . . . . Section 2.01
Maximum Amount . . . . . . . . . . . . . . . . . . . Section 5.06(c)
Merger . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . Section 1.06(a)
Named Executives . . . . . . . . . . . . . . . . . . Section 2.09(e)
1987 Plan. . . . . . . . . . . . . . . . . . . . . . Section 1.07
Options. . . . . . . . . . . . . . . . . . . . . . . Section 1.07
Option Plans . . . . . . . . . . . . . . . . . . . . Section 1.07
Owned Real Property. . . . . . . . . . . . . . . . . Section 2.15(a)
Paying Agent . . . . . . . . . . . . . . . . . . . . Section 1.09(a)
Permitted Real Property Liens. . . . . . . . . . . . Section 2.15(a)
person . . . . . . . . . . . . . . . . . . . . . . . Section 8.06(d)
Proxy Statement. . . . . . . . . . . . . . . . . . . Section 2.11
Real Properties. . . . . . . . . . . . . . . . . . . Section 2.15(b)
Returns. . . . . . . . . . . . . . . . . . . . . . . Section 2.17(a)
Schedule 13E-3 . . . . . . . . . . . . . . . . . . . Section 2.11
SEC. . . . . . . . . . . . . . . . . . . . . . . . . Section 2.07(a)
SEC Reports. . . . . . . . . . . . . . . . . . . . . Section 2.07(a)
Securities Act . . . . . . . . . . . . . . . . . . . Section 2.07(a)
Shares . . . . . . . . . . . . . . . . . . . . . . . Section 1.06(a)
Sites. . . . . . . . . . . . . . . . . . . . . . . . Section 2.16(a)
Stockholders' Meeting. . . . . . . . . . . . . . . . Section 5.01(a)
Subsidiaries or Subsidiary . . . . . . . . . . . . . Section 8.06(e)
Surviving Corporation. . . . . . . . . . . . . . . . Section 1.01
Taxes. . . . . . . . . . . . . . . . . . . . . . . . Section 2.17(a)
AGREEMENT AND PLAN OF MERGER, dated as of June 13, 1995 (this
"Agreement"), between VB INVESTMENT CORPORATION, a Delaware corporation
("Investor"), and LILLIAN VERNON CORPORATION, a Delaware corporation (the
"Company").
WHEREAS, the Boards of Directors of Investor and the Company
have each approved the merger (the "Merger") of Investor with and into the
Company in accordance with the General Corporation Law of the State of Delaware
("Delaware Law") upon the terms and subject to the conditions set forth herein;
WHEREAS, the Boards of Directors of Investor and the Company
have approved the obtaining of financing by the Company pursuant to the terms of
the letter from Merrill Lynch Capital Corporation to Investor, dated June 13,
1995 (the "Commitment Letter"); and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Merger is fair to, and in the best interests of, the
stockholders of the Company and has resolved and agreed to adopt this Agreement
and the transactions contemplated hereby and to recommend approval of the Merger
and approval and adoption of this Agreement by such stockholders;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Investor and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VI, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined) Investor shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Investor shall cease and the Company shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").
SECTION 1.02. Effective Time; Closing. As promptly as
practicable, but in any event no more than five business days, after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by, and executed in accordance with the relevant provisions of,
Delaware Law (the date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware being the "Effective Time").
Immediately prior to the filing referred to in this Section 1.02, a closing
shall be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New
York, New York, or such other place as the parties shall agree, for the purpose
of confirming all of the foregoing (the "Closing"; the date of the Closing being
the "Closing Date").
SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Investor shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Investor shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-laws. (a)
Unless otherwise determined by Investor prior to the Effective Time, at the
Effective Time the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
(b) Unless otherwise determined by Investor prior to the
Effective Time, the By-laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
SECTION 1.05. Directors and Officers. The directors of
Investor immediately prior to the Effective Time, together with the Chairman of
the Company, 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 the Company 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.
SECTION 1.06. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Investor, the
Company or the holders of any of the following securities:
(a) each share of Common Stock, par value $.01 per share, of
the Company ("Common Stock") (shares of Common Stock being hereinafter
collectively referred to as "Shares" and individually as a "Share") issued and
outstanding immediately prior to the Effective Time (other than any Shares to be
cancelled pursuant to Section 1.06(b), each Share to remain outstanding under
Section 1.06(c) and any Dissenting Shares (as defined in Section 1.08(a)) shall
be cancelled and shall be converted automatically into the right to receive an
amount equal to $19.00 in cash (the "Merger Consideration") payable to the
holder thereof, without interest, upon surrender of the certificate formerly
representing such Share in the manner provided in Section 1.09;
(b) each Share held in the treasury of the Company and each
Share owned by Investor or the Company immediately prior to the Effective Time
shall be cancelled without any conversion thereof and no payment or distribution
shall be made with respect thereto;
(c) 657,895 Shares and 394,737 Shares registered in the
names of Lillian Vernon and David Hochberg, respectively, shall not be cancelled
as provided above but shall remain outstanding; and
(d) a number of shares of common stock, par value $.01 per
share, of Investor equal to the quotient of (i) the Investor Equity Contribution
and (ii) $19.00 shall be converted into and exchanged for the same number of
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.01 per share, of the Surviving Corporation.
SECTION 1.07. Employee Stock Options and Other Equity Awards.
Except as may otherwise be agreed by Investor and any holder of any outstanding
employee or director options to purchase Company Common Stock, including any
related tandem stock appreciation right ("Options"), granted under the Company's
1987 Performance Unit, Restricted Stock, Nonqualified Option and Incentive Stock
Option Plan (the "1987 Plan") and 1993 Stock Option Plan for Non-Employee
Directors (the "Directors Plan" and, together with the 1987 Plan, the "Option
Plans"), each of such holder's Options under the Directors Plan, whether or not
vested, shall be cancelled without further action required on the part of the
holder of such Option, and each of such holder's Options under the 1987 Plan,
upon the consent of such holder, whether or not vested, shall be cancelled, for
the right to receive at the Effective Time an amount in cash equal to the
product of (i) the excess of the Merger Consideration over the exercise price
per share of such Option, and (ii) the number of shares of Common Stock subject
to such Option.
SECTION 1.08. Dissenting Shares. (a) Notwithstanding any
provision of this Agreement to the contrary, Shares that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such Shares in
accordance with Section 262 of Delaware Law (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders shall be entitled to receive payment of
the appraised value of such Shares held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their right to appraisal of such Shares under such Section 262
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 1.09, of the certificate or certificates that formerly
evidenced such Shares.
(b) The Company shall give Investor (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to Delaware Law and received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Delaware Law. The Company shall not,
except with the prior written consent of Investor, make any payment with respect
to any demands for appraisal or offer to settle or settle any such demands.
SECTION 1.09. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Investor shall designate a bank or trust company to
act as agent for the holders of Shares in connection with the Merger (the
"Paying Agent") to receive the funds to which holders of Shares shall become
entitled pursuant to Section 1.06(a). At the Effective Time, Investor will make
available to the Paying Agent sufficient funds, together with funds to be
provided by the Company pursuant to the Commitment Letter, to pay the Merger
Consideration in respect of all Shares (other than any Shares to be cancelled
pursuant to Section 1.06(b), each Share to remain outstanding under Section
1.06(c) and any Dissenting Shares). Such funds shall be invested by the Paying
Agent as directed by the Surviving Corporation, provided that such investments
shall be in obligations of or guaranteed by the United States of America or of
any agency thereof and backed by the full faith and credit of the United States
of America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in deposit accounts, certificates of deposit or banker's acceptances of,
repurchase or reverse repurchase agreements with, or Eurodollar time deposits
purchased from, commercial banks with capital, surplus and undivided profits
aggregating in excess of $500 million (based on the most recent financial
statements of such bank which are then publicly available at the SEC or
otherwise).
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which 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 Merger Consideration therefor.
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 such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly evidenced
by such Certificate, and such Certificate shall then be cancelled. No interest
shall accrue or be paid on the Merger Consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. The
right to receive the Merger Consideration shall be subject to and reduced by the
amount of any required tax withholding obligation.
(c) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat and other similar laws) only as general creditors thereof with respect
to any Merger Consideration payable upon due surrender of the Certificates held
by them. Notwithstanding the foregoing, neither the Surviving Corporation nor
the Paying Agent shall be liable to any holder of a Share for any Merger
Consideration delivered in respect of such Share to a public official pursuant
to any abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective
Time, the stock transfer books of the Company shall be closed and thereafter
there shall be no further registration of transfers of Shares on the records of
the Company (other than with respect to Shares to be outstanding after the
Effective Time under Section 1.06(c) or 1.06(d)). From and after the Effective
Time, the holders of Shares (other than with respect to Shares to remain
outstanding under Section 1.06(c) or 1.06(d)) outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares
except as otherwise provided herein or by applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor that:
SECTION 2.01. Organization and Qualification; Subsidiaries.
Each of the Company and each Subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted. Each of the Company and its Subsidiaries has all necessary
licenses, permits, authorizations and governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such licenses, permits and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below). The Company and each Subsidiary is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company or any
Subsidiary, the term "Material Adverse Effect" means any change in or effect on
the Company and its Subsidiaries that is materially adverse to the financial
condition, operations, business, results of operations or assets of the Company
and its Subsidiaries taken as a whole. All of the Company's Subsidiaries are
set forth on Schedule 2.01. Each Subsidiary is wholly owned by the Company.
SECTION 2.02. Certificate of Incorporation and By-laws. The
Company has heretofore furnished to Investor a complete and correct copy of the
Certificate of Incorporation and the By-laws of the Company and each of the
Subsidiaries, in each case, as amended through the date hereof. Such
Certificates of Incorporation and By-laws are in full force and effect. None of
the Company and its Subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or By-laws.
SECTION 2.03. Capitalization. The authorized capital stock of
the Company consists of 20,000,000 Shares and 2,000,000 shares of Preferred
Stock, par value $.01 per share ("Company Preferred Stock"). As of the date
hereof, (i) 9,931,187 Shares are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, of which 224,349
Shares are held in the treasury of the Company, and (ii) 1,023,500 Shares are
reserved for future issuance pursuant to stock options granted pursuant to the
Company's Option Plans. As of the date hereof, no shares of Company Preferred
Stock are issued and outstanding. Except as set forth on Schedule 2.03, there
are no options, warrants or rights of conversion, preemptive rights, or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any Subsidiary or obligating
the Company or any Subsidiary to issue or sell any shares of capital stock of,
or other equity interests in, the Company or any Subsidiary. All Shares subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares or any capital stock of any Subsidiary or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary or any other person. Each
outstanding share of capital stock of each Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and each such share owned by the
Company or another Subsidiary is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements and
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 2.04. Authority Relative to This Agreement. (a) The
Company has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Merger. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the Merger have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Merger (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the then
outstanding Shares and the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Investor, constitutes the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
(b) The Company hereby represents that (i) the Board, at a
meeting duly called and held on June 13, 1995, at which three members of the
Board did not vote, (A) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to and in the best interests
of the stockholders of the Company, (B) approved and adopted this Agreement and
the Merger and (C) recommended that the stockholders of the Company approve and
adopt this Agreement and the Merger (provided that such recommendation may only
be withdrawn if the Board determines in good faith after consultation with
independent counsel that such action is required for the Board to comply with
its fiduciary duties to stockholders imposed by Delaware Law), and (ii) Goldman,
Sachs & Co. has delivered to the Board an oral opinion that the consideration to
be received by the holders of Shares pursuant to the Merger is fair to the
holders of Shares from a financial point of view.
SECTION 2.05. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or By-laws or equivalent organizational
documents of the Company or any Subsidiary, (ii) assuming that all consents,
approvals, authorizations and other actions described in subsection (b) have
been obtained and all filings and obligations described in subsection (b) have
been made, conflict with or violate any law, rule, regulation, order, judgment
or decree applicable to the Company or any Subsidiary or by which any property
or asset of the Company or any Subsidiary is bound or affected, or (iii) except
as disclosed in Section 2.05 of the Disclosure Schedule, require any consent
under, result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of the
Company or any Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults, or other occurrences which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any third party or governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and state
takeover laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), or (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent the
Company from performing its obligations under this Agreement, and would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.06. Compliance. Neither the Company nor any
Subsidiary is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound or
affected, except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.07. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the Securities and Exchange Commission (the "SEC") since February 23, 1992
(collectively, the "SEC Reports"). The SEC Reports (i) were prepared in
accordance and complied with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934 (the
"Exchange Act"), as the case may be, (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading, and (iii) were filed in a timely manner. No Subsidiary was or is
required to file any form, report or other document with the SEC.
(b) Each of the Company's consolidated financial statements
(including, in each case, the Company's consolidated balance sheets and
statements of income, stockholders' equity and cash flows and any notes and
schedules thereto) contained in the SEC Reports (i) was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto) and each fairly presented the consolidated financial position
of the Company and the consolidated Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein except as otherwise
noted therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to have a Material Adverse Effect), and (ii) was based on
and prepared in accordance with the books and records of the Company and its
Subsidiaries, which books and records were accurately maintained in all material
respects.
SECTION 2.08. Absence of Certain Changes or Events. Since
February 25, 1995, except as contemplated by this Agreement, disclosed in any
SEC Report filed since February 25, 1995 to the date of this Agreement, or as
described on Schedule 2.08, the Company and its Subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent with
past practice and, since such date, there has not been (i) any Material Adverse
Effect, without regard, however, to changes generally applicable to the
industries in which the Company and its Subsidiaries are involved or general
economic conditions, (ii) any change in accounting methods, principles,
practices, policies or procedures affecting any of the Company's consolidated
assets, liabilities, results of operations or business or any increase or change
in any assumptions underlying, or methods of calculating, any bad debt,
contingency or other reserves, except for changes required by United States
generally accepted accounting principles, (iii) any declaration, setting aside
or payment of any dividend or distribution, whether in cash, stock, property or
otherwise, with respect to any of its capital stock, or any redemption, purchase
or other acquisition of any of its securities other than regular quarterly
dividends on the Shares of $.07 per Share, (iv) except as set forth on Schedule
2.08, any increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any directors, officers or
employees of the Company or any Subsidiary, except in the ordinary course of
business consistent with past practice or any grant of severance or termination
pay to, or entering into any employment, consulting or severance agreement with
any present or former director, officer or other employee of the Company or any
of its Subsidiaries, (v) any amendment to the Company's or any Subsidiaries'
Certificate of Incorporation or By-laws, (vi) any reclassification, combination,
split, subdivision or redemption, purchase or other acquisition, directly or
indirectly, by the Company or any Subsidiary of any of the Company's or any of
its Subsidiaries' capital stock (other than in connection with the Option
Plans), (vii) any acquisition (whether by merger, consolidation, acquisition of
stock or assets or otherwise) of any corporation, partnership or other business
organization or division thereof, (viii) any agreement or transaction or any
amendment, modification, cancellation or termination thereof involving the
Company or any of its Subsidiaries that (A) involved consideration in excess of
$500,000 (other than inventory acquisitions and dispositions, paper purchase
contracts or contracts for the printing of catalogs in the ordinary course of
business consistent with prior practice, in each case for a term of less than
180 days); or (B) involved the sale or acquisition or lease of any material
assets, (ix) any cancellation of indebtedness or obligation owed to the Company
or any of its Subsidiaries, or settlement or compromise of any claims thereof,
in an aggregate amount, or having an aggregate value, greater than $500,000, or
waiver of any rights of similar value to the Company or any of its Subsidiaries
relating to any of their respective business activities or properties, (x) any
capital expenditure in excess of $250,000, except in accordance with the
Company's capital expenditure budget for the fiscal year ending February 23,
1996, a copy of which is attached as Schedule 4.01, (xi) any material
revaluation of any assets, including, without limitation, any write-offs of
material notes, material increases in any reserves or any material write-up of
the value of inventory, property, plant, equipment or any other asset, (xii) any
damage, destruction or loss (whether or not covered by insurance) affecting any
office or warehouse involved in the Company's business or any other asset of the
Company and resulting in a loss in excess of $500,000, or (xiii) any plan,
commitment to, or any agreement to do, or take any action in preparation for,
any of the foregoing.
SECTION 2.09. Employee Benefits. For purposes of this Section
2.09, the term "Company" shall include its Subsidiaries. No breach of the
following provisions of this Section 2.09 shall be considered to exist (i) if it
is set forth in Schedule 2.09, or (ii) unless it, when considered together with
all other breaches of this Section 2.09, shall have a Material Adverse Effect.
(a) Schedule 2.09 sets forth a true and complete list of:
(i) All employee benefit plans, as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA");
and
(ii) All other profit-sharing, deferred compensation,
bonus, stock option, stock purchase, stock bonus, vacation pay, holiday pay,
severance, dependent care assistance, excess benefit, incentive, salary
continuation, and other compensation arrangements (including employment and
consulting agreements)
maintained or contributed to by the Company for the benefit of its employees (or
former employees) and/or their beneficiaries. Both of these types of plans
shall be collectively referred to as "Benefit Plans." An arrangement will not
fail to be a "Benefit Plan" simply because it only covers one individual.
(b) The Company has delivered to Investor a true and
complete copy of:
(i) Each Benefit Plan and any related funding
agreements, as well as all amendments thereto;
(ii) The current draft of the Summary Plan
Description of each Benefit Plan (if applicable);
(iii) The most recent Internal Revenue Service
determination letter (if applicable) for each Benefit Plan, which determination
letter reflects all amendments that have been made to the plan; and
(iv) The actuarial report and/or financial statement
for the most recently completed plan year of the Benefit Plan for which the
Company has had an actuarial report and/or a financial statement prepared.
(c) With respect to each Benefit Plan that is subject to
Title IV of ERISA, the value, determined on a termination basis using the
actuarial assumptions stated in the plan, of all accrued and ancillary benefits
(whether or not vested) under each such plan did not exceed, as of the most
recent valuation date, and will not exceed as of the Closing Date, the then
current fair market value of the assets of the plan.
(d) Each Benefit Plan complies currently, and has complied
in the past, in form and operation, with all applicable law, such as ERISA and
the Code (including Section 4980B thereof). Each Benefit Plan has been operated
in accordance with its terms. Furthermore, the Internal Revenue Service has
issued a favorable determination letter with respect to each Benefit Plan that
is intended to qualify under Section 401(a) of the Code, and no event has
occurred before or after the date of the letter that would disqualify the plan.
(e) Other than payments that may be made to the persons
listed on Schedule 2.09 ("Named Executives"), no amount that could be received
(whether in the form of cash, property, or the vesting of an interest in
property) as a result of any of the transactions contemplated by this Agreement
by any person who is a "disqualified individual" (as defined in Section 280G(c)
of the Code) under any agreement, would be characterized as an "excess parachute
payment" (as is defined in Section 280G(b)(1) of the Code). Set forth in
Schedule 2.09 is (i) the maximum amount that could be paid to each Named
Executive as a result of the transactions contemplated by this Agreement and
(ii) the "base amount" (as such term is defined in Section 280G(b)(3) of the
Code) for each Named Executive calculated as of the date of this Agreement.
(f) The Company does not maintain any plan that provides (or
will provide) medical or death benefits to one or more former employees
(including retirees), other than benefits that are required to be provided
pursuant to Section 4980B of the Code or state law continuation coverage rights.
(g) There are no investigations, proceedings, or lawsuits,
either currently in progress or expected to be instituted in the future,
relating to any Benefit Plan, by any administrative agency, whether local,
state, or federal.
(h) There are no lawsuits or other claims, pending or
threatened (other than routine claims for benefits under the plan) against or
involving (i) any Benefit Plan, or (ii) any Fiduciary of such plan (within the
meaning of Section 3(21)(A) of ERISA) brought on behalf of any participant,
beneficiary, or Fiduciary thereunder, nor is there any reasonable basis for any
such claim.
(i) The Company has no intention or commitment, whether
legally binding or not, to create any additional Benefit Plan, or to modify or
change any existing Benefit Plan. The benefits under all Benefit Plans are as
represented, and have not been, and will not be increased subsequent to the date
documents are provided to Buyer. The Company does not participate in any
Multiemployer plans (as defined in ERISA).
(j) None of the persons performing services for the Company
have been improperly classified as independent contractors or as being exempt
from the payment of wages for overtime.
SECTION 2.10. Absence of Litigation. Except as disclosed in
the SEC Reports filed on or before the date hereof and in Schedule 2.10, there
are no suits, arbitrations, mediations, complaints, claims, actions, proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary, or any properties or rights of the
Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that (i)
individually or in the aggregate, would have a Material Adverse Effect or (ii)
seek to delay or prevent the consummation of the Merger. As of the date hereof,
neither the Company nor any Subsidiary nor any of their properties is subject to
any order, writ, judgment, injunction, decree, determination or award having a
Material Adverse Effect.
SECTION 2.11. Proxy Statement. Neither the proxy statement to
be sent to the stockholders of the Company in connection with the Stockholders'
Meeting (such proxy statement, as amended or supplemented, being referred to
herein as the "Proxy Statement"), nor the transaction statement on Schedule 13E-
3 to be filed with the SEC (such transaction statement, as amended or
supplemented, being referred to herein as the "Schedule 13E-3") shall, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders of the Company or the Schedule 13E-3 (or any
amendment thereof) is filed with the SEC, at the time of the Stockholders'
Meeting and at the Effective Time, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. The Proxy Statement and the Schedule 13E-3 shall comply in all
material respects as to form and content with the requirements of the Exchange
Act and the rules and regulations thereunder.
SECTION 2.12. Vote Required. The affirmative vote of the
holders of a majority of the outstanding Shares is the only vote of the holders
of any class or series of capital stock of the Company necessary to approve this
Agreement and the Merger.
SECTION 2.13. Brokers. No broker, finder or investment banker
(other than Goldman, Sachs & Co.) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of the Company. The Company has heretofore furnished to
Investor a complete and correct copy of all agreements between the Company and
Goldman, Sachs & Co. pursuant to which such firm would be entitled to any
payment relating to the Merger.
SECTION 2.14. Intellectual Property Rights. Schedule 2.14
contains a complete and accurate list of all material trade names, trademarks,
brand names, trade secrets, service marks, patents, copyrights and other
proprietary intellectual property (collectively, the "Intellectual Property"),
including all contracts, agreements and licenses relating thereto, owned or used
by the Company or any Subsidiary, or in which any of them has any rights. No
proceedings have been instituted against or notices received by the Company or
any Subsidiary that are currently unresolved alleging that the Company or any
Subsidiary has infringed or is now infringing on any Intellectual Property
belonging to any other person, firm or corporation, except such infringements
which in the aggregate would not have a Material Adverse Effect. The Company
and the Subsidiaries own or hold adequate licenses or other rights to use all
Intellectual Property necessary for them to conduct their respective businesses
as they are being conducted, except for such title, license or use imperfections
which, in the aggregate, would not have a Material Adverse Effect. Except as
disclosed on Schedule 2.14, none of the Company or any of its Subsidiaries has
granted any licenses with respect to any of their respective Intellectual
Property. None of the Company or any of its Subsidiaries has received any
notice, nor does the Company know of, any conflict or claimed conflict with
respect to the rights of others to the use of their corporate name or any of
their Intellectual Property, except such conflicts or claimed conflicts which,
in the aggregate, would not have a Material Adverse Effect.
SECTION 2.15. Real Property. (a) Owned Real Property.
Schedule 2.15 attached hereto contains a complete and accurate list of all real
property owned in whole or in part by the Company or its Subsidiaries ("Owned
Real Property") and includes the name of the record title holder thereof and a
list of all indebtedness secured by a lien, mortgage or deed of trust thereon.
The Company or its Subsidiaries has good, valid, marketable and insurable title
in fee simple to all the Owned Real Property, free and clear of all
encumbrances, liens, charges or other restrictions of any kind or character,
except for Permitted Real Property Liens. For purposes of this Agreement, the
term "Permitted Real Property Liens" shall mean (i) liens reflected in Schedule
2.15, (ii) liens consisting of zoning or planning restrictions, easements, and
other customary restrictions or limitations on the use of real property or other
liens, changes or encumbrances which do not materially detract from the value
of, or impair the use of, such property by the Company or its Subsidiaries in
the operation of the business, or (iii) liens for current taxes, assessments or
governmental charges or levies on property not yet due and payable.
(b) Leased Real Property. Schedule 2.15 attached hereto
sets forth a list, copies of which have been delivered to Investor, of (i) all
leases and subleases under which the Company or its Subsidiaries is the lessor,
lessee or occupant of any real property, together with all amendments,
supplements, nondisturbance agreements and other agreements pertaining thereto
(the "Leased Property", and together with the Owned Real Property, the "Real
Properties"); (ii) all material options held by the Company or its Subsidiaries
or contractual obligations on the part of the Company or its Subsidiaries to
purchase or acquire any interest in real property; and (iii) all options granted
by the Company or its Subsidiaries or contractual obligations on the part of the
Company or its Subsidiaries to sell or dispose of any interest in real property.
The Company or its Subsidiaries has good, valid, marketable and insurable
leasehold title to all such Leased Property, free and clear of all encumbrances,
liens, charges or other restrictions of any kind or character, except for
Permitted Real Property Liens. Each lease, sublease or other agreement
(collectively, the "Leases") set forth in Schedule 2.15 (or required to be set
forth in Schedule 2.15) is in full force and effect; and except as set forth on
Schedule 2.15, there exists no event of default or event, occurrence, condition
or act (including the transactions contemplated hereby) which, with the giving
of notice, the lapse of time or the happening of any further event or condition,
would become a default under such Lease other than defaults which would not, in
the aggregate, have a Material Adverse Effect.
SECTION 2.16. Environmental Matters. (a) Except as disclosed
in Schedule 2.16 and except as would not, individually or in the aggregate, have
a Material Adverse Effect, (i) the Company and each Subsidiary is in compliance
with all, and has no liability under any Environmental Laws, (ii) the Company
and each Subsidiary holds all the permits, licenses and approvals of
governmental authorities and agencies necessary for the current use, occupancy
or operation of the Business under Environmental Laws ("Environmental Permits"),
(iii) the Company is in compliance with all its Environmental Permits, (iv) each
of the Real Properties and each site previously owned, leased or operated by the
Company or any of its Subsidiaries (collectively, the "Sites") is in compliance
with all Environmental Laws, (v) no spill, release, discharge or disposal of
Hazardous Materials has occurred at, on, under or about any Site, and (vi) none
of the Company or any of its Subsidiaries has received notice that the Company,
its Subsidiaries or any Site has been alleged to be in violation of any
Environmental Law.
(b) Except as disclosed in Schedule 2.16, none of the
Company or any of its Subsidiaries has received any written request for
information, or been notified that it is a potentially responsible party, under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any other Environmental Law with respect to any
Owned Real Property, Leased Real Property or any other location.
(c) Except as disclosed in Schedule 2.16, none of the
Company or any of its Subsidiaries has entered into or agreed to any consent
decree or order and is not subject to any judgment, decree or judicial order
relating to compliance with or the cleanup of Hazardous Materials under any
applicable Environmental Law or Environmental Permit.
(d) Except as disclosed in Schedule 2.16, none of the Owned
Real Property, Leased Real Property or Sites is listed or, to the knowledge of
the Company or any of its Subsidiaries, proposed for listing on the "National
Priorities List" under CERCLA, or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the United States
Environmental Protection Agency, as updated through the date hereof, or any
similar state list of sites requiring investigation or cleanup.
(e) Schedule 2.16 discloses all information relating to the
following items: (i) all environmental audits or other studies or reports
prepared by third parties to assess Hazardous Material risks at any Site or
relating to the business of the Company or any of its Subsidiaries, and (ii) all
communications and agreements with any governmental authority or agency
(federal, state or local), or any private entity or individual, relating in any
way to the presence, release, threat of release, placement at, on, under or
about any Site, or the use, manufacture, handling, generation, storage,
treatment, discharge, burial or disposal at, on, under or about any Site, or the
transportation to or from any Site, of any Hazardous Materials.
(f) The matters disclosed on Schedule 2.16 do not
individually, or in the aggregate, have a Material Adverse Effect.
For purposes of this Section 2.16, "Hazardous Materials" shall
mean asbestos, petroleum products, underground tanks of any type and all other
materials now or hereafter defined as "hazardous substances", "hazardous
wastes", "toxic substances" or "solid wastes", or otherwise now or hereafter
listed or regulated pursuant to (collectively, the "Environmental Laws"): the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., and any amendments thereto; the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and any
amendments thereto; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq.; and any other similar federal, state or local statute,
regulation, ordinance, order, decree, or any other law, common law theory or
reported decision of any state or federal court, as now or at any time hereafter
in effect, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material.
(g) Investor acknowledges that the representations and
warranties contained in this Section 2.16 are the only representations and
warranties being made with respect to compliance with or liability under
Environmental Laws or with respect to Environmental Permits, and no other
representation contained in this Agreement shall apply to any such matters and
no other representation or warranty, express or implied, is being made with
respect thereto.
SECTION 2.17. Taxes. Except for such items as would not result
in a Material Adverse Effect, and except for such items as are set forth on
Schedule 2.17:
(a) the Company has timely filed or been included in, or
will timely file or be included in, all returns, reports and forms ("Returns")
required to be filed by it before the Closing Date or in which it is required to
be included before the Closing Date with respect to all federal, state, local,
foreign and other net income, gross income, estimated, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service,
withholding, value added, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, commercial rent or withholding,
unemployment insurance, social security, workers' compensation, customs duties
or other taxes, fees, assessments, duties or governmental charges of any kind
whatever, together with any interest and any penalties, additions to tax or
additional amounts payable with respect thereto (collectively, "Taxes") for any
period ending on or before the Closing Date, taking into account any extension
of time to file granted to or obtained by or on behalf of the Company;
(b) all Taxes due and owing by the Company (whether or not
shown on any Return) for the period through February 25, 1995 have been paid or
are shown as taxes payable on the February 25, 1995 financial statements, and
any Taxes that become due and owing by the Company after February 25, 1995 and
before the Closing Date (whether or not shown on any Return) will be incurred in
the ordinary course of business in a manner consistent with past practice;
(c) the Company has withheld and paid all Taxes required to
be withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, shareholder or other third party;
(d) there are no liens on any of the assets of the Company
as a result of any Tax liabilities except for Taxes not yet due and payable;
(e) to the best of the knowledge of the Company and its
employees, no Tax deficiency of any kind has been claimed, proposed, assessed
against or relating to the Company or on any of its assets with respect to any
taxable period ending on or before the Closing Date; the Company is not a party
to any action or proceeding by any governmental authority for the assessment or
collection of Taxes nor has any such event been asserted or threatened against
or discussed with the Company by any taxing authority;
(f) all Tax deficiencies determined as a result of any past
completed audit have been satisfied;
(g) the Company has delivered to Investor complete and
correct copies of all federal, state, local and foreign income or franchise
Returns filed by the Company for the three most recent taxable years for which
such Returns have been filed immediately preceding the date of this Agreement;
(h) the Company has delivered to Investor complete and
correct copies of all audit reports and statements of deficiencies with respect
to any Tax assessed against or agreed to by the Company for the three most
recent taxable periods for which such audit reports and statements of
deficiencies have been received by the Company;
(i) the Company is not presently under audit, examination or
investigation by any federal, state, local or foreign taxing authority and there
are no pending or (to the best of the knowledge of the Company and its
employees) threatened audits, examinations, investigations or claims relating to
the Company for or with respect to any Taxes;
(j) the Company (i) has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f) of the Code (or any similar
provision of state or other tax law) or agreed at any time to apply section
341(f)(2) of the Code (or any similar foreign tax provision) to any disposition
of its assets, (ii) other than is reflected in a Return described in clause (g)
above, has not agreed, or is not required under section 481(a) of the Code (or
any similar state or other tax provision), to make any adjustment by reason of a
change in accounting method or otherwise;
(k) the Company is not a party to or bound by any tax
sharing, tax indemnity or tax allocation agreement or other similar arrangement;
(l) other than with respect to employment agreements or
other arrangements that have already been made known to Investor, the Company
has not made any payments, is not obligated to make any payments or is not a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under section 280G of the Code;
(m) other than with respect to such matters as have already
been made known to Investor, the Company is not subject to any joint venture,
partnership or other arrangement or contract which could be treated as a
partnership for Tax purposes;
(n) other than with respect to Taxes shown on Returns
described in clause (g) above, the Company is not subject to any Tax imposed on
net income in any jurisdiction or by any taxing authority; and
(o) the Company has not executed or entered into any closing
agreement pursuant to section 7121 of the Code, or any predecessor provision
thereof or any similar provision of state or other law.
SECTION 2.18. Related Party Agreements. Except as set forth in
the SEC Reports filed on or before the date hereof, there are no contracts,
agreements or understandings by and between or among the Company and its
Subsidiaries and any of their respective stockholders, directors or officers.
SECTION 2.19. Labor Matters. There are no activities or
proceedings of any labor union (or representatives thereof) to organize any
employees employed by the Company or any of the Subsidiaries, nor any strikes,
slowdowns, work stoppages, lockouts or, to the Company's knowledge, threats
thereof, by or with respect to any of the employees of the Company or any of the
Subsidiaries. Except as set forth on Schedule 2.19, there are no claims that
the Company or any of its Subsidiaries has not complied in any respect with any
laws relating to the employment of labor including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar taxes, equal employment opportunity, employment
discrimination or employment safety, except such claims which, in the aggregate,
would not have a Material Adverse Effect.
SECTION 2.20. Contracts. Schedule 2.20 lists, as of the date
hereof (excluding leases, subleases and amendments thereto set forth on Schedule
2.15 and benefit plans and other contracts set forth on Schedule 2.09) (i) all
contracts, agreements and commitments whether or not fully performed pursuant to
which the Company or any of its Subsidiaries has since February 25, 1995
acquired or disposed of any material portion of its assets; (ii) all agreements
containing covenants not to compete on the part of the Company or any of its
Subsidiaries or otherwise materially restricting the ability of the Company to
engage in business; (iii) all joint venture or partnership agreements to which
the Company or any of its Subsidiaries is a party; (iv) all agreements with
brokers, representatives, dealers or trading companies in connection with the
purchase of in excess of $500,000 of the Company's or any Subsidiary's products;
(v) all other contracts, agreements or arrangements (other than inventory
acquisitions, contracts for the purchase of paper or contracts for the printing
of catalogs entered into in the ordinary course of business consistent with past
practice, in each case with a term of less than 180 days) involving estimated
future payments in excess of $500,000 by the Company or any of its Subsidiaries
per year that may not be cancelled upon 90 or fewer days' notice without any
liability on the part of the Company; and (vi) all agreements of the Company or
any of its Subsidiaries with respect to indebtedness or financial obligations
(contingent or otherwise) in excess of $500,000. The items required to be
listed in Schedule 2.20 together with (i) all contracts for the purchase of
paper or contracts for the printing of catalogs with terms of more than 180 days
and (ii) and each other agreement that is material to the conduct of the
business of the Company and its Subsidiaries taken as a whole are hereinafter
referred to as the "Contracts." With respect to each Contract and except as set
forth in Schedule 2.20: (i) such Contract is valid, binding and enforceable
against the Company in accordance with its terms; and (ii) there does not exist,
as of the date hereof, any event that, with the giving of notice or the lapse of
time or both, would constitute on the part of the Company a breach of or a
default under such Contract, and the Company has not received or been given
notice of any such breach or default, except for such breaches or default which
would not, in the aggregate, have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to the Company that:
SECTION 3.01. Corporate Organization. Investor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, prevent or materially delay consummation of the Merger, or otherwise
prevent or materially delay Investor from performing its material obligations
under this Agreement.
SECTION 3.02. Authority Relative to This Agreement. Investor
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the Merger.
The execution, delivery and performance of this Agreement by Investor and the
consummation by Investor of the Merger have been duly and validly authorized by
all necessary corporate action on the part of Investor other than the filing and
recordation of appropriate merger documents as required by Delaware Law. This
Agreement has been duly and validly executed and delivered by Investor and,
assuming the due authorization, execution and delivery by the Company,
constitutes legal, valid and binding obligations of Investor enforceable against
Investor in accordance with its terms.
SECTION 3.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Investor do not, and the
performance of this Agreement by Investor will not, (i) conflict with or violate
the Certificate of Incorporation or By-laws of Investor, (ii) assuming that all
consents, approvals, authorizations and other actions described in subsection
(b) have been obtained and all filings and notifications described in subsection
(b) have been made, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Investor or by which any property or asset of
either of them is bound or affected, or (iii) require any consent under, result
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Investor
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Investor
is a party or by which Investor or any property or asset of Inventory is bound
or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, prevent or materially delay consummation of
the Merger, or otherwise prevent or materially delay Investor from performing
its material obligations under this Agreement.
(b) The execution and delivery of this Agreement by Investor
do not, and the performance of this Agreement by Investor will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and
state takeover laws, the HSR Act and filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay consummation of the Merger,
or otherwise prevent or materially delay Investor from performing its material
obligations under this Agreement.
SECTION 3.04. Financing. Investor has furnished the Company
with the Commitment Letter with respect to which up to $110 million of bank term
credit and $23 million pursuant to a revolving credit facility may be drawn at
Closing (the "Debt Financing"). The Debt Financing, together with a cash equity
contribution by Investor of not less than $52 million (the "Investor Equity
Contribution") will provide all funds necessary to pay the Merger Consideration
in respect of all Shares (other than Shares to be cancelled pursuant to Section
1.06(b) and each Share to remain outstanding under Section 1.06(c)), and pay all
related fees and expenses in connection with this Agreement.
SECTION 3.05. Proxy Statement. The information supplied by
Investor for inclusion in the Proxy Statement and the Schedule 13E-3 will not,
on the date the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to stockholders of the Company or the Schedule 13E-3 (or any
amendment thereof) is filed with the SEC, at the time of the Stockholders'
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which shall have become false or misleading.
SECTION 3.06. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of Investor.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company Pending the
Merger. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, except as otherwise expressly provided in this
Agreement or unless Investor shall otherwise agree in writing, the businesses of
the Company and its Subsidiaries shall be conducted only in, and the Company and
its Subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use its reasonable best efforts to preserve substantially intact the business
organization of the Company and its Subsidiaries, to keep available the services
of the current officers, employees and consultants of the Company and its
Subsidiaries and to preserve the current relationships of the Company and its
Subsidiaries with customers, suppliers and other persons with which the Company
or any Subsidiary has significant business relations. By way of amplification
and not limitation, neither the Company nor any of its Subsidiaries shall,
between the date of this Agreement and the Effective Time, except as otherwise
expressly provided in this Agreement or as previously disclosed in the SEC
Reports or by the Company to Investor, directly or indirectly do, or propose or
commit to do, any of the following without the prior written consent of
Investor:
(a) amend or otherwise change its Certificate of
Incorporation or By-laws, as amended, or equivalent organizational documents;
(b) issue, sell, pledge, dispose of or encumber, or
authorize the issuance, sale, pledge, disposition or encumbrance of, (A) any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest, of the Company or any of its Subsidiaries
(except for the issuance of a maximum of 1,023,500 shares of Company Common
Stock issuable in accordance with the terms of employee stock options
outstanding on the date hereof) or (B) any assets of the Company or any of its
Subsidiaries, except in the ordinary course of business and in a manner
consistent with past practice;
(c) declare, set aside, make or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock, except for the regular quarterly dividend on the Shares in
the amount of $.07 per Share;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock
(except for any acquisition of securities in connection with the Option Plans);
(e) (i) acquire (by merger, consolidation, or acquisition of
stock or assets or otherwise) any corporation, partnership or other business
organization or division thereof; (ii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make any
loans or advances, except pursuant to credit facilities in existence at February
25, 1995 and the Debt Financing; (iii) except for expenditures in accordance
with the Company's capital expenditure budget for the fiscal year ended February
23, 1996, a copy of which is attached as Schedule 4.01, authorize any capital
expenditure or commitment for a future capital expenditure in excess of
$100,000, individually or $500,000 in the aggregate for the Company and its
Subsidiaries taken as a whole; or (iv) make any investment in any person, except
investments in certificates of deposit maturing within 90 days of a bank which
is organized under the laws of the United States or any state thereof having
capital surplus and undivided profits aggregating in excess of $500,000,000, or
obligations maturing within 90 days guaranteed by the full faith and credit of
the United States Government;
(f) except to the extent required under existing employee
and director benefit plans, agreements, company policies or other arrangements,
increase the compensation payable or to become payable to its officers or
employees, except for increases in salary or wages of employees of the Company
or its Subsidiaries who are not officers of the Company in the ordinary course
of business in accordance with past practices, or grant any severance or
termination pay to, or enter into any employment, consulting or severance
agreement with any present or former director, officer or other employee of the
Company or any of its Subsidiaries, or establish, adopt, enter into or amend any
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any directors, officers or employees;
(g) enter into, amend, modify, cancel or terminate any
agreement or transaction involving the Company or any of its Subsidiaries that
(i) involves consideration in excess of $500,000 (other than (A) inventory
acquisitions and dispositions, contracts for the purchase of paper or contracts
for the printing of catalogs in the ordinary course of business consistent with
prior practice, in each case with a term of less than 180 days or (B) contracts
entered into consistent with the Company's prior practice in materially the same
form as the drafts of the four proposed contracts listed on Schedule 2.20), or
(ii) involves the sale, acquisition or lease of any material assets;
(h) fail to maintain its advertising and promotional
expenditures in the ordinary course of business consistent with past practice;
(i) modify any existing insurance coverage protecting the
business, assets or employees of the Company except in the ordinary course of
business consistent with past practice;
(j) cancel any indebtedness or obligation owed to the
Company or any of its Subsidiaries, or settle or compromise any material claim
or waive any material rights relating to any of their respective business
activities or properties;
(k) revalue any of its assets, including, without
limitation, any write-offs of notes, increases in any reserves except in the
ordinary course of business consistent with past practice or any write-up of the
value of inventory, property, plant, equipment or any other asset;
(l) change any accounting method, principle, practice,
policy or procedure affecting any of the Company's consolidated assets,
liabilities, results of operations or business or increase or change any
assumption underlying, or method of calculating, any bad debt, contingency or
other reserves, except for changes required by United States generally accepted
accounting principles; or
(m) plan, commit, or enter into an agreement, to do, or take
any action in preparation for, any of the things described in clauses (a)
through (l).
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Stockholders' Meeting. (a) The Company, acting
through the Board, shall, (i) in accordance with Delaware Law and the Company's
Certificate of Incorporation and By-laws, as amended, duly call, give notice of,
convene and hold an annual or special meeting of its stockholders as soon as
practicable following the date hereof for the purpose of considering and taking
action on this Agreement and the transactions contemplated hereby (the
"Stockholders' Meeting") and (ii) subject to its fiduciary duties under
applicable law as advised by independent counsel, (A) include in the Proxy
Statement the recommendation of the Board that the stockholders of the Company
approve and adopt this Agreement and the Merger and (B) use its reasonable best
efforts to obtain such approval and adoption including the solicitation from its
stockholders of proxies and the retention of a proxy solicitation firm if the
Company or Investor, in its good faith judgment, deems such retention advisable.
At the Stockholders' Meeting, Investor shall cause all Shares then owned by it
to be voted in favor of the approval and adoption of this Agreement and the
Merger.
SECTION 5.02. Proxy Statement. As soon as practicable
following the date hereof, the Company shall file the Proxy Statement and the
Schedule 13E-3 with the SEC under the Exchange Act, and shall use all reasonable
efforts to have the Proxy Statement and the Schedule 13E-3 cleared by the SEC.
Investor and the Company shall cooperate with each other in the preparation of
the Proxy Statement and the Schedule 13E-3; without limiting the generality of
the foregoing, Investor will furnish to the Company the information relating to
Investor required by the Exchange Act to be set forth in the Proxy Statement and
the Schedule 13E-3. Each of the Company and Investor agrees to use all
reasonable efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC and to cause the Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of Shares entitled to vote at the Stockholders' Meeting at the
earliest practicable time. Notice of the Stockholders' Meeting and the Fairness
Opinion shall be mailed to the stockholders of the Company along with the Proxy
Statement. Goldman, Sachs & Co. shall deliver a written opinion to the Board
dated as of the date of mailing of the Proxy Statement that the consideration to
be received pursuant to the Merger by the holders of the Shares is fair from a
financial point of view.
SECTION 5.03. Financing. Investor will make the Investor
Equity Contribution at Closing. Investor will use its reasonable best efforts
to arrange on behalf of the Company the Debt Financing prior to the
Stockholders' Meeting. In the event that any portion of the Debt Financing
becomes unavailable, regardless of the reason therefore, Investor will use its
reasonable best efforts to arrange on behalf of the Company alternative
financing from other sources on terms and conditions no less favorable to the
Company than the portion of the Debt Financing that has become unavailable. In
the event the Merger is not consummated, Investor shall pay all fees (including
commitment fees), costs and expenses in connection with arranging the Debt
Financing. The Company will cooperate with Investor with respect to obtaining
the Debt Financing, including taking all actions necessary to authorize the Debt
Financing.
SECTION 5.04. Access to Information; Confidentiality. (a)
From the date hereof to the Effective Time, the Company shall, and shall cause
its Subsidiaries, officers, directors, employees, auditors and other agents to,
provide the officers, employees, auditors and other agents of Investor, and
financing sources who shall agree to be bound by the provisions of this Section
5.04 as though a party hereto, complete access at all reasonable times to its
officers, employees, agents, properties, offices, plants and other facilities
and to all books and records, and shall furnish Investor and such financing
sources with all financial, operating and other data and information as
Investor, through its officers, employees or agents, or such financing sources
may reasonably request; provided, that no investigation pursuant to this Section
5.04 shall alter any representation, warranty or covenant of any party to this
Agreement or any condition to the obligations of the parties hereto.
(b) All information obtained by Investor pursuant to this
Section 5.04 shall be kept confidential in accordance with the confidentiality
agreement, dated February 10, 1995 (the "Confidentiality Agreement"), between
Investor and the Company.
SECTION 5.05. Employee Benefits Matters. Investor intends that
for a period of twenty-four months immediately following the Effective Time, it
shall, or shall cause the Surviving Corporation to, continue to maintain
employee benefit and welfare plans, programs, contracts, agreements policies and
executive incentives and perquisites, other than equity-based plans for the
benefit of active and retired employees of the Company or the Surviving
Corporation which in the aggregate provide benefits that are no less favorable
to employees than the benefits provided to such active and retired employees on
the date hereof.
SECTION 5.06. Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation and By-laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification for events occurring at or before the Effective Time than are
set forth in Article Tenth of the Certificate of Incorporation and Article IV of
the By-laws of the Company, as amended, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect adversely the rights thereunder of individuals
who at the Effective Time were directors, officers, employees or agents of the
Company, or who were, at the Effective Time, serving at the request of the
Company as a director, officer, trustee, partner, fiduciary, employee or agent
of another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or other enterprise, unless such modification shall be
required by law.
(b) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and, after the Effective Time, the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director, officer, employee and agent of the
Company and each Subsidiary and each person who served at the request of the
Company or any Subsidiary as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise (collectively, the
"Indemnified Parties") against all costs and expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission in their capacity as an officer, director, employee,
fiduciary, trustee, partner or agent, occurring at or before the Effective Time.
Any Indemnified Party wishing to claim indemnification under this Section 5.06,
upon learning of any action shall promptly notify the Company or the Surviving
Corporation, as the case may be, thereof, but the failure to so notify shall not
relieve the Company or the Surviving Corporation, as the case may be, of any
liability it may have to such Indemnified Party. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Company or the Surviving Corporation, as the
case may be, shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company or the Surviving Corporation, promptly after statements therefor are
received (provided that the Indemnified Parties shall undertake to repay any
expenses paid in the event the Indemnified Party is determined to be not
entitled to indemnification) and (ii) the Company and the Surviving Corporation
shall cooperate in the defense of any such matter; provided, however, that
neither the Company nor the Surviving Corporation shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided further that neither the Company nor the
Surviving Corporation shall be obligated pursuant to this Section 5.06 to pay
the fees and expenses of more than one counsel for all Indemnified Parties in
any single action except to the extent that two or more of such Indemnified
Parties shall have conflicting interests in the outcome of such action; and
provided further that, in the event that any claim for indemnification is
asserted or made within such six-year period, all rights to indemnification in
respect of such claim shall continue until the disposition of such claim.
(c) Surviving Corporation shall use its best efforts to
maintain in effect for six years from the Effective Time the current directors'
and officers' liability insurance policies maintained by the Company (provided
that Surviving Corporation may substitute therefor policies reasonably
satisfactory to the Indemnified Parties of at least the same coverage containing
terms and conditions which are not materially less advantageous) with respect to
matters occurring prior to the Effective Time; provided, that in no event shall
the Surviving Corporation be required to pay premiums for such insurance in
excess of 175% of premiums currently paid by the Company (the "Maximum Amount")
and if current insurance coverage cannot be maintained or obtained for the
Maximum Amount, the Surviving Corporation shall obtain as much directors' and
officers' liability insurance as can be obtained by paying an annual premium not
in excess of the Maximum Amount.
(d) In the event the Surviving Corporation or any of its
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations set forth in this Section 5.06.
SECTION 5.07. No Solicitation of Transactions. Until this
Agreement shall have been terminated pursuant to Section 7.01, neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any substantial portion
of the assets of, or any equity interest in, the Company or any Subsidiary or
any business combination with the Company or any Subsidiary (whether by a tender
offer, exchange offer, merger, consolidation or otherwise) or, except to the
extent required by fiduciary obligations under applicable law as advised in
writing by independent counsel, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing (an
"Acquisition Proposal"); provided, however, that nothing contained in this
Section 5.07 shall prohibit the Board from furnishing information to, or
entering into discussions or negotiations with, any person in connection with an
unsolicited (from the date of this Agreement) Acquisition Proposal in writing by
such person, if, and only to the extent that, (i) the Board, after consultation
with independent legal counsel (which may include its regularly engaged
independent legal counsel), determines in good faith that such action is
required for the Board to comply with its fiduciary duties to stockholders
imposed by Delaware Law and (ii) prior to furnishing such information to, or
entering into discussions or negotiations with, such person the Company uses all
reasonable efforts to obtain from such person an executed confidentiality
agreement on terms no less favorable to the Company than those contained in the
Confidentiality Agreement. The Company immediately shall cease and cause to be
terminated all existing discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company shall notify
Investor promptly if any such proposal or offer, or any inquiry or contact with
any person with respect thereto, is made and shall in any such notice to
Investor, subject to the fiduciary obligations of the Board under applicable
law, indicate in reasonable detail the identity of the person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or contact. The Company agrees not to release any
third party from, or waive any provision of, any confidentiality or, subject to
the fiduciary duties of the Board, standstill agreement to which the Company is
or may become a party.
SECTION 5.08. Notification of Certain Matters. The Company
shall give prompt notice to Investor, and Investor shall give prompt notice to
the Company, of (i) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate and (ii) any failure of the Company or Investor, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.08 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 5.09. Further Action. (a) Upon the terms and subject
to the conditions hereof, each of the parties hereto shall (i) make promptly its
respective filings, and thereafter make any other required submissions, under
the HSR Act with respect to the Merger; provided, however, that nothing in this
Agreement shall obligate any party (or any affiliate) to sell or otherwise
dispose of or hold separate any substantial business asset or product line in
order to obtain any required governmental approval, (ii) use all reasonable
efforts to take, or cause to be taken, all other appropriate action, and to do,
or cause to be done, all other things necessary, proper or advisable under
applicable foreign and domestic laws and regulations to consummate and make
effective the Merger, including, without limitation, (A) using all reasonable
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its Subsidiaries (other than consents pursuant to the
10.09% and 10.0% Senior Promissory Notes listed on Schedule 2.05 as are
necessary for the consummation of the Merger and (B) causing to be lifted or
rescinded any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use reasonable efforts to take
all such action.
(b) The Company shall cooperate with any reasonable requests
of Investor or the Securities and Exchange Commission (the "SEC") related to the
recording of the Merger as a recapitalization for financial reporting purposes,
including, without limitation, to assist Investor and its affiliates with any
presentation to the SEC with regard to such recording and to include appropriate
disclosure with regard to such recordings in all filing with the SEC and all
mailings to stockholders made in connection with the Merger. In furtherance of
the foregoing, the Company shall provide to Investor for the prior review of
Investor's advisors any description of the transactions contemplated by this
Agreement which is meant to be disseminated.
(c) If the Company shall receive notice of any claim,
complaint or litigation to which the Company is a party (a "Claim"), the Company
shall give the Investor notice of such Claim. The Company shall consult with the
Investor in the Company's defense of such Claim and make available to the
Investor, at the Investor's expense, all witnesses, pertinent records, materials
and information in the Company's possession or under the Company's control
relating thereto as is reasonably requested by the Investor. No such Claim, or
any litigation to which the Company is a party on the date hereof, may be
settled by the Company without the prior written consent of Investor, which
consent shall not be unreasonably withheld.
SECTION 5.10. Public Announcements. Investor and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange to which Investor or the Company
is a party.
SECTION 5.11. Environmental Assessment. Upon reasonable prior
notice, the Company shall provide Investor or its agents with access to the
Property to conduct, at Investor's option and at Investor's expense, an
environmental assessment of the Real Property. Such environmental assessment
shall not include any intrusive sampling without the prior written consent of
the Company, which consent shall not be unreasonably withheld. In connection
with such audit, the Company shall provide Investor or its agents, upon
reasonable prior notice, with (i) reasonable access to existing records of
matters which are the subject of the assessment and (ii) reasonable access to
the employees of the Company who are most familiar with such matters. The
Company and the Investor shall cooperate in the conduct of the environmental
assessment, including by scheduling site visits as necessary in order to
complete the assessment prior to the Closing.
SECTION 5.12. Termination Fees and Expenses. (a) If this
Agreement shall be terminated (i) by the Company or Investor pursuant to Section
7.01(f), (ii) by Investor pursuant to Section 7.01(g)(i), or (iii) by Investor
pursuant to Section 7.01(g)(ii) and within twelve months of such termination the
Company shall have consummated a transaction involving more than 50% of the
Common Stock pursuant to an Acquisition Proposal; then, the Company shall
promptly (and in any event within five business days of written notice from
Investor) pay to Freeman Spogli & Co. Incorporated ("FS & Co.") an amount equal
to $3,500,000 as a termination fee.
(b) If this Agreement is terminated in accordance with
paragraph (a) above or by Investor pursuant to Section 7.01(e) (other than (i)
termination as a result of the failure of Section 2.08(i) to be true and correct
after the date hereof, or (ii) the failure of representations and warranties to
be true and correct, and such failure does not, individually or in the aggregate
(A) have a Material Adverse Effect or (B) prevent or materially delay the
consummation of the Merger), then the Company shall promptly (and in any event
within five business days of written notice from Investor) pay to FS & Co. all
reasonable out-of-pocket fees and expenses incurred by Investor and FS & Co. in
connection with the transactions contemplated by this Agreement, including, but
not limited to, fees and expenses of counsel, filing fees, agency, commitment,
accounting fees, appraisal fees, and all other out-of-pocket expenses, up to a
maximum aggregate amount of $1,500,000 ("Costs and Expenses").
(c) Each of the parties acknowledges that the agreement
contained in this Section 5.12 is an integral part of the transactions
contemplated by this Agreement and that without such agreement, Investor would
not enter into this Agreement; accordingly, if the Company fails to pay promptly
the amount due pursuant to Section 5.12, the Company shall also pay FS & Co.'s
costs and expenses (including reasonable attorneys' fees) incurred in connection
with collecting such amount, together with interest on the amounts payable at
the corporate base rate publicly announced by Merrill Lynch from the date such
amount was required to be paid to the date of payment.
SECTION 5.13. Management Shares. If the parties agree that
members of management shall retain certain Shares and such Shares shall remain
outstanding after the Effective Time, the parties will amend this Agreement
accordingly.
SECTION 5.14. Employee Options. The Company shall use all
reasonable efforts to obtain the consent of all holders of Options under the
1987 Plan to the cancellation of all such options, whether or not vested, in
exchange for cash in accordance with Section 1.07.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Each Party's Obligations. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the affirmative vote of the stockholders
of the Company in accordance with the Certificate of Incorporation of the
Company and Delaware Law;
(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; and
(c) No Order. No governmental authority or other agency or
commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal or otherwise
preventing or prohibiting consummation of the Merger.
SECTION 6.02. Conditions to Obligations of Investor. The
obligations of Investor to effect the Merger are subject to the satisfaction of
the following conditions unless waived by Investor in writing:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise permitted
by this Agreement, and Investor shall have received a certificate signed on
behalf of the Company by the chief executive officer and by the chief financial
officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
shall have performed all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Investor shall have received a
certificate signed on behalf of the Company by the chief executive officer and
by the chief financial officer of the Company to such effect.
(c) Financing. The Debt Financing shall have been obtained.
(d) Director Resignations. All Directors on the Board
except for the Chairman, shall have tendered their resignations, effective as of
the Effective Time.
(e) Material Adverse Effect. After the date hereof there
shall not have been a Material Adverse Effect, without regard, however, to
changes generally applicable to the industries in which the Company and its
Subsidiaries are involved or general economic conditions.
(f) Consent of Option Holders. Holders of a sufficient
number of Options pursuant to the 1987 Plan shall have consented to the
cancellation of such Options in exchange for cash consideration in accordance
with Section 1.07 such that the sum of (i) such Options, (ii) the number of
Options for which alternative agreements are reached as contemplated by Section
1.07 and (iii) Options issued pursuant to the Directors Plan, is in excess of
95% of all outstanding Options.
SECTION 6.03. Conditions to Obligations of the Company.
The obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions unless waived by the Company in
writing:
(a) Representations and Warranties. The representations and
warranties of Investor set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise permitted
by this Agreement, and the Company shall have received a certificate signed on
behalf of Investor by the chief executive officer and by the chief financial
officer of Investor to such effect.
(b) Performance of Obligations of Investor. Investor shall
have performed all obligations required to be performed by it under this
Agreement prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Investor by the chief executive officer and by
the chief financial officer of Investor to such effect.
ARTICLE VII
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards
of Directors of Investor and the Company;
(b) by either Investor or the Company if the Effective Time
shall not have occurred on or before October 31, 1995; provided, however, that
the right to terminate this Agreement under this Section 7.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date; and provided further that if any condition
to this Agreement shall fail to be satisfied by reason of the existence of an
injunction or order of any court or governmental or regulatory body, then at the
request of either party the deadline date referred to above shall be extended
for a reasonable period of time, not in excess of 60 days, to permit the parties
to have such injunction vacated or order reversed;
(c) by either Investor or the Company if any court of
competent jurisdiction or other governmental authority located or having
jurisdiction in the United States shall have issued an order, decree, ruling or
taken any other action prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable;
(d) by the Company, at any time prior to the Effective Time,
if (i) Investor shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with or
performed by Investor at or prior to such date of termination, which failure to
perform cannot be cured by October 31, 1995, or (ii) any representation or
warranty of Investor in the Agreement shall not be true and correct in any
material respect, which failure to be true and correct cannot be cured prior to
October 31, 1995, as if such representation or warranty was made as of such time
on or after the date of the Agreement, unless such representation or warranty
speaks as of a specified date;
(e) by Investor, at any time prior to the Effective Time, if
(i) the Company shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with or
performed by the Company at or prior to such date of termination, which failure
to perform cannot be cured by October 31, 1995, or (ii) any representation or
warranty of the Company in the Agreement shall not be true and correct in any
material respect, which failure to be true and correct cannot be cured prior to
October 31, 1995, as if such representation or warranty was made as of such time
on or after the date of the Agreement, unless such representation or warranty
speaks as of a specified date; or
(f) by Investor or the Company, if the Board (i) shall have
withdrawn or modified its approval or recommendation of the Merger or (ii) shall
have recommended another merger, consolidation, business combination with, or
acquisition of, the Company or its assets or tender offer for Shares, or shall
have resolved to do any of the foregoing.
(g) by Investor, if another entity, person or group, as
defined in Section 13(d) of the Exchange Act and the regulations promulgated
thereunder (a "Group") (i) acquires Shares or shall have been granted any option
or right to acquire Shares representing more than 30% of the then outstanding
voting power of the Company or (ii) announces an Acquisition Proposal involving
a majority of the Common Stock, and at the Stockholders' Meeting (A) such
Acquisition Proposal remains outstanding and (B) the Merger is not approved and
adopted by the affirmative vote of a majority of the stockholders of the
Company.
SECTION 7.02. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.01, this Agreement shall
forthwith become void, and there shall be no liability on the part of any party
hereto except as set forth in Sections 5.12 and 8.01 hereof; provided, however,
nothing herein shall relieve any party from liability for any breach hereof.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Sections 5.05, 5.06, 5.08 and 5.09, and Article VIII
shall survive the Effective Time indefinitely and those set forth in Sections
5.04(b) and 5.12, and Article VIII shall survive termination indefinitely, and
other than any representation or covenant the breach of which has resulted in
the termination of this Agreement.
SECTION 8.02. Expenses. Upon consummation of the Merger, the
Surviving Corporation shall pay all expenses of the Company and Investor in
connection with the transactions contemplated by this Agreement, and shall pay a
$3,000,000 transaction fee to FS & Co. If the Merger is not consummated, each
party hereto shall bear its respective fees and expenses, except as otherwise
provided in Section 5.03 and Section 5.12.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the transactions
contemplated hereby by the stockholders of the Company, no amendment may be made
which would reduce the amount or change the type of consideration into which
each Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time,
any party hereto may (i) extend the time for the performance of any obligation
or other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound thereby.
SECTION 8.05. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 8.04):
if to Investor:
VB Investment Corporation
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telephone: (212) 758-2555
Telecopier: (212) 758-7499
Attention: John M. Roth
with a copy to:
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
Telephone: (213) 629-4824
Telecopier: (213) 229-8550
Attention: Richard J. Welch
if to the Company:
Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
Telephone: (914) 637-5700
Telecopier: (914) 637-5602
Attention: Susan Cortazzo
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 848-4000
Telecopier: (212) 848-7179
Attention: David W. Heleniak
SECTION 8.06. Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in the City of New York;
(c) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(d) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government; and
(e) "Subsidiaries" or "Subsidiary" of the Company, the
Surviving Corporation, Parent or any other person means any corporation a
majority of the outstanding voting securities of which are owned directly or
indirectly by such entity.
SECTION 8.07. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Merger be consummated as originally contemplated to the fullest
extent possible.
SECTION 8.08. Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of law or otherwise,
except that Investor may assign (i) all or any of its rights and obligations
hereunder to any affiliate of Investor provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations and (ii) all or any of its rights hereunder as
security for the Financing.
SECTION 8.09. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Sections 5.05 and 5.06 (which is intended
to be for the benefit of the persons covered thereby and may be enforced by such
persons).
SECTION 8.10. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 8.11. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed in that State.
SECTION 8.12. Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 8.13. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Investor and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
Attest: VB INVESTMENT CORPORATION
/s/ Mark J. Doran By /s/ John M. Roth
- ----------------------- ------------------------
Name: MARK J. DORAN Name: JOHN M. ROTH
Title: SECRETARY Title: VICE PRESIDENT
Attest: LILLIAN VERNON CORPORATION
/s/ Susan Cortazzo By /s/ Lillian Vernon
- ----------------------- -------------------------
Name: SUSAN CORTAZZO Name: LILLIAN VERNON
Title: SECRETARY Title: CHAIRMAN
EXHIBIT 3
MERRILL LYNCH CAPITAL CORPORATION
World Financial Center,
North Tower
250 Vesey Street
New York, New York 10281
June 13, 1995
VB Investment Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th floor
New York, NY 10022
Attention: John M. Roth
Re: Commitment Letter
Ladies and Gentlemen:
You have advised Merrill Lynch Capital Corporation
("Merrill Lynch") that Lillian Vernon Corporation, a Delaware
corporation (the "Borrower"), intends to implement a recapital-
ization (the "Recapitalization") through a merger of
VB Investment Corporation, a Delaware corporation ("VBI")
formed by Freeman Spogli & Co. Incorporated, a California cor-
poration ("Freeman Spogli"), and/or by one or more affiliates
of Freeman Spogli (collectively, the "Investor"), with and into
the Borrower (the "Merger" and, together with the Recapitaliza-
tion, the "Transaction").
You have further advised us that prior to the Merger
the Investors will contribute to VBI as equity not less than
$52,000,000 in cash (the "Investor Contribution") and that pur-
suant to the Transaction (i) the Investor will own approxi-
mately 70% of the outstanding common stock of the Borrower, as
survivor of the Merger, (ii) a portion of the shares of the
Borrower held by Lillian Vernon (the "LVF Shares") immediately
prior to the Merger will be converted into approximately 17% of
the outstanding common stock of the Borrower, as survivor of
the Merger (and that such LVF Shares shall have a value, based
upon the Merger Consideration (as defined below) of approxi-
mately $12,500,000 in the aggregate (the "LVF Investment"),
(iii) a portion of the shares of the Borrower held by David
Hochberg (the "DH Shares") immediately prior to the Merger will
be converted into approximately 10% of the outstanding common
stock of the Borrower, as survivor of the Merger (and that such
DH Shares shall have a value, based upon the Merger Considera-
tion of approximately $7,500,000 in the aggregate (the "DH
Investment") and (iv) each share of common stock of the Bor-
rower issued and outstanding immediately prior to the Merger,
other than the LVF Shares, will be converted into the right to
receive $19.00 in cash (the "Merger Consideration"). You have
further advised us that simultaneously with or immediately fol-
lowing the consummation of the Merger, certain members of
management of the Borrower (collectively, "Management") will
purchase up to $3,000,000 but not less than $2,000,000 of the
outstanding common stock of the Borrower, as the survivor of
the Merger of which not more than $1,500,000 may be paid in the
form of a full recourse notes secured by the common stock so
purchased (the "Management Investment"). Nothwithstanding the
foregoing, in no event shall the aggregate of the Investor Con-
tribution, the LVF Investment, the DH Investment and the
Management Investment be less than $75,0000,000.
Additionally, each of the Borrower's direct and indi-
rect subsidiaries (existing or hereafter acquired, including
Lillian Vernon International, Ltd. and Lillian Vernon Fulfill-
ment Services, Inc. (collectively, the "Guarantors")) will
unconditionally guarantee all of the obligations of the Bor-
rower in connection with the Credit Facilities (as defined
below). As hereinafter used, the term "Borrower" includes the
Guarantors.
You have requested senior financing to provide funds,
together with the cash on hand following the Transaction, to
finance the Recapitalization and to provide for the working
capital and general corporate purpose requirements of the Bor-
rower. In accordance therewith, you have requested that
Merrill Lynch commit to provide to the Borrower $190,000,000
principal amount of senior secured credit facilities (the
"Credit Facilities") in the form of (a) four Senior Secured
Term Loan Facilities to be provided to the Borrower in an
aggregate principal amount of $140,000,000 (the "Term Loan
Facilities"), such aggregate principal amount to be allocated
between (i) a Tranche A Term Loan Facility in an aggregate
principal amount of $25,000,000 (the "Tranche A Term Loan
Facility"), (ii) a Tranche B Term Loan Facility in an aggregate
principal amount of $45,000,000 (the "Tranche B Term Loan
Facility"), (iii) a Tranche C Term Loan Facility in an aggre-
gate principal amount of $40,000,000 (the "Tranche C Term Loan
Facility") and (iv) a Deferred Draw Term Loan Facility in an
aggregate principal amount of $30,000,000 (the "Deferred Draw
Term Loan Facility"), to be drawn at a time or times subsequent
to the consummation of the Transaction, and (b) a Revolving
Credit Facility to be provided to the Borrower in an aggregate
principal amount of $50,000,000 (the "Revolving Facility"), a
portion of which, not to exceed $23,000,000, may be drawn at
the time of the consummation of the Transaction (the "Initial
Revolver Drawdown"). The proceeds of borrowings under the
Tranche A, Tranche B and Tranche C Term Loan Facilities and the
Initial Revolver Drawdown, together with the cash on hand fol-
lowing the Transaction, will be available (i) to finance the
Recapitalization and the fees and expenses related thereto,
(ii) for the prepayment of approximately $5,700,000 of existing
indebtedness, which figure includes the aggregate principal
amount of the Borrower's 10% Senior Notes Due 1998 and 10.09%
Senior Notes Due 1998, including fees, expenses and penalties
in connection therewith (the "Debt Repayment") and (iii) to pay
other fees and expenses in connection with the Transaction.
The Deferred Draw Term Loan Facility will be available at a
time or times subsequent to the consummation of the Transaction
for the payment of predetermined capital expenditures of the
Borrower and the remaining amounts available under the Revolv-
ing Facility will be available for the working capital require-
ments and general corporate purposes of the Borrower and let-
ters of credit.
Accordingly, subject to the terms and conditions set
forth below, Merrill Lynch hereby agrees with you as follows:
1. Commitments. Merrill Lynch hereby commits to
provide the Tranche A Term Loan Facility, the Tranche B Term
Loan Facility, the Tranche C Term Loan Facility, the Deferred
Draw Term Loan Facility and the Revolving Facility upon the
terms and subject to the conditions set forth or referred to
herein, in the fee letter (the "Fee Letter") dated the date
hereof and delivered to the Borrower and in the Summary of
Terms and Conditions attached hereto as Exhibit A (the "Term
Sheet").
It is a condition of Merrill Lynch's commitment here-
under that Merrill Lynch act as sole and exclusive arranger and
documentation agent (the "Agent") for the Credit Facilities, it
being understood and agreed that the Agent will perform all
functions and exercise all authority (including, without limi-
tation, (a) serving as sole manager of the syndication effort,
(b) selecting counsel for the Agent and (c) negotiating defini-
tive credit documentation) customarily performed and exercised
by agent banks in such capacity. It is agreed that the
appointment of any co-agents for the Credit Facilities would be
subject to the prior approval of Merrill Lynch after consulta-
tion with you. The co-agent title and other titles awarded to
syndicate participants would not entail any role with respect
to the matters referred to in this paragraph, without the prior
consent of Merrill Lynch. Each of Merrill Lynch and the Bor-
rower acknowledges and agrees that Merrill Lynch may appoint,
after consultation with you, a Lender (as defined) to act as an
administrative and collateral agent (the "Administrative
Agent") to perform such ministerial and administrative func-
tions as are customary for the transactions contemplated hereby
and by the Credit Facilities.
2. Syndication. Merrill Lynch reserves the right
and intends, prior to the execution of definitive documentation
for the Credit Facilities, after consultation with the Bor-
rower, to syndicate a portion of its commitment to one or more
financial institutions (Merrill Lynch and such financial insti-
tutions being referred to herein as the "Lenders") that will
become parties to the definitive credit documentation for the
Credit Facilities and, in that connection, promptly following
your acceptance of Merrill Lynch's commitments hereunder,
Merrill Lynch will commence the syndication of the Credit
Facilities to such other Lenders. The Borrower agrees that no
Lender will receive compensation outside the terms contained
herein and in the Fee Letter in order to obtain its commitment
to participate in the Credit Facilities. It is understood and
agreed that the amount and distribution of the fees referred to
herein among the Lenders and to any Administrative Agent will
be at Merrill Lynch's sole discretion. It is understood and
agreed that Merrill Lynch will manage all aspects of the syndi-
cation, including, without limitation, decisions as to the
selection of potential Lenders to be approached and when they
will be approached, when their commitments will be accepted,
which Lenders will participate, any naming rights (including
the naming of co-agents, subject to your reasonable approval)
and the final allocations of the commitments among the Lenders
(which are likely not to be pro rata across facilities among
Lenders).
You agree to assist actively and in a timely manner
Merrill Lynch in its efforts to achieve syndication of the
Credit Facilities. The syndication efforts will be accom-
plished by a variety of means, including direct contact during
the syndication between senior management (including, but not
limited to, the chief executive officer and chief financial
officer of the Borrower) and advisors and affiliates of the
Borrower on the one hand and the proposed syndicate Lenders on
the other hand. To assist Merrill Lynch in its syndication
efforts, you agree that you will, promptly, upon Merrill
Lynch's request, (a) provide, and cause your affiliates and
advisors to provide, to Merrill Lynch all information reasonably
deemed necessary by Merrill Lynch to complete successfully
the syndication, including but not limited to, information and
projections (including, without limitation, any updated projec-
tions requested by Merrill Lynch) prepared by you or on your
behalf relating to the transactions contemplated hereby, and
(b) to assist, and to cause your affiliates and advisors to
assist, Merrill Lynch in the preparation of a confidential
information memorandum and other marketing materials to be used
in connection with the syndication, including making available
representatives of the Borrower and its subsidiaries. Your
assistance in connection with the syndication will also
include, if Merrill Lynch so requests, your assisting Merrill
Lynch in obtaining for the Borrower (at the sole expense of the
Borrower) credit ratings from one or more nationally recognized
rating agencies. It is understood and agreed that Merrill
Lynch shall be entitled, with your prior written consent,
(a) to change the structure, terms and conditions of any of the
Credit Facilities as described herein and in the Term Sheet
(provided that the aggregate principal amount of the Credit
Facilities, taken as a whole, remains the same) and (b) to
eliminate any of the Credit Facilities (provided that the
aggregate commitments under the Credit Facilities remain the
same), if Merrill Lynch deems such actions advisable in order
to ensure a successful syndication or an optimal credit
structure.
To ensure an orderly and effective syndication of the
Credit Facilities, you agree that, until the termination of the
syndication (as determined by Merrill Lynch), you will not, and
will not permit any of your affiliates to, syndicate or issue,
attempt to syndicate or issue, announce or authorize the
announcement of the syndication or issuance of, or engage in
discussions concerning the syndication or issuance of, any debt
facility or debt security (including any renewals thereof)
without the prior written consent of Merrill Lynch.
3. Fees. As consideration for Merrill Lynch's com-
mitment hereunder and its agreement to arrange, manage, struc-
ture and syndicate the Credit Facilities, you agree to pay to
Merrill Lynch the fees as set forth in the Term Sheet and in
the Fee Letter. You agree that, once paid, such fees and any
part thereof shall be nonrefundable under any and all circum-
stances and regardless of whether the transactions or borrow-
ings contemplated hereby are consummated. All such fees shall
be paid by wire transfer of immediately available funds in
United States dollars.
4. Conditions. Merrill Lynch's commitment hereun-
der is subject to the negotiation, execution and delivery of
definitive documentation with respect to the Credit Facilities
satisfactory in all respects to Merrill Lynch and its counsel.
Such definitive documentation shall reflect the terms and con-
ditions set forth herein and in the Term Sheet and contain such
other indemnities, covenants, representations and warranties,
events of default, conditions precedent, security arrangements
and other terms and conditions as are satisfactory to Merrill
Lynch and the Borrower. Those matters that are not covered by
or made clear under the provisions hereof or of the Term Sheet
are subject to the approval and agreement of Merrill Lynch and
you (it being understood that the terms and conditions of the
definitive documentation with respect to the Credit Facilities
shall not be inconsistent with the terms and conditions set
forth herein).
Merrill Lynch's commitment hereunder is also subject
to (a) there not having occurred or becoming known (i) any
material adverse change in the business, assets, liabilities
(contingent or otherwise), operations, condition (financial or
otherwise), solvency or prospects of the Borrower (either
before or after giving effect to the Transaction) except as
contemplated hereby since February 25, 1995, (ii) any transac-
tion entered into by the Borrower, other than in the ordinary
course of business that is or would be material and adverse to
the Borrower (either before or after giving effect to the
Transaction and except as contemplated hereby) since
February 25, 1995, or (iii) any dividend or other distribution
of any kind declared, paid or made by the Borrower since
February 25, 1995; provided that the Borrower may pay its regu-
lar quarterly dividend of $.07 per share of Common Stock as per
its ordinary course of business, (b) there not having occurred
and continuing a material disruption of or material adverse
change in financial, banking or capital market conditions gen-
erally since the date hereof that, individually or in the
aggregate, in the judgment of Merrill Lynch, would have a mate-
rial adverse effect on the successful syndication of the Credit
Facilities and (c) the compliance with, to the satisfaction of
Merrill Lynch, the other terms and conditions set forth or
referred to herein and in the Term Sheet.
5. Information and Investigations. You hereby rep-
resent and covenant that (a) all Information and data (exclud-
ing financial projections) concerning the Borrower and the
transactions contemplated hereby (the "Information") that have
been made or will be prepared by or on behalf of you or any of
your affiliates or authorized representatives or advisors and
that have been or will be made available to Merrill Lynch by
you or on your behalf in connection with the transactions con-
templated hereby (as such Information may be supplemented from
time to time) is and will be complete and correct in all mate-
rial respects and does not and will not, taken as a whole, con-
tain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances
under which such statements are made and (b) all financial pro-
jections concerning the Borrower and the transactions contem-
plated hereby (the "Projections") that have been prepared by or
on behalf of you or any of your affiliates or authorized repre-
sentatives and that have been or will be made available to
Merrill Lynch by you or on behalf of you or any of your affili-
ates or authorized representatives or advisors in connection
with the transactions contemplated hereby (as such Projections
may be supplemented from time to time) have been and will be
prepared in good faith based upon assumptions believed by you
to be reasonable. You agree to supplement the Information and
the Projections from time to time until the closing of the
Credit Facilities and, if requested by Merrill Lynch, for a
reasonable period thereafter necessary to complete the syndica-
tion of the Credit Facilities so that the representation and
covenant in the preceding sentence remain correct in all mate-
rial respects. In arranging the Credit Facilities, including
the syndication of the Credit Facilities, Merrill Lynch will be
using and relying primarily on the Information and the Projec-
tions without independent check or verification thereof.
Merrill Lynch's commitment hereunder is based upon
the accuracy and completeness of the financial and other infor-
mation provided to us by or on behalf of the Borrower. If
Merrill Lynch's ongoing due diligence investigation discloses
information, or Merrill Lynch otherwise discovers information
not previously disclosed to it, that it believes has had or
could have, individually or in the aggregate, a materially
adverse impact on (a) the business, assets, liabilities (con-
tingent or otherwise) operations, condition (financial or
otherwise), solvency, prospects or material agreements of the
Borrower (before or after giving effect to the transactions
contemplated hereby) or (b) on the tax or accounting
consequences of the Transaction, then Merrill Lynch (i) shall
be entitled to decline to participate in the financing contem-
plated hereby or (ii) may, in its sole discretion, suggest
alternative financing amounts or structures that ensure ade-
quate protection for it and the other Lenders.
6. Indemnification. By executing this Commitment
Letter, you agree to indemnify and hold harmless Merrill Lynch
and each of the other Lenders and their respective officers,
directors, employees, affiliates, agents and controlling per-
sons (Merrill Lynch and each such other person being an "Indem-
nified Party") from and against any and all losses, claims,
damages and liabilities, joint or several, to which any such
Indemnified Party may become subject arising out of or in con-
nection with or relating to this Commitment Letter, the Fee
Letter, the Term Sheet, the Credit Facilities, the loans under
the Credit Facilities, the use of proceeds of any such loan,
the Transaction or any related transaction and the performance
by the Indemnified Party of the services contemplated by this
Commitment Letter and will reimburse any such Indemnified Party
for any and all expenses (including reasonable counsel fees and
expenses) as they are incurred in connection with the investi-
gation of or preparation for or defense of any pending or
threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party and whether or
not such claim, action or proceeding is initiated or brought by
or on behalf of the Borrower. Notwithstanding the foregoing,
this Section 6 will be superseded by, and will no longer have
any effect on the rights and obligations of the parties hereto,
following the execution, if any, of the definitive credit docu-
mentation for the Credit Facilities concurrent with the consum-
mation of the Transaction. The Borrower will not be liable
under the foregoing indemnification provision to an Indemnified
Party to the extent that any loss, claim, damage, liability or
expense is found in a final judgment by a court of competent
jurisdiction to have resulted solely from such Indemnified Par-
ty's bad faith or gross negligence.
The Borrower agrees that, without Merrill Lynch's
prior written consent, it will not settle, compromise or con-
sent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification
could be sought under the indemnification provisions of this
Commitment Letter (whether or not Merrill Lynch or any other
Indemnified Party is an actual or potential party to such
claim, action or proceeding), unless such settlement, compro-
mise or consent includes an unconditional written release in
form and substance satisfactory to the Indemnified Parties of
each Indemnified Party from all liability arising out of such
claim, action or proceeding and does not include any statement
as to an admission of fault, culpability or failure to act by
or on behalf of any Indemnified Party.
In the event that an Indemnified Party in the employ-
of Merrill Lynch is requested or required to appear as a wit-
ness in any action brought by or on behalf of or against the
Borrower or any affiliate of the Borrower in which such Indem-
nified Party is not named as a defendant, the Borrower agrees
to reimburse Merrill Lynch for all expenses incurred by it in
connection with such Indemnified Party's appearing and prepar-
ing to appear as such a witness, including, without limitation,
the reasonable fees and disbursements of its legal counsel, and
to reimburse Merrill Lynch in an aggregate amount, not to
exceed $20,000.
7. Costs and Expenses. By executing this Commit-
ment Letter, you agree to reimburse Merrill Lynch from time to
time, upon demand for all reasonable out-of-pocket expenses
(including, without limitation, expenses of Merrill Lynch's due
diligence investigation, consultants' fees (if such consultants
are engaged by Merrill Lynch), syndication expenses, appraisal
and valuation fees and expenses, travel expenses and the rea-
sonable fees, disbursements and other charges of counsel)
incurred in connection with the Credit Facilities and the prep-
aration of this Commitment Letter, the Term Sheet, the Fee Let-
ter, the definitive documentation for the Credit Facilities and
the security arrangements in connection therewith.
8. Confidentiality. You agree that you will not
disclose this Commitment Letter, the Fee Letter, the contents
of any of the foregoing or Merrill Lynch's activities pursuant
hereto or thereto to any person without the prior written con-
sent of Merrill Lynch, except that you may disclose this Com-
mitment Letter, the Fee Letter and the contents hereof and
thereof (i) to your officers, directors, employees, auditors,
attorneys and advisors on a confidential and need-to-know
basis, (ii) to the members of the board of directors of the
Borrower and their attorneys and advisors on a confidential
need-to-know basis and (iii) as required by applicable law
(including, but not limited to, the Securities Exchange Act of
1934, as amended, as it relates to the Borrower) or compulsory
legal process.
9. Termination. In the event that either (i) the
initial borrowing in respect of the Credit Facilities does not
occur on or before October 31, 1995 or (ii) the circumstances
described under the second paragraph of paragraph 5 shall have
occurred or (iii) any circumstance described in clause (a) or
(b) of the second paragraph of paragraph 4 shall have occurred,
this Commitment Letter and Merrill Lynch's commitments hereun-
der shall terminate unless Merrill Lynch shall, in its discre-
tion, agree to an extension. Notwithstanding the foregoing,
the compensation, reimbursement, indemnification and confiden-
tiality provisions hereof and of the Term Sheet and the Fee
Letter shall survive any termination of this Commitment Letter
or Merrill Lynch's commitments hereunder.
10. Assignment, Etc. This Commitment Letter and
Merrill Lynch's commitments hereunder shall not be assignable
by you without the prior written consent of Merrill Lynch, and
any attempted assignment shall be void. Merrill Lynch may (in
its sole discretion) perform any of its duties hereunder
through any of its affiliates and you will owe any related
duties (including those set forth in paragraph 2 above) to any
such affiliate. This Commitment Letter is intended to be
solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto.
11. Governing Law. This Commitment Letter shall be
governed by, and construed in accordance with, the laws of the
State of New York (without regard to principles of conflicts of
law).
12. Execution in Counterparts. This Commitment Let-
ter may be executed in any number of counterparts and by dif-
ferent parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same
agreement.
13. Amendments, Etc. No amendment or waiver of any
provision of this Commitment Letter, nor any consent or
approval to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the
parties hereto and then any such waiver, consent or approval
shall be effective only in the specific instance and for the
specific purpose for which given.
14. Waiver of Jury Trial. Each of you and Merrill
Lynch (in each case on its own behalf and, to the extent per-
mitted by applicable law, on behalf of its shareholders) waives
all right to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise)
related to or arising out of any of the transactions contem-
plated by this Commitment Letter, or the performance by Merrill
Lynch of the services contemplated by, this Commitment Letter.
Please indicate your acceptance of the terms hereof
and of the Fee Letter by signing in the appropriate space below
and in the Fee Letter and returning to Merrill Lynch the two
enclosed duplicate originals of this Commitment Letter and the
Fee Letter not later than 5:00 p.m., New York City time, on
June 14, 1995, at which time Merrill Lynch's commitments here
under will expire in the event Merrill Lynch has not received
such executed duplicate originals.
Very truly yours,
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Christopher Birosak
Name: Christopher Birosak
Title: Vice President
Accepted and agreed to as of
the date first above written:
VB INVESTMENT CORPORATION
By: /s/ John M. Roth
Name: John M. Roth
Title: Vice President
CONFIDENTIAL EXHIBIT A
SUMMARY OF TERMS AND CONDITIONS
LILLIAN VERNON CORPORATION
$190,000,000 Credit Facilities
Borrower: Lillian Vernon Corporation,
a Delaware corporation (the
"Borrower").
Guarantors: Each of the Borrower's
direct and indirect subsid-
iaries (existing or here-
after acquired, including
Lillian Vernon Interna-
tional, Ltd. ("LVI") and
Lillian Vernon Fulfillment
Services, Inc. ("LVFS")
(collectively, the "Guaran-
tors")) shall uncondition-
ally guarantee all obliga-
tions of the Borrower under
the definitive agreement and
documentation of the credit
facilities (the "Credit
Agreement"). For the pur-
poses of this summary, the
Borrower shall include the
Guarantors, unless the con-
text otherwise requires.
Facilities: (A) Senior Secured Term Loan
Facilities in an aggregate
principal amount of
$140,000,000 (the "Term Loan
Facilities"), such aggregate
principal amount to be allo-
cated between (i) a
Tranche A Term Loan Facility
in an aggregate principal
amount of $25,000,000 (the
"Tranche A Term Loan Facil-
ity"), (ii) a Tranche B Term
Loan Facility in an aggre-
gate principal amount of
$45,000,000 (the "Tranche B
Term Loan Facility"),
(iii) a Tranche C Term Loan
Facility in an aggregate
principal amount of
$40,000,000 (the "Tranche C
Term Loan Facility"), and
(iv) a Deferred Draw Term
Loan Facility in an aggre-
gate principal amount of
$30,000,000 (the "Deferred
Draw Term Loan Facility").
(B) Senior Secured Revolving
Credit Facility in an aggre-
gate principal amount of
$50,000,000 (the "Revolving
Facility" and, together with
the Term Loan Facilities,
the "Credit Facilities"), of
which up to $12,000,000 will
be available as a letter of
credit facility.
Purpose: The proceeds of the Tranche
A, Tranche B and Tranche C
Term Loan Facilities (the
"Initial Term Loan Facili-
ties") and a portion of the
proceeds, not to exceed
$23,000,000, of the Revolv-
ing Facility to be drawn
down upon the consummation
of the Transaction (as
defined below) (the "Initial
Revolver Drawdown"),
together with cash on hand
following the recapitaliza-
tion of a portion of the
outstanding common stock
(the "Recapitalization") of
the Borrower through a
merger of VB Investment Cor-
poration, a Delaware corpo-
ration ("VBI"), formed by
Freeman Spogli & Co. Incor-
porated, a California
corporation ("Freeman
Spogli"), and/or by one or
more affiliates of Freeman
Spogli (collectively, the
"Investor"), with and into
the Borrower (the "Merger"
and, together with the
Recapitalization, the
"Transaction"), will be used
solely (i) to finance the
Recapitalization and the
fees and expenses related
thereto, (ii) for the pre-
payment of approximately
$5,700,000 of existing
indebtedness, which figure
includes the aggregate prin-
cipal amount of the Borrow
er's 10% Senior Notes Due
1998 and 10.09% Senior Notes
Due 1998, including fees,
expenses and penalties in
connection therewith (the
"Debt Repayment") and
(iii) to pay other fees and
expenses in connection with
the Transaction.
The Deferred Draw Term Loan
Facility shall be used at a
time or times subsequent to
the consummation of the
Transaction for the payment
of predetermined Capital
Expenditures (as defined
below).
The remaining amounts avail-
able under the Revolving
Facility shall be used
solely to provide for the
working capital requirements
and general corporate pur-
poses of the Borrower and
letters of credit.
Agent: Merrill Lynch will act as
sole and exclusive arranger
and documentation agent (the
"Agent") for a syndicate of
financial institutions (the
"Lenders").
Administrative Agent: A Lender or other financial
institution to be selected
by Merrill Lynch in consul-
tation with the Borrower.
Final Maturity and Amortization: (A) The Tranche A Term Loan
Facility will mature five
and one-half years following
the date of execution of the
Credit Agreement (the "Clos-
ing Date"), (B) the Tranche
B Term Loan Facility will
mature seven and one-half
years following the Closing
Date, (C) the Tranche C Term
Loan Facility will mature
eight and one-half years
following the Closing Date,
and (D) the Deferred Draw
Term Loan Facility will
mature six and one-half
years following the Closing
Date.
Amounts outstanding under
the Term Loan Facilities
will amortize on the dates
and in the amounts set forth
on Schedule I attached
hereto.
(E) The Revolving Facility
will mature five and one-
half years following the
Closing Date.
Availability: (A) (i) The Initial Term
Loan Facilities will be
available for the purpose
described above in a single
drawing on the Closing Date
and (ii) the Deferred Draw
Term Loan will be available
at a time or times subse-
quent to the Closing Date
for the specific capital
expenditures to be set forth
in a Schedule to the Credit
Agreement (the "Capital
Expenditures"); provided
that, in the event payment
of any such Capital Expendi-
ture is made from a source
other than the Deferred Draw
Term Loan Facility, the
availability for borrowings
thereunder shall be
decreased by the amount of
such Capital Expenditure.
Amounts borrowed under the
Term Loan Facilities that
are repaid or prepaid may
not be reborrowed.
(B) The Initial Revolver
Drawdown will be available
upon the consummation of the
Transaction and the remain-
ing amounts available under
the Revolving Facility will
be available in amounts not
exceeding the Borrowing Base
and in accordance with the
Cleandown provisions, each
as described below, in the
form of revolving loans and
letters of credit subsequent
to the thirtieth business
day following the first
Cleandown Payment (as
defined below) and until 30
business days prior to the
final maturity of the
Revolving Facility. Amounts
repaid under the Revolving
Facility may be reborrowed.
During the term of the
Revolving Facility the Bor-
rower must repay all loans
outstanding in excess of (x)
$15,000,000 during the first
fiscal year, which includes
the Closing Date,
(y) $12,000,000 during the
second fiscal year and
(z) $10,000,000 during each
fiscal year thereafter and
may not make drawings there
under in excess of
$15,000,000 in the case of
(x) above, $12,000,000 in
the case of (y) above or
$10,000,000 in the case of
(z) above, for 30 consecu-
tive days following the date
of such Cleandown Payment.
Borrowing Base: The Borrowing Base at any
time shall be equal to the
sum of (a) 85% of Eligible
Accounts Receivable (to be
defined in the Credit Agree-
ment) at such time and
(b) 60% of Eligible Inven-
tory (to be defined in the
Credit Agreement) at such
time.
The Borrowing Base will be
computed monthly by the Bor-
rower and a certificate pre-
senting the Borrower's com-
putation will be delivered
to the Agent promptly, but
in no event later than the
15th day of the following
month.
Letters of Credit: Letters of credit under the
Revolving Facility will be
issued by a Lender selected
by the Agent satisfactory to
the Borrower (in such
capacity, the "L/C Lender").
Each standby letter of
credit shall expire no later
than the earlier of
(a) twelve months after its
date of issuance and (b) the
thirtieth business day prior
to the final maturity of the
Revolving Facility. Each
standby letter of credit may
contain "evergreen" provi-
sions whereby such letter of
credit will, upon request of
the Borrower to the L/C
Lender not more than 30 days
prior to the scheduled
maturity date, be extended
for up to an additional
twelve months so long as no
Default or Event of Default
has occurred and is continu-
ing and provided such letter
of credit matures not more
than thirty business days
prior to the thirtieth busi-
ness day prior to the final
maturity of the Revolving
Facility. Each trade letter
of credit shall expire no
later than the earlier of
(a) 270 days after its date
of issuance and (b) the
thirtieth business day prior
to the final maturity of the
Revolving Facility.
Drawings under any letter of
credit shall be reimbursed
by the Borrower not later
than the next business day.
To the extent that the Bor-
rower does not reimburse the
L/C Lender on the next busi-
ness day, the Lenders under
the Revolving Facility shall
be irrevocably obligated to
reimburse the L/C Lender pro
rata based upon their
respective Revolving Facil-
ity commitments, with the
amount of such reimbursement
payment being deemed to be a
drawing under the Revolving
Facility.
The issuance of all letters
of credit shall be subject
to the customary procedures
of the L/C Lender.
Interest Rates and Fees: Interest rates and fees in
connection with the Credit
Facilities will be as speci-
fied on Schedule II attached
hereto.
The Borrower will be enti-
tled to make borrowings
based on the Base Rate or
Adjusted LIBOR (each as
defined on Schedule II), and
may select interest periods
of one, two, three or six
months for Adjusted LIBOR
borrowings.
Default Rate: The applicable interest rate
plus 2% per annum.
Guarantees: The Credit Facilities and
the obligations of the Bor-
rower under each approved
interest rate protection
agreement entered into with
a Lender will be uncondi-
tionally guaranteed by the
Guarantors (the "Guar-
antees").
Security: The Credit Facilities, the
related Guarantees, as
applicable, and the obliga-
tions of the Borrower under
each approved interest rate
protection agreement entered
into with a Lender will be
secured by the following
(none of which shall be sub-
ject to any other liens,
except for customary excep-
tions and as agreed to by
the Lenders and permitted
under the Credit Agreement):
(a) a perfected first pri-
ority lien on, and pledge
of, all the capital stock
and intercompany debt of
each existing and each sub-
sequently acquired or orga-
nized direct or indirect
subsidiary of the Borrower,
including LVI and LVFS;
(b) perfected first priority
liens on, and security
interests in, the following
(subject to exceptions to be
agreed upon): all inventory,
machinery, equipment, pat-
ents, trademarks, accounts
receivable and other per-
sonal property of the Bor-
rower and of each existing
and each subsequently
acquired or organized direct
or indirect subsidiary of
the Borrower, including LVI
and LVFS; and (c) first pri-
ority mortgages on and other
perfected first priority
liens on, and security
interests in, the real
estate of the Borrower and
each existing and each sub-
sequently acquired subsid-
iary of the Borrower,
including LVI and LVFS
(collectively, the
"Security").
The Credit Facilities will
provide for the release of
certain of such Security in
the event the Borrower
obtains Qualified Refinanc-
ing Indebtedness (to be
defined in the Credit Agree-
ment) in respect of its
warehouse and distribution
center (including the annex)
and certain assets related
thereto.
Mandatory Prepayments/ Subject to the immediately
Reductions in Commitments: succeeding paragraph, the
Credit Facilities will be
prepaid with (a) 75% of
Excess Cash Flow (to be
defined); provided that such
percentage shall decline to
not less than 50% in accor-
dance with a reduction in
the Borrower's Ratio of
Total Debt to Consolidated
EBITDA, (b) 100% of the net
proceeds (including insur-
ance proceeds) of certain
nonordinary course asset
sales, (c) 100% of the net
proceeds of the issuance or
incurrence of certain debt
or of any sale and
lease-back and (d) 100% of
the net proceeds from any
issuance of certain equity
securities in any public
offering or private place
ment or from any capital
contribution (other than in
connection with the Transac-
tion). All mandatory pre-
payments will be credited in
inverse order of maturity
against the remaining sched-
uled amortization payments
under the Term Loan Facili-
ties and credited pro rata
against the remaining sched-
uled amortization payments
among the Term Loan Facili-
ties. All payments of the
Term Loan Facilities shall
be made on a pro rata basis
as between the Term Loan
Facilities, except that the
holders of loans under the
Tranche B and Tranche C Term
Loan Facilities may decline
to receive their pro rata
portion of such prepayments
and the amounts declined
shall be applied to make
additional prepayments of
loans under the other Term
Loan Facilities on a pro-
rata basis until no such
loans remain outstanding.
Voluntary Prepayments/ (A) Term Loan Facilities:
Reductions in Commitments: Permitted in whole or in
part at the option of the
Borrower, in a minimum prin-
cipal amount of $1,000,000
and in multiples of
$500,000, without premium or
penalty, only on the last
day of the relevant Interest
Period. Voluntary prepay-
ments under the Term Loan
Facilities will be applied,
(a) first, in any six month
period prior to a scheduled
amortization payment,
against such scheduled amor-
tization payment and
(b) second, pro rata against
the remaining scheduled
amortization payments among
the Term Loan Facilities and
credited pro rata against
the remaining scheduled
amortization payments under
the Term Loan Facilities.
(B) Revolving Facility:
Voluntary reduction of the
unutilized portion of the
Revolving Facility commit-
ments and voluntary prepay-
ments of loans under the
Revolving Facility will be
permitted only on the last
day of the relevant Interest
Period, without premium or
penalty, in a minimum prin-
cipal amount of $1,000,000
and in multiples of
$500,000.
Conditions to Effectiveness The effectiveness of the
and to Initial Borrowing: loan documentation for the
Credit Facilities and the
borrowings thereunder shall
be subject to conditions
precedent that are usual for
facilities and transactions
of this type, to those spec-
ified below and to such
additional conditions prece-
dent as may be required by
Merrill Lynch (all such con-
ditions to be satisfied in a
manner satisfactory in all
respects to Merrill Lynch
and the Borrower), including
but not limited to execution
and delivery of definitive
documentation acceptable in
form and substance to
Merrill Lynch; delivery of
borrowing certificates and
written legal opinions;
delivery of financial state-
ments; receipt of valid
security interests as con-
templated hereby; accuracy
of representations and war-
ranties; absence of defaults
and material litigation;
evidence of authority, gov-
ernmental and other neces-
sary approvals; compliance
with laws; adequate insur-
ance and payment of fees.
In addition, the initial
borrowings thereunder will
be subject to the following
additional conditions:
(i) The terms, conditions
and structure of the Trans-
action (and the documenta-
tion therefor) shall be in
form and substance satisfac-
tory to Merrill Lynch,
including, without limita-
tion, (a) the sufficiency of
the Guarantees, (b) the
terms and conditions of the
agreement for the Merger and
(c) the indemnities, repre-
sentations and warranties
set forth in all such
documentation.
(ii) Merrill Lynch shall be
satisfied that there has
been no adverse change in
the amount of cash proceeds
from the Recapitalization
and the proceeds available
pursuant to the Credit
Facilities as set forth in
the Commitment Letter, such
that such proceeds are
insufficient to effect the
Transaction, to pay all fees
and expenses in connection
with the Transaction and to
provide for the ongoing
working capital needs of the
Borrower.
(iii) On the Closing Date,
each element of the Transac-
tion shall have been consum-
mated in accordance with the
terms hereof and the terms
set forth in the agreement
and plan of merger dated as
of the date hereof. All
obligations of the Borrower
with respect to the existing
indebtedness, including the
Debt Repayment, shall be
repaid in full (or provision
made therefor) to the satis-
faction of Merrill Lynch and
all lending commitments
thereunder terminated to the
satisfaction of Merrill
Lynch with all security
interests in favor of exist-
ing lenders being uncondi-
tionally released.
(iv) Merrill Lynch shall be
satisfied that there has
been no material adverse
change in the tax or
accounting consequences of
the Transaction since the
date hereof.
(v) All requisite third par-
ties shall have approved or
consented to the Transaction
and the other transactions
contemplated hereby to the
extent required, which lack
of consent would in the
judgment of Merrill Lynch,
singly or in the aggregate,
involve a reasonable possi-
bility of a material adverse
effect on the condition
(financial or otherwise),
operations, business,
assets, liabilities (contin-
gent or otherwise) or pros-
pects of the Borrower taken
as a whole or the ability of
the Borrower and the Guaran-
tors to fully and timely
perform each of its
obligations under the Credit
Agreement, or the ability of
the parties to consummate
the financing or the other
transactions contemplated
hereby or the validity or
enforceability of any of the
definitive credit documenta-
tion or the rights, remedies
and benefits available to
the Agent and the Lenders
under the Credit Agreement,
and there shall be no gov-
ernmental or judicial
action, actual or threat-
ened, that would, singly or
in the aggregate, reasonably
restrain, prevent or impose
burdensome conditions on the
transactions contemplated
hereby.
(vi) There shall be no liti-
gation or administrative
proceedings or other legal
or regulatory developments,
actual or overtly threat-
ened, that, in the judgment
of Merrill Lynch, singly or
in the aggregate, involve a
reasonable possibility of a
material adverse effect on
the condition (financial or
otherwise), operations,
business, assets, liabili-
ties (contingent or other
wise) or prospects of the
Borrower taken as a whole or
the ability of the Borrower
and the Guarantors to fully
and timely perform each of
its obligations under the
Credit Agreement and the
documentation pursuant
thereto, or the ability of
the parties to consummate
the financing or the other
transactions contemplated
hereby or the validity or
enforceability of any of the
definitive credit documenta-
tion or the rights, remedies
and benefits available to
the Agent and the Lenders
under the Credit Agreement,
or which would be materially
inconsistent with the stated
assumptions underlying the
Projections.
(vii) Merrill Lynch shall be
satisfied that there has
been no material adverse
change in the amount and
nature of any environmental
and employee health and
safety exposures and tax and
other contingent liabilities
to which the Borrower may be
subject, and the plans of
the Borrower with respect
thereto since the date
hereof.
(viii) Merrill Lynch shall
have received such other
legal opinions, corporate
documents and other instru-
ments and/or certificates as
they may reasonably request.
(ix) There shall be no mate-
rial adverse change in the
business, assets, liabili-
ties (contingent or other
wise), operations, condition
(financial or otherwise),
solvency or prospects of the
Borrower (either before or
after giving effect to the
Transaction) except as con-
templated hereby since Feb-
ruary 25, 1995.
Representations and Warranties: Customary for facilities
similar to the Credit Facil-
ities and such additional
representations and warran-
ties as may be required by
the Agent, including, but
not limited to, no Default
or Event of Default; absence
of material adverse change;
receipt of financial state
ments (including pro forma
financial statements);
absence of undisclosed lia-
bilities or material contin-
gent liabilities not known
to Agent prior to the date
hereof; compliance with Fed-
eral Reserve Board regula-
tions (including margin reg-
ulations); compliance with
laws (including environmen-
tal laws and ERISA); sol-
vency; no conflicts with
laws, charter documents or
agreements; good standing;
inapplicability of the
Investment Company Act of
1940 and the Public Utility
Holding Company Act of 1935;
payment of taxes; ownership
of properties; absence of
liens and security
interests.
Affirmative Covenants: Customary for facilities
similar to the Credit Facil-
ities, including but not
limited to maintenance of
corporate existence and
rights; compliance with
laws; performance of obliga-
tions; maintenance of prop-
erties in good repair; main-
tenance of appropriate and
adequate insurance; inspec-
tion of books and proper-
ties; payment of taxes and
other liabilities; notice of
defaults; litigation and
other adverse action; deliv-
ery of financial statements
as normally prepared by the
Borrower, financial projec-
tions as normally prepared
by the Borrower in connec-
tion with the preparation of
its annual budget, and com-
pliance certificates; and
further assurances.
Negative Covenants: Customary for facilities
similar to the Credit Facil-
ities and such others as may
be required by the Agent,
including but not limited to
limitations on indebtedness;
limitations on liens; limi-
tations on loans, invest-
ments and joint ventures;
limitations on guarantee or
other contingent obliga-
tions; limitations on
restricted payments (includ-
ing limitations on divi-
dends, redemptions and
repurchases of capital
stock); limitations on fun-
damental changes (including
limitations on mergers,
acquisitions and asset
sales); limitations on oper-
ating leases; limitations on
sale-leaseback transactions;
limitations on sale or dis-
count of receivables; limi-
tations on transactions with
affiliates; limitation on
creation of subsidiaries;
limitations on payment
restrictions affecting sub-
sidiaries; limitations on
issuance, sale or other dis-
position of subsidiary
stock; limitations on
capital expenditures; limi-
tations on changes in busi-
ness conducted; limitations
on amendment of indebtedness
and other material docu-
ments; and limitations on
prepayment or repurchase of
other indebtedness.
Financial Covenants: The Credit Facilities will
contain financial covenants
appropriate in the context
of the proposed transaction
based upon the financial
information provided to the
Agent, including but not
limited to: minimum inter-
est coverage ratio (Consoli-
dated EBITDA to Consolidated
Interest Expense), minimum
consolidated net worth and
maximum leverage ratio (Con-
solidated Total Debt to Con-
solidated EBITDA). The
financial covenants contem-
plated above will be tested
quarterly, each such quar-
terly test period to include
such quarter and each of the
three immediately preceding
quarters and will apply to
the Borrower and its subsid-
iaries on a consolidated
basis. The above capital-
ized financial covenant
terms shall have the stan-
dard meanings given to such
terms in the definition sec-
tion of a standard Merrill
Lynch credit agreement.
Such definitions are
attached hereto as Annex A.
Interest Rate Management: Approximately 50% of the
outstanding indebtedness
under the Term Loan Facili-
ties must be hedged on terms
and for a period of time
satisfactory to the Agent.
Events of Default: Customary for facilities
similar to the Credit Facil-
ities and others to be spec-
ified by the Agent, includ-
ing but not limited to non-
payment of principal, inter-
est, fees or other amounts
when due; violation of cove-
nants; failure of any repre-
sentation or warranty to be
true in all material
respects; cross-default and
cross-acceleration; Change
in Control; bankruptcy
events; material judgments;
ERISA; and actual or
asserted (by the Borrower or
any affiliate) invalidity of
loan documents or security
interests.
Yield Protection and Provisions customary for
Increased Costs: facilities similar to the
Credit Facilities, including
but not limited to compensa-
tion in respect of redeploy-
ment costs, reserve require-
ments, taxes (including
gross-up provisions for
withholding taxes) and
decreased profitability
resulting from changes in
U.S. or foreign capital ade-
quacy requirements, guide-
lines or policies or their
interpretation or applica-
tion, whether or not having
the force of law. Compensa-
tion will be payable by the
Borrower upon presentation
by the affected Lender of a
certificate as to the
amounts involved, which will
be conclusive absent mani-
fest error.
Assignments and Participations: Neither the Borrower nor any
of its affiliates may assign
its rights or obligations in
connection with the Credit
Facilities without the prior
written consent of all the
Lenders.
Lenders will be permitted to
participate and, with the
consent of the Agent, assign
loans, notes and commit-
ments. Each assignment will
be in a minimum amount of
$5,000,000. Non-pro-rata
assignments of loans, notes
and commitments under the
Credit Facilities will be
permitted. Participations
shall be without restric-
tions and participants will
have the same benefits as
the original syndicate Lend-
ers with regard to yield
protection and increased
costs, collateral benefits
and provision of information
on the Borrower and its sub-
sidiaries. Voting rights of
participants will be limited
to proposed increases in
amount, release of all or
substantially all collat-
eral, decreases in interest
rate or fees and extensions
of scheduled final maturity
date.
Voting: Amendments and waivers of
the definitive credit docu-
mentation will require the
approval of Lenders holding
loans and commitments repre-
senting not less than
66 2/3% of the aggregate
amount of the loans and com-
mitments under the Credit
Facilities, except that the
consent of all affected
Lenders shall be required
with respect to
(a) increases in commit-
ments, (b) reductions of
principal, interest or fees,
(c) extensions of scheduled
final maturity and
(d) certain releases of
collateral.
Expenses and Indemnification: All out-of-pocket expenses
of the Agent and the Admin-
istrative Agent (and the
Lenders for enforcement
costs and documentary taxes)
associated with the perfor-
mance of due diligence by
the Agent and the Adminis-
trative Agent, the syndica-
tion of the Credit Facili-
ties (including but not lim-
ited to printing, duplicat-
ing, mailing and similar
expenses) and the prepara-
tion, execution and deliv-
ery, waiver or modification,
and enforcement of the
definitive credit documenta-
tion contemplated hereby
(including the reasonable
fees, disbursements and
other charges of counsel for
the Agent and the Adminis-
trative Agent) are to be
paid by the Borrower. The
Borrower will indemnify each
of the Agent, the Adminis-
trative Agent and the other
Lenders and hold them harm-
less from and against all
costs, expenses (including
fees, disbursements and
other charges of counsel)
and liabilities arising out
of or relating to any liti-
gation or other proceeding
(regardless of whether the
Agent, the Administrative
Agent or any such other
Lender is a party thereto)
that relate to the Transac-
tion or any transactions
related thereto, provided
that none of the Agent, the
Administrative Agent or any
such other Lender will be
indemnified for its gross
negligence or bad faith.
Governing Law and Forum: New York.
Annex A
Standard Financial Covenant Definitions
"Consolidated Amortization Expense" for any Person
shall mean, for any period, the consolidated amortization
expense of such Person for such period, determined on a consol-
idated basis for such Person and its Subsidiaries in conformity
with GAAP.
"Consolidated Capital Expenditures" of any Person
shall mean, for any period, the aggregate gross increase during
that period, in the property, plant or equipment reflected in
the consolidated balance sheet of such Person and its consoli-
dated Subsidiaries, in conformity with GAAP, but excluding
expenditures made in connection with the replacement, substitu-
tion or restoration of assets (i) to the extent financed from
insurance proceeds paid on account of the loss of or damage to
the assets being replaced or restored, (ii) with awards of com-
pensation arising from the taking by eminent domain or condem-
nation of the assets being replaced or (iii) with regard to
equipment that is purchased simultaneously with the trade-in of
existing equipment, fixed assets or improvements, the credit
granted by the seller of such equipment for the trade-in of
such equipment, fixed assets or improvements; provided that
Consolidated Capital Expenditures shall in any event include
the purchase price paid in connection with the acquisition of
any other Person (including through the purchase of all of the
capital stock or other ownership interests of such Person or
through merger or consolidation) to the extent allocable to
property, plant and equipment.
"Consolidated Current Assets" shall mean, with
respect to any Person as at any date of determination, the
total assets of such Person and its consolidated Subsidiaries
which may properly be classified as current assets on a consol-
idated balance sheet of such Person and its Subsidiaries in
accordance with GAAP.
"Consolidated Current Liabilities" shall mean, with
respect to any Person as at any date of determination, the
total liabilities of such Person and its consolidated Subsid-
iaries which may properly be classified as current liabilities
(other than the current portion of any Loans) on a consolidated
balance sheet of such Person and its consolidated Subsidiaries
in accordance with GAAP.
"Consolidated Depreciation Expense" for any Person
shall mean, for any period, the consolidated depreciation
expense of such Person for such period, determined on a consol-
idated basis for such Person and its consolidated Subsidiaries
in conformity with GAAP.
"Consolidated EBITDA" for any Person shall mean, for
any period, without duplication, the amount equal to (A) the
sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Tax Expense, (iii) Consolidated
Interest Expense, (iv) Consolidated Amortization Expense and
(v) Consolidated Depreciation Expense (with respect to clauses
(ii) through (iv), to the extent such amounts were deducted in
computing Consolidated Net Income) less (B) the sum of the
amounts for such period of (i) interest income (net of income
taxes) and (ii) gains or losses on sales of assets (net of
income taxes) to the extent included in Consolidated Net
Income, whether or not extraordinary (excluding sales in the
ordinary course of business) and other extraordinary gains, all
as determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" for any Person shall
mean, for any period, the sum of (x) total interest expense
(including that attributable to Capital Leases in accordance
with GAAP) and (y) total cash dividends paid on any preferred
stock, in each case of such Person and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness
and preferred stock of such Person and its Subsidiaries,
including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit
financing, but excluding, however, any amortization of deferred
financing costs, all as determined on a consolidated basis for
such Person and its consolidated Subsidiaries in accordance
with GAAP. For purposes of clause (y) above, dividend require-
ments shall be increased to an amount representing the pretax
earnings that would be required to cover such dividend require-
ments; accordingly, the increased amount shall be equal to such
dividend requirements multiplied by a fraction, the numerator
of which is such dividend requirement and the denominator of
which is 1 minus the applicable actual combined Federal, state,
local and foreign income tax rate of such Person and its sub-
sidiaries (expressed as a decimal), on a consolidated basis,
for the fiscal year immediately preceding the date of the
transaction giving rise to the need to calculate Consolidated
Interest Expense.
"Consolidated Net Income" for any Person shall mean,
for any period, the net income (or loss) of such Person and its
Subsidiaries on a consolidated basis for such period taken as a
single accounting period determined on a consolidated basis for
such Person and its consolidated Subsidiaries in conformity
with GAAP; provided that there shall be excluded (i) the income
(or loss) of any other Person (other than consolidated Subsid-
iaries of such Person) in which any third Person (other than
such Person or any of its consolidated Subsidiaries) has a
joint interest, except to the extent of the amount of divi-
dends, distributions and intercompany loans actually paid to
such Person or any of its Subsidiaries by such other Person
during such period, (ii) the income (or loss) of any other Per-
son accrued prior to the date it becomes a consolidated Subsid-
iary of such Person or is merged into or consolidated with such
Person or any of its consolidated Subsidiaries or such other
Person's assets are acquired by such Person or any of its con-
solidated Subsidiaries and (iii) the income of any consolidated
Subsidiary of such Person to the extent that the declaration or
payment of dividends or similar distributions by that consoli-
dated Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instru-
ment, judgment, decree, order, statute, rule or governmental
regulation applicable to that consolidated Subsidiary, except
to the extent of the dividends or distributions actually paid
to such Person or any of its Subsidiaries by such other Person
during such period.
"Consolidated Net Worth" of any Person shall mean, at
any time for the determination thereof, the sum of the capital
stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its consolidated
Subsidiaries, all as determined on a consolidated basis for
such Person and its consolidated Subsidiaries in conformity
with GAAP.
"Consolidated Tax Expense" for any Person shall mean,
for any period, the consolidated tax expense of such Person for
such period, determined on a consolidated basis for such Person
and its consolidated Subsidiaries in conformity with GAAP.
"Eligible Accounts Receivable" shall mean, as at any
applicable date of determination, the aggregate face amount of
Borrower's Accounts included in clause (i) of the definition of
Account hereunder, without duplication, in each case less
(without duplication) the aggregate amount of all reserves,
limits and deductions with respect to such Accounts set forth
below or as otherwise provided in this Agreement and less the
aggregate amount of all returns, discounts, claims, credits,
charges (including warehouseman's charges) and allowances of
any nature with respect to such Accounts (whether issued,
owing, granted or outstanding). Unless otherwise approved in
writing by the Agent in its sole discretion (or, if the aggre-
gate amount of approvals exceeds $[ ] at any one time,
the approval of the Required Banks), no individual Account
shall be deemed to be an Eligible Account Receivable if:
(a) the Borrower does not have legal and valid title
to the Account; or
(b) the Account is not the valid, binding and
legally enforceable obligation of the account debtor sub-
ject, as to enforceability, only to (i) applicable bank-
ruptcy, insolvency, reorganization, moratorium or similar
laws at the time in effect affecting the enforceability of
creditors' rights generally and (ii) judicial discretion
in connection with the remedy of specific performance and
other equitable remedies; or
(c) the Account arises out of a sale made by the
Borrower to an Affiliate of the Borrower; or
(d) the Account is unpaid more than [ ] days after
the original payment date; provided, however, that the
aggregate amount of all invoices providing for payment
more than [ ] days from the date of the invoice that may
constitute Eligible Accounts Receivable shall not exceed
$[ ] at any one time; or
(e) the Account, when aggregated with all other
Accounts of the same account debtor (or any Affiliate
thereof), exceeds [ ] percent in face value of all
Accounts of Borrower then outstanding, to the extent of
such excess; or
(f) (i) the account debtor is also a creditor of the
Borrower, to the extent of the amount owed by the Borrower
to the account debtor, (ii) the Account is subject to any
claim on the part of the account debtor disputing lia-
bility under such Account in whole or in part, to the
extent of the amount of such dispute or (iii) the Account
otherwise is or is reasonably likely to become subject to
any right of setoff or any counterclaim, claim or defense
by the account debtor, to the extent of the amount of such
setoff or counterclaim, claim or defense; or
(g) the account debtor has commenced a voluntary
case under the federal bankruptcy laws, as now constituted
or hereafter amended, or made an assignment for the bene-
fit of creditors or if a decree or order for relief has
been entered by a court having jurisdiction in the prem-
ises in respect of the account debtor in an involuntary
case under the federal bankruptcy laws, as now constituted
or hereafter amended, or if any other petition or other
application for relief under the federal bankruptcy laws
has been filed by or against the account debtor, or if the
account debtor has failed, suspended business, ceased to
be solvent, or consented to or suffered a receiver, trus-
tee, liquidator or custodian to be appointed for it or for
all or a significant portion of its assets or affairs; or
(h) the Agent does not have a valid and perfected
first priority security interest in such Account (subject
only to a tax lien being contested in good faith and by
appropriate proceedings and permitted by Section [ ];
or
(i) the sale to the account debtor is on a consign-
ment, bill-and-hold, sale on approval, guaranteed sale or
sale-and-return basis or pursuant to any written agreement
providing for repurchase or return; or
(j) it is from the same account debtor (or any
Affiliate thereof) and [ ] percent ([ ]%) or more, in
face amount, of other Accounts from either such account
debtor or any Affiliate thereof are due or unpaid for more
than [ ] days after the original invoice date; or
(k) [ ] percent ([ ]%) or more, in face amount,
of other Accounts from the same account debtor are not
deemed Eligible Accounts Receivable hereunder; or
(l) with respect to the Account, the account debtor
is a foreign government or any agency, department or
instrumentality thereof; or
(m) the Account is an Account a security interest in
which would be subject to the Federal Assignment of Claims
Act of 1940, as amended (31 U.S.C. { 3727 et seq.), unless
Borrower has assigned the Account to the Agent in compli-
ance with the provisions of such Act; or
(n) the sale is to an account debtor outside the
continental United States or incorporated in or conducting
substantially all of its business in any jurisdiction
located outside the United States, unless the sale is
(i) on letter of credit, guaranty or acceptance terms, in
each case acceptable to the Agent, or (ii) otherwise
approved by and acceptable to the Agent; or
(o) the Agent determines in good faith in accordance
with its internal credit policies that (i) collection of
the Account is insecure or (ii) the Account may not be
paid by reason of the account debtor's financial inability
to pay; provided, however, that any Account referred to in
this clause (o) shall not become ineligible until the
Agent shall have given the Borrower three Business Days'
advance notice of such determination; or
(p) the goods giving rise to such Account have not
been shipped and delivered to and accepted by the account
debtor or the services giving rise to such Account have
not been performed by the Borrower and accepted by the
account debtor or the Account otherwise does not represent
a final sale; or
(q) the Account does not comply in all material
respects with all applicable legal requirements, includ-
ing, where applicable, the Federal Consumer Credit Protec-
tion Act, the Federal Truth in Lending Act and Regulation
Z of the Board of Governors of the Federal Reserve System,
in each case as amended.
In addition to the foregoing, Eligible Accounts
Receivable shall include such Accounts as the Borrower shall
request and that the Agent approves in advance, in writing and
in its sole discretion.
"Eligible Inventory" shall mean (A) the gross amount
of the Borrower's Inventory, valued at the lower of cost (on a
[FIFO] basis) or market, which (i) is owned solely by the Bor-
rower and with respect to which the Borrower has good, valid
and marketable title; (ii) is stored on property that is either
(a) owned or leased by the Borrower or (b) owned or leased by a
warehouseman that has contracted with the Borrower to store
Inventory on such warehouseman's property (provided that, with
respect to Inventory stored on property leased by the Borrower,
the Borrower shall have delivered in favor of the Agent an
acknowledgment agreement executed by the lessor of such prop-
erty, and, with respect to the Inventory stored on property
owned or leased by a warehouseman, the Borrower shall have
delivered to the Agent acknowledgment agreements executed by
such warehouseman); (iii) is subject to a valid, enforceable
and first priority Lien in favor of the Agent subject to a tax
lien being contested in good faith and by appropriate proceed-
ings and permitted by Section [ ], except with respect to
Eligible Inventory stored at sites described in clause (ii)(b)
above, for Liens for normal and customary warehouseman charges;
(iv) is located in the United States; and (v) is not, in the
reasonable judgment of the Agent, obsolete or slow moving, and
which otherwise conforms to the warranties and standards for
eligibility contained herein; (B) less any goods returned or
rejected by the Borrower's customers and goods in transit; and
(C) less any reserves required by the Agent for special order
goods and market value declines. In addition to the foregoing,
Eligible Inventory shall include such items of the Borrower's
Inventory as Borrower shall request and that the Agent approves
in advance, in writing and in its sole discretion [(or if the
aggregate amount of approvals exceeds $[ ] at any one
time, the approval of the Required Banks)]; provided that this
definition of Eligible Inventory shall under no circumstances
include work in progress or raw materials.
"Indebtedness" of any Person shall mean, without
duplication, (i) all indebtedness of such Person for borrowed
money, (ii) the deferred purchase price of assets or services
which in accordance with GAAP would be shown on the liability
side of the balance sheet of such Person, (iii) the face amount
of all letters of credit issued for the account of such Person
and, without duplication, all drafts drawn thereunder, (iv) all
Indebtedness of a second Person secured by any Lien on any
property owned by such first Person, whether or not such
Indebtedness has been assumed by such first Person, (v) all
Capitalized Lease Obligations of such Person, (vi) all obliga-
tions of such Person to pay a specified purchase price for
goods or services whether or not delivered or accepted, i.e.,
take-or-pay and similar obligations, (vii) all obligations of
such Person under Interest Rate Agreements and (viii) all Con-
tingent Obligations of such Person.
AGREEMENT
This Agreement (the "Agreement") is made as of June 13, 1995, by and
among FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"),
and FS Equity Partners International, L.P., a Delaware limited partnership
("FSEP International" and together with FSEP III, "FS"); Lillian Vernon ("Ms.
Vernon"); David C. Hochberg ("Mr. D. Hochberg"); and Fred P. Hochberg ("Mr. F.
Hochberg").
R E C I T A L S:
A. FS has caused the formation of VB Investment Corporation (the
"Company").
B. Lillian Vernon Corporation, a Delaware corporation ("Target"),
and the Company propose to enter into an Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement"), which provides, among other things,
that the Company will merge with and into Target pursuant to the merger
contemplated by the Merger Agreement (the "Merger");
C. As of the date hereof each of Ms. Vernon, Mr. D. Hochberg and
Mr. F. Hochberg owns the number of shares of common stock, par value $.01 per
share ("Target Common Stock"), of Target, set forth opposite such stockholders
name on Exhibit A hereto (all such shares and any shares hereafter acquired by
any of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg prior to termination of
this Agreement being referred to herein as the "Shares"); and
D. As a condition to the willingness of the Company to enter into
the Merger Agreement, FS has required that each of Ms. Vernon, Mr. D. Hochberg
and Mr. F. Hochberg agree, and in order to induce the Company to enter into the
Merger Agreement, each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg has
agreed, to enter into this Agreement with respect to the Shares.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Other Agreements.
Immediately prior to the Merger, (i) FS, Ms. Vernon and Mr. D.
Hochberg will enter into a Stockholders Agreement substantially in the form
attached hereto as Exhibit B (the "Stockholders Agreement"), and (ii) Ms. Vernon
shall
enter into an amendment to her employment agreement with Target in substantially
the form attached hereto as Exhibit C, and Ms. Vernon shall enter into an
amendment to her deferred compensation arrangement with Target in substantially
the form attached hereto as Exhibit C-1. Each individual that retains Target
Common Stock in connection with the Merger will be an "accredited investor" as
defined in Rule 501 of Regulation D under the Act.
2. Voting and Transfer of Target Shares; No Negotiation.
(a) Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
shall vote, at any meeting of stockholders or in connection with any written
consent, all Shares, (i) in favor of the Merger and the approval of the terms of
the Merger Agreement, (ii) against the following actions (other than the Merger
and the transactions contemplated by the Merger Agreement): (1) a merger,
consolidation or other business combination involving the Target or its
subsidiaries; (2) a sale, lease or transfer of a material amount of assets of
the Target or its subsidiaries, (3) a reorganization, recapitalization,
dissolution or liquidation of the Target or its subsidiaries; (4) any material
change in the present capitalization of the Target or any amendment of the
Target's Certificate of Incorporation; or (5) any other action which could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or materially adversely affect the Merger or the transactions contemplated by
the Merger Agreement or this Agreement or the contemplated economic benefits of
any of the foregoing. Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
agrees to take all reasonable action pursuant to her or his rights or
obligations as a stockholder or securityholder of Target to effect the Merger,
having the securities owned by her or him being counted toward any required
quorum and not exercising any dissenters' or appraisal rights, which are hereby
waived.
(b) None of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
shall transfer, exchange or pledge, hypothecate or encumber in any way the
shares of Target Common Stock beneficially owned by Ms. Vernon, Mr. D. Hochberg
or Mr. F. Hochberg, other than a transfer of shares of Target Common Stock
pursuant to the Merger; provided however that Mr. F. Hochberg may transfer by
gift 120,000 shares of Target Common Stock and such transferee shall not be
subject to the terms of this Agreement.
(c) None of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
or any of her or his respective employees, representatives or agents shall,
directly or indirectly, solicit or initiate discussions or negotiations with, or
provide any information to, any corporation, partnership, person, or other
entity or group (other than in connection with the Merger or with FS or the
Company or an affiliate or an associate of FS or the Company or an officer,
partner, employee or other authorized representative of FS or the Company or
such affiliate or associate) concerning (i) any tender offer, merger or sale of
all or substantially all assets involving Target or (ii) any sale of shares of
capital stock or an option or warrant to purchase shares of capital stock of
Target or any reorganization or reclassification or subdivision of capital stock
of Target (including, without limitation, with respect to her or his ownership
interest in Target) or otherwise in connection with one of the foregoing
transactions or similar transaction involving Target (all such transactions
being referred to herein as "Acquisition Transaction"), or participate in any
negotiation regarding any Acquisition Transaction or otherwise cooperate or
facilitate in any way with or encourage any effort or attempt by any other
person to effectuate an Acquisition Transaction. None of Ms. Vernon, Mr. D.
Hochberg or Mr. F. Hochberg is currently involved in any existing discussions or
negotiations with any party (other than FS) with respect to any of the
foregoing. Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg will promptly
communicate to FS the terms of any proposal she or he may receive from any other
party in respect of an Acquisition Transaction or of any proposal made to any of
Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg of which any of them has
knowledge, and FS agrees to keep such information confidential and not to trade
on such information until such information is otherwise publicly disclosed.
Nothing in this Agreement shall prevent any of Ms. Vernon, Mr. D. Hochberg or
Mr. F. Hochberg from acting solely in her or his capacity as a director or
officer of Target to the extent necessary to comply with her or his fiduciary
responsibilities as such a director or officer.
(d) (i) Each of Ms. Vernon, Mr. D. Hochberg and Mr. F.
Hochberg hereby grants to and appoints Ronald P. Spogli and John M. Roth of FS,
and each of them individually, her or his irrevocable proxy and attorney-in-fact
(with full power of substitution) to vote her or his respective Shares in the
manner set forth in Section 2(a). Each of Ms. Vernon, Mr. D. Hochberg and Mr.
F. Hochberg intends this proxy to be irrevocable and coupled with an interest
and will take such further action and execute such other instruments as may be
necessary to effectuate the intent of this proxy and hereby revokes any proxy
previously granted by her or him with respect to her or his shares of Target
Common Stock and no subsequent proxy shall be given with respect thereto.
3. Covenants.
(a) Each of FS, Ms. Vernon and Mr. D. Hochberg shall use
their commercially reasonable best efforts to cause the consummation of the
Merger.
(b) None of FS, Ms. Vernon, Mr. D. Hochberg or Mr. F.
Hochberg will take any action which would make any of their respective
representations or warranties contained herein untrue or incorrect or have the
effect of preventing or disabling them from performing any of their respective
obligations under this Agreement.
(c) FS, Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
shall not make any filing, public announcement or press release regarding the
transactions
contemplated hereby without the prior approval of the other parties, which
approval shall not be unreasonably withheld or delayed.
(d) Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg
shall, at the reasonable request of Target, cooperate with Target in obtaining
additional life insurance with respect to themselves, in connection with
Target's deferred compensation obligations.
(e) Immediately prior to the consummation of the Merger, Ms.
Vernon shall execute an Assignment in the form attached hereto as Exhibit D.
4. Representations and Warranties.
(a) Representations of FS. Each of FSEP III and FSEP
International hereby represents and warrants to Ms. Vernon, Mr. D. Hochberg and
Mr. F. Hochberg as follows:
(i) It is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full authority under its agreement of limited partnership and
any amendments thereto to carry on its business as now conducted.
(ii) The execution, delivery, performance of
and compliance with this Agreement and the Stockholders Agreement by it do not
and will not (A) violate (1) any provision of its limited partnership agreement
or any amendments thereto, (2) the terms of any mortgage, indenture, lien,
lease, agreement, instrument, order, judgment or decree to which it is a party
or by which it is bound or (3) any provision of law, statute, ordinance, rule or
regulation or (B) require any consent or approval of any third party.
(iii) This Agreement has been and, when
executed, the Stockholders Agreement will be, duly authorized, duly and validly
executed and delivered by each of FSEP III and FSEP International and, assuming
due execution and delivery by the other parties hereto, each of such agreements
is, or upon execution will be, the valid and binding obligation of each of FSEP
III and FSEP International, enforceable against each of them in accordance with
their respective terms, except as the same may be limited by bankruptcy,
insolvency, moratorium or similar laws or by equitable principles relating to or
limiting creditors' rights generally.
(b) Representations of Ms. Vernon, Mr. D. Hochberg and Mr.
F. Hochberg. Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg hereby
represents and warrants to FS as follows:
(i) Such stockholder has full power, capacity, right
and authority and any required approvals and consents to enter into and perform
this Agreement and the Stockholders Agreement. Such stockholder has not entered
into any agreement to sell, purchase or acquire or any other agreement relating
to Target Common Stock other than this Agreement.
(ii) The execution, delivery, performance of and
compliance with this Agreement and the Stockholders Agreement by such
stockholder do not and will not violate (A) the terms of any mortgage,
indenture, lien, lease, agreement, instrument, order, judgment or decree to
which such stockholder is a party or by which such stockholder is bound or (B)
any provision of law, statute, ordinance, rule or regulation.
(iii) This Agreement has been and, when executed, the
Stockholders Agreement will be, duly and validly executed and delivered by such
stockholder and, assuming due execution and delivery by the other parties
hereto, each of such agreements is, or upon execution will be, the valid and
binding obligation of such stockholder, enforceable against such stockholder in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, moratorium or similar laws or by equitable principles
relating to or limiting creditors' rights generally.
(iv) Such stockholder is, and at all times prior to
the consummation of the Merger will be, the record and beneficial owner of, and
holds, and will hold at all times prior to the consummation of the Merger, good
and marketable title to, the number of Shares opposite such stockholders name on
Exhibit A free and clear of liens, pledges, encumbrances, security interests,
restrictions or claims of any kind. Such stockholder has the sole power to
dispose of and vote such Shares.
5. Covenant Not to Compete.
Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg agrees
that, for the benefit of Target, for the period commencing on the consummation
of the Merger (the "Effective Time") and ending five years after the
consummation of the Merger (the "Non-Competition Period") such individual will
not, directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control of, or be connected in any manner
with, any business which shall be engaged anywhere in the world in the marketing
or sale in any manner of gift, household, gardening, decorative, Christmas and
children's products or any other products of the type currently sold or
contemplated to be sold by Target, other than through employment with or
ownership interests in Target; provided, however, that nothing in this Agreement
shall prevent Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg from investing in
stocks, bonds or other securities of any business organization if (i) such
stocks, bonds or other securities are listed on a national or regional
securities exchange or are registered under Section 12(g) of the Securities Act
of 1934, and (ii) such investment in any class of such securities does not
exceed 5% of the issued and outstanding shares of such class, or 5% of the
aggregate principal amount of such class, as the case may be. During the Non-
competition Period, none of Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg (or
any of their respective affiliates) shall (directly or indirectly) solicit any
then current employee of Target or any person who was employed by Target within
the previous six months, to enter their employ or to enter the employment of any
entity by which she or he is employed or in which she or he has an ownership
interest and none of them shall cause any such entity to do any of the
foregoing. In the event that this covenant not to compete is held by any court
of competent jurisdiction to be unenforceable because it is too extensive in
scope or time or territory, it shall be deemed to be and shall be amended
without any further act by the parties hereto to conform to the scope and period
of time and geographical area which would permit it to be enforced. If this
covenant is breached or threatened to be breached, each of Ms. Vernon, Mr. D.
Hochberg and Mr. F. Hochberg, expressly consents that, in addition to any other
remedy Target may have, Target shall be entitled to apply for and receive
injunctive relief in order to prevent the continuation of any existing breach or
the occurrence of any threatened breach. Notwithstanding the foregoing, Mr. F.
Hochberg may retain his existing equity interest in Shocking Grey (but may act
solely as a passive investor with respect to such company) and nothing will
prevent Mr. F. Hochberg from serving as a director of any company that operates
a catalog business, provided that the revenues of such catalog business shall
not account for more than 33 1/3% of such company's revenues (based upon a good
faith determination of the amounts of the revenues identified above). During
the Non-Competition Period, and subject to Mr. F. Hochberg's compliance with
this Section 5, Target shall not single Mr. F. Hochberg out for different
treatment from other employees of Target with respect to health and medical
benefits to which he is entitled under that certain Consulting Agreement dated
March 11, 1993 between Target and Mr. F. Hochberg.
6. Termination. Except for Sections 3(d), 5, 7(b) and 7(c)
hereof (which shall not terminate except in accordance with their terms), this
Agreement and all rights and obligations hereunder, will terminate upon the
earlier of (i) the Effective Time (as defined in the Merger Agreement), (ii) the
termination of the Merger Agreement in accordance with its terms upon a breach
of the Merger Agreement by the Company and (iii) (A) in the case of obligations
of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg pursuant to clauses (3) or
(4) of Section 2(a), 6 months from the date hereof, and (B) in the case of all
other rights and obligations hereunder, 10 months from the date hereof.
7. Miscellaneous.
(a) After Acquired Shares; Legends. The provisions of this
Agreement shall apply to any shares of Target Common Stock acquired after the
execution of the Agreement by Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg and
shall be included in the term "Shares". The term "Shares" and "Target Common
Stock" as used herein includes any securities into which Target Common Stock may
hereafter be changed and any securities of Target of any other class or kind
hereafter issued to holders of shares of Target Common Stock upon any
reclassification thereof. Each of Ms. Vernon, Mr. D. Hochberg and Mr. F.
Hochberg shall present to Target within 10 days after the date of this Agreement
the certificates representing Target Common Stock beneficially owned by her or
him and Target shall place the following legend on such certificates: "The
shares of Common Stock par value $.01 per share, of Target represented by this
certificate are subject to an Agreement dated as of June 13, 1995, and may not
be sold or otherwise transferred, except in accordance therewith. Copies of
such Agreement may be obtained at the principal executive offices of Target."
Each of Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg agrees that within ten
days after the date of this Agreement, she or he will no longer hold any shares
of Target Common Stock in "street name" or in the name of any nominee.
(b) Defense of Litigation. Each of FS, Ms. Vernon and Mr.
D. Hochberg shall use all reasonable efforts to (i) defend any action relating
to the transactions contemplated by this Agreement or adversely affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement, including (without limitation) the Merger and (ii) lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement, including (without limitation) the Merger. Each of Ms. Vernon, Mr.
D. Hochberg and Mr. F. Hochberg agrees that she or he shall not share in any way
in any proceeds resulting from a settlement or other resolution of any such
action. This covenant shall survive the consummation of the Merger.
(c) Expenses. Upon consummation of the Merger, the parties
agree that Target will pay all the reasonable expenses incurred in connection
with the formation of the Company and the Merger, including the expenses of FS
(and its affiliates) and Ms. Vernon, Mr. D. Hochberg and Mr. F. Hochberg.
(d) Further Assurances; Good Faith. Each party hereto
agrees to perform any further acts and to execute and deliver any document which
may be reasonably necessary to carry out the intent of this Agreement. Each
party hereto further agrees to (i) at all times in good faith act in such a
manner as to fulfill the intent and purpose of this Agreement and to protect the
rights created hereby against impairment and (ii) use its reasonable best
efforts to comply with all requirements of applicable law.
(e) Notices. All notices, requests and other communications
hereunder shall be in writing and, if by personal delivery, shall be deemed to
have been validly served, given or delivered upon actual delivery, and, if by
facsimile transmission, shall be deemed to have been validly served, given or
delivered upon transmission and acknowledgement of receipt thereof, in each case
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to FS:
FS Equity Partners III, L.P.
FS Equity Partners International, L.P.
c/o Freeman Spogli & Co. Incorporated
18th Floor
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 758-7499
Attention: John M. Roth
If to Ms. Vernon:
c/o Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
If to Mr. D. Hochberg:
c/o Lillian Vernon Corporation
543 Main Street
New Rochelle, New York 10801
If to Mr. F. Hochberg:
c/o Heyday Company
149 Fifth Avenue, Suite 1213
New York, New York 10010
(f) Amendments. Any amendment of this Agreement or waiver
of compliance with any provisions hereof shall be in writing and shall require
the written approval of each of the parties hereto and any amendment of Section
6 shall require the consent of Target. Any such amendment or waiver so approved
in writing shall be binding upon all of the parties hereto and their respective
successors and permitted assigns.
(g) Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
without regard to conflicts of law principles thereof.
(h) Disputes. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees and expenses.
(i) Specific Performance. It is acknowledged that it will
be impossible to measure in money the damages that would be suffered if the
parties hereto fail to comply with any of the obligations imposed herein on them
and that, in the event of any such failure, an aggrieved party hereto will be
irreparably damaged and will not have an adequate remedy at law. In addition to
being entitled to exercise all rights granted by law, any such party shall,
therefore, be entitled to injunctive relief, including specific performance, to
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
(j) 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 will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
(k) Headings. Introductory headings at the beginning of
each Section and paragraph of this Agreement are solely for the convenience of
the parties and shall not be deemed to be a limitation upon or description of
the contents of this Agreement.
(l) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
(m) No Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns and, with respect to Section 6, to the benefit of Target and
its successors and assigns.
(n) Copy of Agreement. A copy of this Agreement and all
permitted amendments hereto and waivers hereof shall be kept at the principal
executive offices of the Company.
(o) Agreement Conditional. This Agreement shall be of no
force or effect, and none of FS, Ms. Vernon, Mr. D. Hochberg or Mr. F. Hochberg
shall have any obligation hereunder, unless and until the Board of Directors of
Target shall have approved the terms of the Merger and this Agreement (and all
exhibits hereto).
(p) Filing of Schedule 13D. FS, Ms. Vernon, Mr. D. Hochberg
and Mr. F. Hochberg shall, within ten days of the execution of this Agreement,
file with the Securities and Exchange Commission one or more Schedule 13D
filings identifying each of the parties to this Agreement as a member of a
"group."
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
FS EQUITY PARTNERS III, L.P.,
a Delaware limited partnership
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ John M. Roth
------------------------
John M. Roth
Vice President
FS EQUITY PARTNERS INTERNATIONAL, L.P.,
a Delaware limited partnership
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ John M. Roth
-----------------------
John M. Roth
Vice President
/s/ Lillian Vernon
----------------
Lillian Vernon
/s/ David C. Hochberg
-------------------
David C. Hochberg
/s/ Fred P. Hochberg
-------------------
Fred P. Hochberg
EXHIBIT A
Holder Shares
------ ------
Lillian Vernon 2,114,663
David C. Hochberg 1,232,000
Fred P. Hochberg 623,231
EXHIBIT B
FORM OF
STOCKHOLDERS AGREEMENT
Please see Exhibit 5 to this Schedule 13D.
Exhibit C
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
LILLIAN VERNON CORPORATION
AND
MS. LILLIAN VERNON
AGREEMENT, made this day of , 1995,
by and between Lillian Vernon Corporation (the "Company"), and Ms. Lillian
Vernon, previously known as Lillian Katz (the "Executive").
WHEREAS, the Company and Executive entered into an Employment
Agreement dated the first day of March 1987 (the "Agreement") amended as of
April 30, 1992 by the First Amendment; and
WHEREAS, the term of the Employment Agreement expires on
February 28, 1997; and
WHEREAS, the parties desire to extend the term of the Agreement
as set forth below,
NOW THEREFORE, it is mutually agreed that:
1. Paragraph 2 of the Agreement is hereby amended to read
as follows:
"2. Term. The employment term of this Agreement is extended
for a period of three (3) years commencing on the date of this Second Amendment
and terminating on the third anniversary of this Second Amendment, 1998
("Guaranteed Employment Period"). Thereafter, this Agreement shall continue at
will terminable on ninety (90) days prior written notice by either party to the
other, which notice may be given at any time provided that effective date of
termination set forth in such notice is on or after the third Anniversary of
this Second Amendment. (The entire period of employment is hereinafter referred
to as the "Employment Period")."
2. Sub-paragraph 3(c) is hereby amended by adding the
following sentence at the end of such sub-paragraph:
Throughout the Employment Term, the Executive (i) shall continue
to be eligible to participate in all benefit plans of the Company available to
senior executives of the Company, and (ii) shall continue to be provided by the
Company with the use of an automobile, driver and secretary (on terms identical
to those in effect as of the date hereof).
3. Except as amended herein, the Agreement as extended is
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the year and day first above written.
LILLIAN VERNON CORPORATION
By:______________________
Name:
Title:
______________________
Lillian Vernon
EXHIBIT C-1
SECOND AMENDMENT TO
LILLIAN VERNON CORPORATION
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
WITH
LILLIAN VERNON
AGREEMENT made this ___ day of ________, 1995 by and between
Lillian Vernon Corporation (the "Company") and Ms. Lillian Vernon, previously
known as Lillian Katz (the "Executive").
WHEREAS, the Company and Executive entered into a deferred
compensation agreement dated February 27, 1985 and amended as of April 30, 1992
(the "Agreement");
WHEREAS, the Company has entered into an Agreement and Plan of
Merger dated as of the date hereof with VB Investment Corporation, a Delaware
corporation ("VB Investment"), pursuant to which VB Investor shall be merged
with and into the Company, with the Company continuing as the surviving
corporation (the "Merger"); and
WHEREAS, in connection with the Merger, the parties hereto
desire to amend the Agreement as set forth below, such amendment to be effective
upon the consummation of the Merger,
NOW THEREFORE, it is mutually agreed that:
1. Paragraph 2 of the Agreement is hereby amended by
inserting the following language at the end of the second to last sentence of
such paragraph:
provided, however, that such payments shall not
commence prior to the first anniversary of the last date on
which the Executive is either employed by the Company or
receiving payments pursuant to an employment agreement with the
Company
2. Paragraph 2 is further amended by deleting the words "at
such time" from the end of the last sentence of such paragraph and replacing
them with the words "at the time she reaches the age of seventy (70)".
3. Except as amended herein, the Agreement is hereby
ratified and confirmed.
LILLIAN VERNON CORPORATION
By:______________________
Name:
Title:
_________________________
Lillian Vernon
EXHIBIT D
ASSIGNMENT AND CONSENT TO USE NAME AND LIKENESS
This Assignment and Consent to Use Name and Likeness
("Assignment") is entered into as of the 13th day of June 1995.
WHEREAS, Lillian Vernon Corporation (the "Company") desires to
exclusively use my likeness in connection with any commercial purpose relating
to the retail or mail order sales of products and exclusively use the "Lillian
Vernon" name and any portions or variations thereof, including (without
limitation) "Lillian" or "Lilly" and any names similar thereto (the "Name") in
connection with any commercial purpose whatsoever, in each case including but
not limited to the operation of the businesses currently conducted by the
Company (hereinafter the "Business") including the Company's advertising,
merchandising and public relations campaigns; and
WHEREAS, I, Lillian Vernon, desire to permit and consent to the
Company's exclusive use of my likeness in connection with any commercial purpose
relating to the retail or mail order sales of products and the Company's
exclusive use of the Name by the Company for any commercial purpose whatsoever,
in each case including but not limited to the operation of the Business, the use
of the Name and likeness on catalogs, advertisements, merchandise and in
connection with the promotion of the products or services of the Business, and
to assign to the Company the perpetual right to do so;
NOW, THEREFORE,I hereby agree as follows:
1. The above recitations are hereby incorporated in full by
reference.
2. For valuable consideration which I acknowledge I have
received, I hereby assign, grant and transfer in perpetuity to the Company, its
successors and assigns, the exclusive right to use my likeness in connection
with any commercial purpose relating to the retail or mail order sales of
products and the exclusive right to use the Name for any commercial purpose
whatsoever, in each case in all forms of media and including but not limited to
use in connection with the operation of the Business, on or in catalogs,
brochures, advertisements, mailings, invoices, products, and all other matters
and means used by the Business as it has heretofore been conducted. In granting
this right to the Company, and its successors and assigns, I understand that I
am granting the right to use photographs or the like of me as well as the right
to identify me by the Name and by the city in which I live or have lived, and to
use any testimonials, statements and/or specific circumstances which I have
previously made and/or described.
3. Where the Name is used in association with a
testimonial, another statement and/or specific circumstances which I have made
and/or described, I warrant that I have approved the use of the Name and my
likeness with such and that the testimonial, the statements attributed to me,
and/or the circumstances relayed by me and used by the Company are in fact true;
provided that the Name and/or my likeness shall not be used in the future in
association with a testimonial, another statement or a description of
circumstances without my or my representatives or heirs prior consent (which
will not be unreasonably withheld) if such testimonial, statement or description
is not the same as those I have made previously.
4. By entering into this Assignment, I promise and warrant
that I have the right to execute this Assignment and that I have not and will
not attempt to transfer any rights to use the Name and my likeness to another,
either during my lifetime or after my death.
5. I understand that under no circumstances shall I, my
heirs, executors or assigns have any right to maintain a cause of action against
the Company, or its successors or assigns, for use of the Name and my likeness
as described herein.
6. I hereby consent to the use and registration of the Name
on any and all trademark registers located anywhere within the world, including
without limitation, the principal register of the United States Patent and
Trademark Office, in the name of Company or its successors or its assigns.
My signature below certifies my intent to agree be bound to the
terms as stated above.
DATED: June __, 1995 ______________________________
(signature)
State of )
) ss.
County of )
On _______________ before me, ____________________, personally appeared
____________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
Witness my hand and official seal.
______________________________
Notary Public in and for said County and State
EXHIBIT 5
STOCKHOLDERS AGREEMENT
by and among
FS EQUITY PARTNERS III, L.P.
FS EQUITY PARTNERS INTERNATIONAL, L.P.,
LILLIAN VERNON, DAVID C. HOCHBERG
AND THE
LILLIAN VERNON CORPORATION
________________, 1995
TABLE OF CONTENTS
Page
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
2. Rights Upon Issuance of Additional Securities. . . . . . 3
2.1 Issuance Notice. . . . . . . . . . . . . . . . . . . . . 3
2.2 Response Notice. . . . . . . . . . . . . . . . . . . . . 3
2.3 Revised Issuance Notice. . . . . . . . . . . . . . . . . 3
2.4 Pro Rata Share . . . . . . . . . . . . . . . . . . . . . 4
2.5 Termination and Assignment . . . . . . . . . . . . . . . 4
3. Transfer of Shares by FS Stockholder; Rights of
Inclusion. . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Right of Inclusion . . . . . . . . . . . . . . . . . . . 4
3.2 Third Party Offer. . . . . . . . . . . . . . . . . . . . 5
3.3 Allocation of Included Shares. . . . . . . . . . . . . . 6
3.4 Consummation . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Termination and Assignment . . . . . . . . . . . . . . . 7
4. Obligation to Sell Securities. . . . . . . . . . . . . . 7
4.1 Sale Obligation. . . . . . . . . . . . . . . . . . . . . 7
4.2 Termination and Assignment . . . . . . . . . . . . . . . 7
5. Restrictions on Transfers of Common Stock;
Right of First Offer . . . . . . . . . . . . . . . . . 8
5.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . 8
5.2 Right of First Offer. . . . . . . . . . . . . . . . . . 8
5.3 Below Target Price Offer. . . . .. . . . . . . . . . . . 9
5.4 Public Market Sale . . . . . . . . . . . . . . . . . . . 10
5.5 Termination and Assignment . . . . . . . . . . . . . . . 10
6. Registration Rights. . . . . . . . . . . . . . . . . . . 10
6.1 "Piggy-Back" and Demand Rights . . . . . . . . . . . . . 10
6.2 Survival of Registration Rights. . . . . . . . . . . . . 10
7. Representation on the Board of Directors . . . . . . . . 10
7.1 The Board. . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Termination and Assignment . . . . . . . . . . . . . . . 11
8. Approval Rights. . . . . . . . . . . . . . . . . . . . . 12
9. Termination. . . . . . . . . . . . . . . . . . . . . . . 12
10. Copy of Agreement . . . . . . . . . . . . . . . . . . . . 13
11. Governing Law . . . . . . . . . . . . . . . . . . . . . . 13
12. Amendment and Waiver; Successors. . . . . . . . . . . . . 13
13. Interpretation. . . . . . . . . . . . . . . . . . . . . . 13
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 13
15. Legends . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Further Assurances. . . . . . . . . . . . . . . . . . . . 14
17. Injunctive Relief; Disputes . . . . . . . . . . . . . . . 14
18. Severability. . . . . . . . . . . . . . . . . . . . . . . 14
19. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 15
20. Opinions. . . . . . . . . . . . . . . . . . . . . . . . . 15
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into
as of ________________, 1995 by and among Lillian Vernon Corporation, a Delaware
corporation (the "Company"), FS Equity Partners III, L.P., a Delaware limited
partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware
limited partnership ("FSEP International," and collectively with FSEP III, the
"FS Stockholder"), Lillian Vernon and David C. Hochberg (collectively, the
"Company Stockholders" and individually, a "Company Stockholder").
RECITALS
1. Pursuant to the transactions contemplated by the Agreement and
Plan of Merger dated as of June __, 1995 (among VB Investment Corporation, a
Delaware corporation ("Investor") and the Company), Investor has merged with and
into the Company, with the Company as the surviving corporation (the "Merger").
2. After giving effect to the Merger, there is outstanding, as of
the date hereof (i) __________ shares of Common Stock (as defined below) held by
the FS Stockholder, and (ii) __________ shares of Common Stock held by the
Company Stockholders and (iii) _____________ shares of Common Stock held by
other stockholders of the Company.
3. The parties hereto believe that it is desirable for FSEP III, FS
International, Lillian Vernon and David C. Hochberg to make certain agreements
with respect to their respective rights and obligations as holders of Common
Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings:
Additional Securities: All Securities which are issued and sold by the
Company after the date hereof other than (i) any Securities issued or issuable
to all of the holders of such Securities then outstanding on a proportionate
basis (based on such holders' respective ownership of such Securities), (ii) any
Securities issued or issuable to any Employees pursuant to any equity incentive
plan, individual agreement, bonus, award, stock purchase plan, stock option plan
or other stock agreement or arrangement (collectively, an "Employee Plan")
approved by the Company's Board of Directors; (iii) any Securities issued in
exchange for debt securities of the Company or any Subsidiary or to any source
of, or to any party arranging, financing for the Company or any Subsidiary of
the Company, (iv) any Securities issued pursuant to a public offering registered
under the Securities Act, (v) any Securities that are issued or issuable in
connection with the acquisition by the Company of any business, business assets
or securities from any Person; and (vi) any Securities that are issued or
issuable upon the exercise of rights, options or warrants to purchase Securities
or upon the conversion or exchange of Securities convertible into or
exchangeable for Securities where the parties to this Agreement received (or
were not required to receive) an Issuance Notice pursuant to Section 2.1 of this
Agreement.
Affiliate or Associate: Such terms shall have the meanings given them
pursuant to Rule 12b-2 of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended.
Common Stock: The Common Stock, par value $.01 per share, of the
Company.
Employee: Any employee, director or consultant of the Company or any
Subsidiary of the Company.
Equity Securities: All shares of Common Stock at any time outstanding,
and all shares of Common Stock issuable upon the exercise, exchange or
conversion of any Security.
Person: Any individual, corporation, entity, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof.
Public Market Sale: Any sale of Voting Securities into the public
market after the Initial Public Offering which is made pursuant to Rule 144
promulgated by the SEC under the Securities Act or which is made pursuant to a
registration statement filed with and declared effective by the SEC.
Public Offering: A public offering of shares of Voting Securities of
the Company registered under the Securities Act, but shall not include an
offering registered on Form S-4 or Form S-8 (or any substitute form that is
adopted by the SEC), or an offering of Voting Securities in connection with a
sale of debt securities of the Company. The term "Initial Public Offering"
shall mean an underwritten Public Offering of Voting Securities which results in
gross proceeds to the Company in excess of $20 million from the sale of Voting
Securities.
Securities: All shares of Common Stock, all rights, options or warrants
to purchase shares of Common Stock, and all securities of any type whatsoever
that are convertible into or exchangeable for shares of Common Stock, and all
rights, options or warrants to purchase securities that are convertible into or
exchangeable for shares of Common Stock.
Securities Act: The Securities Act of 1933, as amended.
SEC: The Securities and Exchange Commission.
Subsidiary: With respect to any Person, a corporation or other entity
of which shares of stock or other ownership interests having ordinary voting
power to elect a majority of the directors of such corporation, or other Persons
performing similar functions for such entity, are owned, directly or indirectly,
by such Person.
Voting Securities: All Securities of the Company which possess general
voting power to elect members of the Board.
2. Rights Upon Issuance of Additional Securities. The Company
hereby grants to each of FSEP III, FSEP International and each Company
Stockholder the following rights with respect to any and all proposed issuances
or sales of Additional Securities by the Company:
2.1 Issuance Notice. The Company shall give each of FSEP III,
FSEP International and each Company Stockholder written notice of the Company's
intention to issue and sell Additional Securities for cash (the "Issuance
Notice"), describing the type of Additional Securities, the price at which the
Additional Securities will be issued and sold and the general terms upon which
the Company proposes to issue and sell the Additional Securities, including the
anticipated date of such issuance or sale.
2.2 Response Notice. FSEP III, FSEP International and each
Company Stockholder shall have 15 days from the date the Issuance Notice is
received to agree to purchase all or any portion of its Pro Rata Share (as
defined below) of such Additional Securities by giving written notice to the
Company of its desire to purchase Additional Securities (the "Response Notice")
and stating therein the quantity of Additional Securities to be purchased. Such
Response Notice shall constitute the irrevocable agreement of FSEP III, FSEP
International and each Company Stockholder, as the case may be, to purchase the
quantity of Additional Securities indicated in the Response Notice at the price
and upon the terms stated in the Issuance Notice. Any purchase by FSEP III,
FSEP International and each Company Stockholder of Additional Securities shall
be consummated on or prior to the later of the date on which Additional
Securities described in the applicable Issuance Notice are first issued and sold
or the tenth day following delivery of the Response Notice by FSEP III, FSEP
International and the Company Stockholders, as the case may be.
2.3 Revised Issuance Notice. The Company shall have 120 days
from the date of the Issuance Notice to consummate the proposed issuance and
sale of the Additional Securities at the price and upon the terms that are
specified in the Issuance Notice. Notwithstanding the foregoing, the Company
may sell the Additional Securities at a price and upon terms that are less
favorable to the Company than those specified in the Issuance Notice provided
that any purchase of Additional Securities by FSEP III, FSEP International and
each Company Stockholder consummated at the time of such sale shall be upon the
same less favorable terms; provided, further, that if FSEP III, FSEP
International and each Company Stockholder did not elect to purchase the whole
of its Pro Rata Share of Additional Securities based upon the terms specified in
the relevant Issuance Notice, the Company shall provide FSEP III, FSEP
International and each Company Stockholder with a revised Issuance Notice
reflecting such less favorable terms, and FSEP III, FSEP International and each
Company Stockholder as the case may be, shall have five business days from the
date such revised Issuance Notice is received to agree to purchase all or any
portion of its Pro Rata Share (as defined below) of such Additional Securities
to be issued upon the less favorable terms set forth in the revised Issuance
Notice by giving written notice to the Company of its desire to purchase such
Additional Securities and stating therein the quantity of Additional Securities
to be purchased. In the event the Company proposes to issue and sell Additional
Securities after such 120-day period or Additional Securities in addition to
those specified in the Issuance Notice, it must again comply with the procedures
set forth in this Section 2.
2.4 Pro Rata Share. For purposes of this Section 2, the Pro
Rata Share of FSEP III, FSEP International and each Company Stockholder, as the
case may be, shall be a fraction, the numerator of which shall be the total
number of Equity Securities owned by FSEP III, FSEP International or a Company
Stockholder, as the case may be, at the time of such calculation, and the
denominator of which shall be the total number of Equity Securities issued and
outstanding or issuable at the time of such calculation.
2.5 Termination and Assignment. The rights provided to each of
FSEP III, FSEP International and the Company Stockholders under this Section 2
shall terminate upon the consummation of an Initial Public Offering, and with
respect to FSEP III, FSEP International or a Company Stockholder, such rights
will terminate after such party has transferred a number of Voting Securities
which represents 50% of the number of Voting Securities held by such party on
the date hereof (with FSEP III and FSEP International considered collectively
for this purpose). Subject to Section 12(b), the rights granted under this
Section 2 shall not be assignable except that FS Stockholder may assign its
rights to an investment fund or partnership that is an Affiliate of FS
Stockholder (an "FS Fund") provided that the FS Fund executes a written
undertaking to be and becomes bound by this Agreement in the same manner and to
the same extent as the FS Stockholder.
3. Transfer of Shares by FS Stockholder; Rights of Inclusion.
3.1 Right of Inclusion. The FS Stockholder agrees not to sell
all or any portion of the shares of Common Stock it holds to any Person
(individually, a "Third Party" and, collectively, "Third Parties") unless each
of the Company Stockholders is given an opportunity to sell to the Third Party
such number of shares of Common Stock owned by the Company Stockholder as is
determined in accordance with Subsection 3.3 of this Section 3; provided,
however, that the Company Stockholders shall have no rights pursuant to this
Section 3 with respect to sales or other transfers by the FS Stockholder of
Common Stock to any Affiliate, limited or general partner or employee of the FS
Stockholder or any FS Fund and provided, further, that any Common Stock acquired
from the FS Stockholder by any Affiliate, limited or general partner or employee
of the FS Stockholder or any FS Fund pursuant to the immediately preceding
proviso shall be subject to the provisions of this Section 3 and prior to any
delivery of Common Stock to such Person, such Person shall have delivered a
written commitment to the Company to be and become bound by this Section 3 in
the same manner and to the same extent as the FS Stockholder.
3.2 Third Party Offer. Prior to the consummation of any sale
of all or any portion of the shares of Common Stock held by the FS Stockholder
to a Third Party, the FS Stockholder shall cause each bona fide offer from such
Third Party to purchase such shares from the FS Stockholder (a "Third Party
Offer") to be reduced to writing and shall send written notice of such Third
Party Offer (the "Initial Offer Notice") to each Company Stockholder. Each
Third Party Offer shall include an offer to purchase shares of Common Stock from
the Company Stockholder in the amounts determined in accordance with Subsection
3.3 of this Section 3, at the same time, at the same price and on the same terms
as the sale by the FS Stockholder to the Third Party, and according to the terms
and conditions of this Agreement. The Initial Offer Notice shall be accompanied
by a true copy of the Third Party Offer. If the Company Stockholder desires to
accept the offer contained in the Initial Offer Notice, such Company Stockholder
shall furnish written notice to the FS Stockholder, within 20 days after his or
her receipt of the Initial Offer Notice, indicating such Company Stockholder's
irrevocable acceptance of the offer included in the Initial Offer Notice and
setting forth the maximum number of shares of Common Stock such Company
Stockholder agrees to sell to the Third Party (the "Acceptance Notice"). If a
Company Stockholder does not furnish an Acceptance Notice to the FS Stockholder
in accordance with these provisions by the end of such 20-day period, such
Company Stockholder shall be deemed to have irrevocably rejected the offer
contained in the Initial Offer Notice. All shares of Common Stock set forth in
the applicable Acceptance Notice of the Company Stockholder together with the
shares of Common Stock proposed to be sold by the FS Stockholder to the Third
Party are referred to collectively as "All Offered Shares". Within three days
after the date on which the Third Party informs the FS Stockholder of the total
number of shares of Common Stock which such Third Party has agreed to purchase
in accordance with the terms specified in the Initial Offer Notice, the FS
Stockholder shall send written notice (the "Final Notice") to the Company
Stockholder setting forth the number of shares of Common Stock such Company
Stockholder shall sell to the Third Party as determined in accordance with
Subsection 3.3 of this Section 3, which number shall not exceed the maximum
number specified by the Company Stockholder in the applicable Acceptance Notice.
Within five days after the date of the Final Notice (or such shorter period as
may reasonably be requested by the FS Stockholder to facilitate the sale), each
Company Stockholder shall furnish to the FS Stockholder (i) a written
undertaking to deliver, upon the consummation of the sale of Common Stock to the
Third Party as indicated in the Final Notice, the certificates representing the
shares of Common Stock held by the Company Stockholder which will be transferred
pursuant to such Third Party Offer (such shares shall be referred to herein as
the "Included Shares") and (ii) a power-of-attorney authorizing the FS
Stockholder to transfer the Included Shares pursuant to the terms of such Third
Party Offer.
3.3 Allocation of Included Shares. The maximum number of
shares of Common Stock that may be sold by FSEP III, FSEP International and each
Company Stockholder and all other holders of Common Stock who have rights to
participate in sales of Common Stock by the FS Stockholder pursuant to written
agreements by and between the FS Stockholder and any such holder (the "Other
Tag-Along Rights Holders") in any sale governed by this Section 3 shall be (i)
All Offered Shares in the event the Third Party has agreed to purchase All
Offered Shares and all shares of Common Stock that the Other Tag-Along Rights
Holders who have elected to participate in such sale seek to include in such
sale, or (ii) such number of shares of Common Stock equal to the product of (a)
the total number of shares of Common Stock which the Third Party has agreed to
purchase times (b) a fraction, the numerator of which is the total number of
shares of Common Stock owned by FSEP III, FSEP International, a Company
Stockholder or each Other Tag-Along Rights Holder who has elected to participate
in such sale, as the case may be, on the date of the Final Notice and the
denominator of which is the total number of shares of Common Stock owned on the
date of the Final Notice by FSEP III, FSEP International, the Company
Stockholders and the Other Tag-Along Rights Holders who have elected to
participate in such sale; provided, however, that, in the event FSEP III, FSEP
International, the Company Stockholders or any Other Tag-Along Rights Holder
elects to sell a number of shares of Common Stock which is less than the number
of shares such holder could sell pursuant to clause (ii) above, the shares of
Common Stock that the other of such holders can sell in such transaction shall
be increased by an aggregate amount equal to the number of shares which any of
FSEP III, FSEP International, the Company Stockholders or any Other Tag-Along
Rights Holder could have sold in such transaction but chose not to sell, and any
such increase shall be allocated among such other holders on a pro rata basis
based upon the total number of shares of Common Stock owned on the date of the
Final Notice by such other holders.
3.4 Consummation. The FS Stockholder shall have 180 days from
the date of the Final Notice in which to sell to the Third Party the shares of
Common Stock owned by the FS Stockholder and the Included Shares of the Company
Stockholder on terms which are not materially less favorable to the sellers of
shares of Common Stock than those specified in the applicable Initial Offer
Notice; provided, however, that in the event there is a decrease in the price to
be paid by the Third Party for the shares of Common Stock to be sold from the
price set forth in the Initial Offer Notice, which decrease is acceptable to the
FS Stockholder, the FS Stockholder shall notify the Company Stockholders of such
decrease, and each of the Company Stockholders shall have five business days
from the date of receipt of the notice of such decrease to reduce the number of
shares of Common Stock it will sell to such Third Party as previously indicated
in the applicable Acceptance Notice. The FS Stockholder shall act as agent for
the Company Stockholders in connection with such sale and shall cause to be
remitted to a Company Stockholder the total sales price of the Included Shares
of such Company Stockholder sold pursuant thereto, which consideration shall be
in the same form as the consideration received by the FS Stockholder and as
specified in the applicable Initial Offer Notice, net of the Company
Stockholder's respective pro rata portion of the expenses incurred by the FS
Stockholder in connection with such sale. The FS Stockholder shall furnish, or
shall cause to be furnished, such other evidence of the completion and time of
completion of such sale and the terms thereof as may be reasonably requested by
the Company Stockholder including, without limitation, evidence of the expenses
incurred by the FS Stockholder in connection with such sale. If and to the
extent that, at the end of 180 days following the date of the Final Notice, the
FS Stockholder has not completed the sale contemplated thereby, the FS
Stockholder shall return to the Company Stockholder all certificates
representing the Included Shares and all powers-of-attorney which a Company
Stockholder may have transmitted pursuant to the terms hereof.
3.5 Termination and Assignment. Subject to Section 9(b), the
obligations of the FS Stockholder and any transferee or assignee of FS
Stockholder pursuant to the provisions of this Section 3 shall survive an
Initial Public Offering but shall not apply to a transfer without consideration
or a Public Market Sale. The FS Stockholder and any transferee or assignee of
FS Stockholder shall have no obligation pursuant to this Section 3 with respect
to a Company Stockholder who has transferred a number of Voting Securities which
represents 50% of the number of Voting Securities held by such Company
Stockholder on the date hereof. Subject to Section 12(b), the rights granted to
Company Stockholders under this Section 3 shall not be assignable.
4. Obligation to Sell Securities.
4.1 Sale Obligation. If the FS Stockholder finds a buyer for
all of the shares of Common Stock held by the FS Stockholder (whether such sale
is by way of purchase, merger or other form of transaction), upon the request of
the FS Stockholder, each of the Company Stockholders shall sell all of their
respective shares of Common Stock to such third-party buyer pursuant to the
terms and conditions negotiated by the FS Stockholder for the sale of all of the
FS Stockholder's shares of Common Stock. Each of the Company Stockholders
agrees to such sale and to execute such agreements, powers of attorney, voting
proxies or other documents and instruments as may be necessary to consummate
such sale. Each of the Company Stockholders further agrees to timely take such
other actions as the FS Stockholder may reasonably request to enforce their
respective obligation to sell their shares of Common Stock, and otherwise as
necessary in connection with the approval of the consummation of such sale,
including voting all Voting Securities in favor of such sale.
4.2 Termination and Assignment. The obligations of the Company
Stockholders pursuant to this Section 4 shall be binding on any transferee of
any shares of Common Stock held by the Company Stockholders (except for a
transferee purchasing shares in a Public Market Sale), and each Company
Stockholder shall obtain and deliver to the FS Stockholder a written commitment
to be bound by such provisions from such transferee prior to any transfer.
Subject to Section 9(b), the obligations of each Company Stockholder pursuant to
this Section 4, and the obligations of any such transferee, shall continue after
an Initial Public Offering. FS Stockholder's right to require a Company
Stockholder to sell shares of Common Stock will terminate after FSEP III and
FSEP International have together transferred a number of shares of Voting
Securities equal to 50% of the number of Voting Securities held by such parties
as at the date hereof.
5. Restrictions on Transfers of Common Stock; Right of First Offer.
5.1 Transfer Restrictions. Except as otherwise consented to in
writing by the parties hereto, FS Stockholder and each Company Stockholder
agrees not to pledge, hypothecate or encumber any shares of Common Stock held by
them. FS agrees that all sales or other dispositions of Common Stock will be
made in compliance with this Agreement. The Company Stockholders shall not
transfer or otherwise dispose of shares of Common Stock except in a sale subject
to Sections 5.2 or 5.3 or pursuant to Section 5.4 hereof. Any attempt to sell,
assign, pledge, hypothecate, encumber or otherwise dispose of shares of Common
Stock not in compliance with this Agreement shall be null and void, and the
Company shall not give effect to any such attempted transaction or transfer.
5.2 Right of First Offer. Subject to the provisions of
Subsection 5.3 of this Section 5, each of the Company Stockholders hereby agrees
not to sell, transfer or otherwise convey any of the shares of Common Stock held
by them to any Person unless FS Stockholder or any third party designated by FS
Stockholder (which may include any of its Affiliates or Associates or the
Company) is given the right to acquire such Common Stock pursuant to the
provisions of this Section 5. If any of the Company Stockholders receives an
offer from any Person to acquire any of the Common Stock, or decides to solicit
or cause to be solicited a proposal or proposals to acquire Common Stock, such
Company Stockholder shall first give FS Stockholder written notice (the "Company
Stockholder Notice") of such intention, which notice shall include a term sheet
stating, among other material terms, the minimum cash sales price that such
Company Stockholder would entertain for the shares of Common Stock to be sold
(the "Target Price"). FS Stockholder or its designee shall have the right for a
period of 20 days following the delivery of the Company Stockholder Notice (the
"FS Acceptance Period") to accept the offer to purchase all but not less than
all of the shares proposed to be sold at the Target Price and upon the other
terms provided with the Company Stockholder Notice. FS Stockholder or its
designee shall exercise such right by delivering to the applicable Company
Stockholder written notice of its election prior to 5:00 p.m. on the final day
of the FS Acceptance Period. If FS Stockholder or its designee exercises such
right, the sale of such Common Stock shall be consummated within 30 days of the
date of delivery to the applicable Company Stockholder of the notice from FS
Stockholder or its designee that it is exercising such right. If FS Stockholder
or its designee does not elect to purchase such Common Stock on such terms
within the FS Acceptance Period or fails to consummate a purchase of such Common
Stock within the 30-day period specified in the immediately preceding sentence,
the applicable Company Stockholder shall have the right to consummate the sale
of such Common Stock for a sales price equal to or greater than the Target Price
and on terms no more favorable than specified in the Company Stockholder Notice
for a period of 90 days (the "Consummation Period") after the expiration of the
FS Acceptance Period or, if applicable, such 30-day period. If the applicable
Company Stockholder does not complete such sale, transfer or conveyance within
the Consummation Period, such Company Stockholder shall not have the right to
sell, transfer or convey any of such Common Stock without again complying with
this Section 5. In the event a Company Stockholder intends to sell Common Stock
for consideration other than cash, the Company Stockholder shall notify the FS
Stockholder of the terms of such non-cash consideration. The FS Stockholder may
elect within 5 days of such notice to have the fair market value of such non-
cash consideration determined, with the parties jointly selecting an investment
banking firm to resolve any dispute regarding the fair market value of such non-
cash consideration; in the absence of agreement on such firm, Goldman, Sachs &
Co. shall determine such fair market value. If the sum of the fair market value
of the non-cash consideration and the cash consideration (in the case of a sale
that is partially for cash) is less than the cash price offered to the FS
Stockholder pursuant to this Section 5.2, the FS Stockholder may, within 10 days
of the determination of the fair market value of the non-cash consideration,
elect to purchase the Common Stock proposed to be sold for an amount equal to
the sum of (i) the fair market value of the non-cash consideration and (ii) the
cash consideration, if any. Such purchase must be consummated within 20 days of
the determination of fair market value.
5.3 Below Target Price Offer. If the Company Stockholder
proposing to sell shares of Common Stock receives a written offer for such
Common Stock at any time during the Consummation Period which is acceptable to
such Company Stockholder but is less than the Target Price or upon terms less
favorable to such Company Stockholder than the terms provided to FS Stockholder
in the Company Stockholder Notice (the "Below Target Price Offer"), such Company
Stockholder shall promptly deliver a copy of such written offer to FS
Stockholder. During the 15-day period following delivery of such written offer,
FS Stockholder or its designee shall have the right to accept the offer to
purchase the shares of Common Stock offered on the terms reflected in such
written offer. FS Stockholder shall, if it so desires, exercise such right by
delivery to such Company Stockholder written notice of its election prior to
5:00 p.m. Los Angeles time on the final day of such additional 15-day period and
the sale of such Common Stock shall be consummated within 30 days of the
delivery of such written notice. If FS Stockholder or its designee does not
elect to accept the offer to purchase the offered shares of Common Stock on such
terms within such 15-day period or fails to consummate the purchase of the
offered shares within 30 days of the date of FS Stockholder's or its designee's
acceptance of the Below Target Price Offer, the Company Stockholder shall have
90 days to consummate the sale of the offered shares of Common Stock at a price
and upon terms that are not less favorable to such Company Stockholder than the
price and terms specified in the written offer delivered to FS Stockholder. In
the event a Below Target Price Offer involves any non-cash consideration, the
procedures for valuing such non-cash consideration set forth in Section 5.2
above shall be utilized to determine the fair market value of such non-cash
consideration.
5.4 Public Market Sale. The obligations of a Company
Stockholder pursuant to this Section 5 shall not apply to a Public Market Sale.
5.5 Termination and Assignment. Subject to Section 9(b), the
obligations of a Company Stockholder pursuant to this Section 5 shall continue
after an Initial Public Offering. Any transferee of shares of Common Stock from
a Company Stockholder, except a transferee in a Public Market Sale or a
purchaser of shares from a Company Stockholder after the Company Stockholder has
duly complied with its obligations under this Section 5, shall be bound by the
provisions of this Section 5 and such Company Stockholder shall obtain and
deliver to FS Stockholder a written commitment to be bound by such provisions
from such transferee prior to any such transfer. A Company Stockholder or its
transferee shall not be obligated to comply with this Section 5 after FSEP III
and FSEP International have together transferred a number of shares of Voting
Securities equal to 50% of the number of Voting Securities held by such parties
as of the date hereof.
6. Registration Rights.
6.1 "Piggy-Back" and Demand Rights. Following the consummation
of an Initial Public Offering, FSEP III, FSEP International and each Company
Stockholder shall be entitled to certain "piggy-back" registration rights with
respect to future public offerings of Common Stock by Company and to certain
demand registration rights (the "Registration Rights"). The terms of the
Registration Rights are set forth in Exhibit A attached hereto.
6.2 Survival of Registration Rights. The Registration Rights
of each of FSEP III, FSEP International and the Company Stockholders and their
respective obligations set forth in Exhibit A hereto shall survive the
termination of this Agreement pursuant to Section 9(a) hereinbelow.
7. Representation on the Board of Directors.
7.1 The Board. Subject to the terms and conditions of this
Section 7, at each annual or special meeting of stockholders of the Company, or
in any written consent executed in lieu of a stockholder meeting, at or pursuant
to which persons are being elected to fill positions on the Board of Directors
of Holding, the FS Stockholder and the Company Stockholders agree to exercise,
or cause to be exercised, voting rights with respect to the shares of Common
Stock then owned or held of record or beneficially by them or any Affiliate, in
such a manner that four candidates nominated by FS Stockholder and one candidate
nominated by Lillian Vernon shall be elected to fill and continue to hold
positions on the Board of Directors of the Company. FS Stockholder and Lillian
Vernon shall also agree on two additional persons, at least one of whom shall be
an outside director of the Company on the date hereof, who shall be nominated
for election to the Board of Directors and shall exercise or cause to be
exercised voting rights with respect to the shares of Common Stock then owned or
held of record or beneficially by them to elect such nominees. The parties
shall use their reasonable best efforts to ensure that the Board consists of not
more than seven members. If necessary, the Board shall elect such additional
independent members, if any, as may be required under applicable law or stock
exchange requirements or by the National Association of Securities Dealers or
underwriters in connection with Public Offerings, and FSEP III, FSEP
International and the Company Stockholders shall each take all actions necessary
in connection therewith.
If at any time from and after the date hereof, either FS
Stockholder or Lillian Vernon shall notify the other of its or her desire to
remove any director previously nominated by that party to serve on the Board of
Directors of the Company, the FS Stockholder and the Company Stockholders agree
to exercise or cause to be exercised voting rights with respect to all shares of
Common Stock owned or held of record or beneficially by it or them so as to
remove such director of the Company. If at any time from and after the date
hereof, any director previously nominated by either FS Stockholder or Lillian
Vernon to serve on the Board of Directors of the Company ceases to be a director
(whether by reason of death, resignation, removal or otherwise), either FS
Stockholder, or Lillian Vernon (including Lillian Vernon's estate), as the case
may be, shall be entitled to nominate a successor director to fill the vacancy
created thereby, and the FS Stockholder and the Company Stockholders agree to
exercise voting rights with respect to the shares of Common Stock owned or held
of record by it or them so as to elect such nominee as a director of the
Company.
If FS Stockholder sells or otherwise disposes of, in the
aggregate, to any Person or Persons that number of Voting Securities of the
Company held or beneficially owned by FS Stockholder, as shall be equal to at
least 20% of FS Stockholder's Voting Securities held as of the date hereof (with
FSEP III and FS International considered collectively for this purpose), each of
FS Stockholder and the Company Stockholders shall exercise, or cause to be
exercised, voting rights with respect to the shares of Common Stock then held or
beneficially owned by each of them or any Affiliates of each of them in such a
manner that seven candidates nominated by FS Stockholder or Lillian Vernon, as
the case may be, are elected to the Board with candidates nominated by FS
Stockholder or Lillian Vernon to be elected in proportion to their respective
percentage ownership of Voting Securities at the time of such election (rounding
up or down to the nearest whole number).
The foregoing notwithstanding, as long as Lillian Vernon
beneficially owns a number of shares of Voting Securities at least equal to 10%
of the issued and outstanding shares of Common Stock, Lillian Vernon shall be
entitled to nominate, and the FS Stockholder shall vote in favor of, one person
for election to the Board; provided that Lillian Vernon's board representation
rights shall not continue if Lillian Vernon beneficially owns less than 10% of
the issued and outstanding shares of Common Stock. Lillian Vernon shall be
entitled to approve her replacement as Chief Executive Officer of the Company.
This right shall be personal to Lillian Vernon and shall not be exercisable by
any other Person.
7.2 Termination and Assignment. Subject to Section 12(b), the
right to designate members of the Board of Directors pursuant to Section 7.1
shall not be assigned or otherwise transferred to a transferee unless FS, or
Lillian Vernon, as the case may be, shall have transferred all of its securities
to the transferee, but shall not be assignable after an Initial Public Offering;
provided, that a transferee of all of FS Stockholder's securities in a sale
which is not a Public Market Sale after an Initial Public Offering shall agree
to vote the Voting Securities purchased from FS Stockholder in favor of Lillian
Vernon as a director of the Company as long as Lillian Vernon serves as Chief
Executive Officer of the Company.
8. Approval Rights. Except as set forth in clause (vi) below,
until the earlier of (i) the second anniversary of the date of this Agreement or
(ii) the date on which Lillian Vernon's board representation rights pursuant to
this Agreement terminate, the Company shall not take any action regarding any of
the following matters without the affirmative vote of the member of the Board
designated by Lillian Vernon:
(i) the sale, assignment, transfer or lease of any assets of
the Company with a fair market value in excess of $50 million, other than in the
ordinary course of business and other than the sale of all or substantially all
of the assets of the Company;
(ii) the purchase or other acquisition by the Company of assets
with a fair market value in excess of $75 million, other than in the ordinary
course of business;
(iii) the incurrence by the Company of indebtedness where,
after giving effect to such incurrence, the Company would have outstanding
indebtedness with an aggregate principal amount in excess of $70 million plus
the amount of the Company's indebtedness (including amounts available at any
time for borrowing by the Company) under its credit facilities on the date
hereof;
(iv) any transaction with any stockholder of the Company or any
affiliate of any stockholder other than transactions that are no less favorable
to the Company than could have been obtained with a person who is not a
stockholder or an affiliate of a stockholder (as determined in the good faith
judgment of the Board);
(v) the appointment or removal of the independent certified
public accountants of the Company; and
(vi) prior to the first anniversary of the date of this
Agreement, an Initial Public Offering.
9. Termination.
(a) Except as otherwise set forth in this Agreement, this
Agreement shall terminate on the tenth anniversary of the date of this
Agreement.
(b) Within 10 days after the consummation of an Initial
Public Offering and thereafter, until she has exercised the option described
below, for a ten-day period prior to each anniversary of the date of such
consummation, Lillian Vernon shall have the option to irrevocably terminate all
of the parties' rights and obligations under Sections 3, 4 and 5 by written
notice to the FS Stockholder.
10. Copy of Agreement. A copy of this Agreement and all amendments
hereto shall be filed with the Secretary of Company and shall be kept at the
principal executive offices of Company.
11. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without regard to the conflicts of laws rules thereof.
12. Amendment and Waiver; Successors.
(a) This Agreement may be amended, modified or supplemented,
and compliance with any provision hereof may be waived, only with the written
consent of FSEP III, FSEP International and those Company Stockholders then
holding a majority of the shares of Common Stock then held by the Company
Stockholders, and any amendment, modification, supplement or waiver so consented
to in writing shall be binding upon the parties hereto and all transferees of
Equity Securities held by FSEP III, FSEP International and the Company
Stockholders. This Agreement shall be binding on the parties hereto and, to the
extent permitted by this Agreement, their estate, heirs and successors.
(b) Upon the death of Lillian Vernon, her estate may
transfer all the Voting Securities then held by her to the Lillian Menasche
Vernon Foundation (the "Foundation") and any rights of Lillian Vernon under this
Agreement (other than her right to approve a successor Chief Executive Officer)
will be assigned to the Foundation, provided that the Foundation executes a
written undertaking to be and becomes bound by this Agreement in the same manner
and to the same extent as Lillian Vernon.
13. Interpretation. The headings of the Sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
14. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or delivered by telecopier (with receipt
confirmed), on the date of such delivery or transmission, or three (3) days
after deposit in the mail, by registered or certified mail (return receipt
requested) postage prepaid (i) if to Company, at the address or telecopier
number set forth in the Merger Agreement, (ii) if to the FS Stockholder, at
Freeman Spogli & Co. Incorporated, 11100 Santa Monica Boulevard, Suite 1900, Los
Angeles, California 90025, Attention: William M. Wardlaw, telecopier: (310) 444-
1870, (iii) if to Lillian Vernon, c/o Lillian Vernon Corporation, 543 Main
Street, New Rochelle, New York 10801, telecopier: (914) 647-5602 or (iv) if to
David C. Hochberg, c/o Lillian Vernon Corporation, 543 Main Street, New
Rochelle, New York 10801, (or at such other address or telecopier number for any
party as shall be specified by like notice provided that notices of a change of
address or telecopier number shall be effective only upon receipt thereof).
15. Legends. All certificates evidencing shares of Common Stock
which are issued to any of FSEP III, FSEP International, and the Company
Stockholders shall be legended as follows (in addition to any other legend
required to be placed thereon):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS WITH RESPECT TO THE TRANSFER AND VOTING THEREOF AS SET
FORTH IN THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED AS OF ________ ___, 1995,
WHICH MAY BE REVIEWED AT THE PRINCIPAL PLACE OF BUSINESS OF THE CORPORATION AND
A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER WITHOUT CHARGE UPON WRITTEN
REQUEST THEREFOR."
16. Further Assurances. The Company covenants and agrees that it
will act in good faith to preserve for each of FSEP III, FSEP International and
the Company Stockholders the benefits of this Agreement and that it will take no
voluntary action to impair the benefit hereof or to avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder or to deny to any of FSEP III, FSEP International or the Company
Stockholders any of the benefits or protections contemplated hereby. Any shares
of Common Stock transferred pursuant to the terms and requirements of this
Agreement shall be transferred free and clear of all mortgages, liens, pledges,
charges and security interests or encumbrances, or any obligations or
liabilities in connection therewith.
17. Injunctive Relief; Disputes. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
hereto fail to comply with any of the obligations herein imposed on them and
that, in the event of any such failure, an aggrieved party hereto will be
irreparably damaged and will not have an adequate remedy at law. Any such party
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law. In the
event of any dispute among the parties arising out of this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party the
reasonable expenses of the prevailing party, including, without limitation,
reasonable attorneys' fees.
18. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect to the maximum extent permitted by applicable
law. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
this Agreement be enforced as originally contemplated to the greatest extent
possible.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
20. Opinions. Upon the execution of this Agreement, FS Stockholder
shall receive an opinion from ________________, with respect to the
enforceability of this Agreement and Lillian Vernon and David C. Hochberg shall
receive an opinion from Richards Layton & Finger with respect to the
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FS EQUITY PARTNERS III, L.P., Lillian Vernon Corporation
a Delaware limited partnership
By: FS Capital Partners, L.P. By: ________________________
Its: General Partner Its:
By: FS Holdings, Inc.
____________________________
Its: General Partner Lillian Vernon
By:____________________
John M. Roth
Vice President ____________________________
David C. Hochberg
FS EQUITY PARTNERS
INTERNATIONAL, L.P., a
Delaware limited partnership
By: FS&Co. International, L.P.
Its: General Partner
By: FS International
Holdings Limited
Its: General Partner
By:______________________
John M. Roth
Vice President
Exhibit A
Terms of the Registration Rights
Capitalized terms used herein and not otherwise defined shall have the
respective meanings given such terms in the Stockholders' Agreement (the
"Agreement") to which this Exhibit A is attached.
I
SECTION 1.1 Definitions. For purposes of this Exhibit A, the
following terms shall have the following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Excess Amount" means the number of Registrable Securities requested by
a Holder or Holders to be sold pursuant to Section 2.1 or 2.2 which the managing
Underwriter or Underwriters determines exceeds the largest number of Registrable
Securities which can successfully be sold in an orderly manner in such offering
within a price range acceptable to the Company.
"Holder" means either FS Stockholder, any Company Stockholder or any
Affiliate of either.
"Other Holder Notice" means an Other Holder Notice as defined in Section
2.1.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.2.
"Registrable Security" means any share of Common Stock outstanding until
(i) a registration statement covering such Common Stock has been declared
effective by the SEC and it has been disposed of pursuant to such effective
registration statement, (ii) it is sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or it may be sold pursuant to Rule 144(k) under
such Act or (iii) it has been otherwise Transferred, the Company has delivered a
new certificate or other evidence of ownership for it not bearing the legend
required pursuant to the Stockholders Agreement and it may be resold without
subsequent registration under the Securities Act.
"Requisite Share Number" means a number of Registrable Securities
representing not less than 10% of the total number of shares of Common Stock
then outstanding or shares of Common Stock representing not less than
$10,000,000 in fair market value as determined by the Board, or such lesser
number as constitutes all shares of Common Stock then held by the relevant
Selling Holder representing not less than 5% of the total number of shares of
Common Stock then outstanding.
"Selling Holder" means a Holder who is selling or causing its Affiliates
to sell Registrable Securities pursuant to a registration statement under the
Securities Act.
"Transfer" means any direct or indirect transfer, sale, assignment,
pledge, hypothecation, encumbrance or other disposition of Common Stock.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
II
SECTION 2.1 Demand Registration.
(a) Request for Registration. At any time and from time to time on
or after the date which is six months following the closing of the Initial
Public Offering, any Holder, on behalf of itself or any of its Affiliates
owning, individually or in the aggregate, at least the Requisite Share Number
may make a written request for registration under the Securities Act of all or
part of its or their Registrable Securities (a "Demand Registration"); provided
that the Holder or Holders making the request are together requesting that the
Requisite Share Number be registered, and provided further that the Company
shall not be obligated to effect (i) more than two Demand Registrations in any
18-month period or (ii) more than two Demand Registrations for each of (A) the
FS Stockholder and its Affiliates and (B) the Company Stockholders as a group.
Such request will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. The Company shall give written notice of such registration request
within 10 days after the receipt thereof to all other Holders. Within 20 days
after receipt of such notice by any Holder, such Holder may request in writing
that Registrable Securities be included in such registration and the Company
shall include in the Demand Registration the Registrable Securities of any such
Holder or any of its Affiliates requested to be so included, provided that the
inclusion of such Registrable Securities is expressly consented to in writing by
the Holder or Holders who requested the Demand Registration. Each such request
by such other Holders (each, an "Other Holder Notice") shall specify the number
of shares of Registrable Securities proposed to be sold and the intended method
of disposition thereof. Unless the Holder or Holders making such Demand
Registration request shall consent in writing, no other party, including the
Company, shall be permitted to offer securities under any such Demand
Registration.
(b) Effective Registration. A registration will not count as a
Demand Registration until it has become effective.
(c) Underwritten Offering. If the Holder initiating a Demand
Registration so elects, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of an underwritten offering. The
Company and such Holder shall select one or more nationally recognized firms of
investment bankers to act as the managing Underwriter or Underwriters in
connection with such offering and shall select any additional managers to be
used in connection with the offering.
(d) Required Delays. Notwithstanding anything contained in this
Section 2.1 to the contrary, if any request for Demand Registration is delivered
at a time when the Company has determined or is currently planning to file a
Registration Statement with respect to an underwritten primary registration of
Common Stock on behalf of the Company (so long as a Registration Statement is
filed with respect thereto within two months of the Holder's or Holders' request
for Demand Registration), the Company may, but only once with respect to each
such Demand Registration, require the Holder or Holders to postpone such request
until the sooner of the expiration of the 120-day period following the effective
date of such registration or six months from the day of the Holder's or Holders'
request for such Demand Registration; and, provided further, however, that if
either such request is delivered at a time when such registration would
adversely affect a material acquisition or merger to which the Company is a
party, the Company may require the Holder to postpone such request for an
appropriate period (not to exceed 90 days). In either such event, the Company
shall deliver a certificate signed by the President or the Chairman confirming
the Company's reasons for postponing the registration.
SECTION 2.2 Piggy-Back Registration. If at any time 90 days
following the closing of the Company's Initial Public Offering, the Company
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders of any class of security of the same class as
the Registrable Securities (other than a registration statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the SEC) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing security holders), then the Company shall give
written notice of such proposed filing to the Holders as soon as practicable
(but in no event less than 10 days before the anticipated filing date), and such
notice shall offer such Holders the opportunity to register such number of
shares of Registrable Securities as each such Holder may request in writing
within 5 days of receipt of such notice on behalf of itself or its Affiliates
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder and its Affiliates and the intended method of distribution
thereof) (a "Piggy-Back Registration"). The Company shall use its best efforts
to cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of the Company included therein to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Subject to Section 2.3(b), any Holder shall
have the right to withdraw its request for inclusion of its Registrable
Securities in any Piggy-Back Registration by giving written notice to the
Company of its request to withdraw within 20 days of its request for inclusion.
The Company may withdraw a Piggy-Back Registration at any time prior to the time
it becomes effective.
SECTION 2.3 Reduction of Offering.
(a) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 2.1 or 2.2
determine that the size of the offering that the Holders, the Company and/or
such other Persons intend to make is such that the success of the offering would
be adversely affected by inclusion of the Registrable Securities requested to be
included, then (i) with respect to a Demand Registration, if the size of the
offering is the basis of such Underwriter's or Underwriters' determination, the
Company shall not include in such registration an amount of Registrable
Securities requested to be included in such offering equal to the Excess Amount
(such reduction to be allocated pro rata among the Holder or Holders who did not
initiate the request for a Demand Registration according to the number of
Registrable Securities requested for inclusion, with the Holder or Holders who
initiated the request for a Demand Registration entitled to include shares
therein to the maximum extent possible) and (ii) in the case of a Piggy-Back
Registration, if securities are being offered for the account of other Persons
as well as the Company, the securities the Company seeks to include shall have
priority over securities sought to be included by any other Person (including
the Holders) and, with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons is reduced (it being understood that with respect
to the Holders and third parties such reduction may be all of such class of
securities).
(b) If, as a result of the proration provisions of Section 2.3(a),
any Holder shall not be entitled to include all Registrable Securities in a
Demand Registration or Piggy-Back Registration that such Holder has requested to
be included, such Holder may elect to withdraw his request to include
Registrable Securities in such registration (a "Withdrawal Election"); provided
however, that a Withdrawal Election shall be irrevocable and, after making a
Withdrawal Election, a Holder shall no longer have any right to include
Registrable Securities in the registration as to which such Withdrawal Election
was made.
III
SECTION 3.1 Filings; Information. Whenever any Holder requests that
any Registrable Securities be registered pursuant to Section 2.1 hereof, the
Company will use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which form
shall be available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof, and
use its best efforts to cause such filed registration statement to become and
remain effective until the earlier of (i) 90 days from the date such
registration statement became effective or (ii) the date on which the sale of
Registrable Securities has been completed; provided that, if the Company shall
furnish to any Holder making a request pursuant to Section 2.1 a certificate
signed by either its Chairman or Chief Executive Officer stating that in his
good faith judgment it would be significantly disadvantageous to the Company or
its shareholders for such a registration statement to be filed as expeditiously
as possible, the Company shall have a period of not more than 90 days within
which to file such registration statement measured from the date of receipt of
the request in accordance with Section 2.1.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; provided that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and make available for
inspection by any Selling Holder of such Registrable Securities, any Underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder
or Underwriter (collectively, the "Inspectors"), (it being understood that the
Company is responsible for payment of the reasonable fees and expenses of only
one counsel pursuant to clause (viii) of Section 3.2) all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), subject to restrictions imposed by any
governmental authority governing access to classified information, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and provided further, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Selling Holder after reasonable inquiry, is not prohibited from providing
such information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates unless
and until such is made generally available to the public. Each Selling Holder
of such Registrable Securities further agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
(h) The Company will otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its best efforts (a) to cause all such
Registrable Securities to be listed on a national securities exchange (if such
shares are not already so listed) and on each additional national securities
exchange on which similar securities issued by the Company are then listed (if
any), if the listing of such Registrable Securities is then permitted under the
rules of such exchange or (b) to secure designation of all such Registrable
Securities covered by such registration statement as a National Association of
Securities Dealers Automatic Quotation ("NASDAQ") "national market system
security" within the meaning of Rule 11Aa2-l of the SEC or, failing that, to
secure NASDAQ authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
National Association of Securities Dealers.
(j) The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, such Selling Holder will forthwith discontinue and cause its Affiliates
to discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Selling
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1(e) hereof, and, if so directed by the Company, such
Selling Holder will deliver to the Company all copies, other than permanent file
copies then in such Selling Holder's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
(including the period referred to in Section 3.1(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 3.1(e) hereof to the date when the Company shall make
available to the Selling Holders of Registrable Securities covered by such
registration statement a prospectus supplemented or amended to conform with the
requirements of Section 3.1(e) hereof.
SECTION 3.2 Registration Expenses. In connection with any Demand
Registration pursuant to Section 2.1 hereof, and any registration statement
filed pursuant to Section 2.2 hereof, the Company shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses, (iv) the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), (v) the fees and
expenses, if any, incurred in connection with the listing of the Registrable
Securities, (vi) fees and disbursements of counsel for the Company and fees and
expenses for independent certified public accountants retained by the Company,
(vii) the fees and expenses of any special experts retained by the Company in
connection with such registration, and (viii) reasonable fees and expenses of
one counsel (who shall be reasonably acceptable to the Company) for all of the
Selling Holders. The Company shall have no obligation to pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities, or any out-of-pocket expenses of the Holders.
IV
SECTION 4.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each Person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any loss, claim, damage or liability and
any action in respect thereof to which such Selling Holder, its officers,
directors and agents, and any such controlling Person may become subject under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arises out of, or is based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Selling Holder, its officers, directors and agents, and each such
controlling Person for any legal and other expenses reasonably incurred by that
Selling Holder, its officers, directors and agents, or any such controlling
Person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action. The Company also agrees to indemnify
any Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 4.1;
provided, that the indemnity agreement contained in this Section 4.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
and any action in respect thereof if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any loss, claim, damage,
liability and any action in respect thereof to the extent that it arises from or
is based upon written information relating to a Person furnished expressly for
use in connection with such registration by such Person, nor shall the Company
be liable to any Person for any such loss, claim, damage or liability and any
action in respect thereof to the extent it arises from or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities
delivered by such Person after the Company had provided written notice to such
Person that such registration statement or prospectus contained such untrue
statement or alleged untrue statement of a material fact, (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading after the Company had
provided written notice to such Person that such registration statement or
prospectus contained such omission or alleged omission, or (iii) the failure of
such Person to deliver any preliminary or final prospectus, or any amendments or
supplements thereto, required under applicable securities laws, including the
Securities Act, to be so delivered, provided that a sufficient number of copies
thereof had been provided by the Company to such Person.
SECTION 4.2 Indemnification by Holders of Registrable Securities.
Each Selling Holder agrees, severally but not jointly, to indemnify and hold
harmless the Company, its officers, directors and agents and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Selling Holder, but only with reference to
information related to such Selling Holder furnished in writing by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2; provided that in no event shall any
indemnity obligation under this Section 4.2 exceed the gross proceeds from the
offering received by such Selling Holder.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action provided that the failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
an Indemnified Party otherwise than under Section 4.1 or 4.2 and except to the
extent of any actual prejudice resulting therefrom. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) based upon the written opinion of counsel of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, unless such settlement includes
an unconditional release of such Indemnified Party from all liability arising
out of such claim or proceeding.
SECTION 4.4 Contribution. If the indemnification provided for in
this Article IV is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Selling Holders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Holders on the one hand and the Underwriters on the
other from the offering of the Registrable Securities, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
the Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and each Selling
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company and the Selling
Holders on the one hand and of the Underwriters on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and the Selling
Holders or by the Underwriters. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriting discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Each
Selling Holder's obligations to contribute pursuant to this Section 4.4 are
several in proportion to the proceeds of the offering received by such Selling
Holder bears to the total proceeds of the offering received by all the Selling
Holders and not joint.
V
SECTION 5.1 Participation in Underwritten Registrations. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights; provided that (i) if the FS Stockholder, the Company
Stockholders or any of their Affiliates participates in such registration, they
will not be required to make any representations or warranties except those
which relate solely to themselves and (ii) the liability of the FS Stockholder,
the Company Stockholders or any of their Affiliates to any Underwriter under
such underwriting agreement will be limited to liability arising from
misstatements in, or omissions from, written information regarding such Person
provided by or on behalf of such Person for inclusion in the prospectus.
SECTION 5.2 Rule 144. The Company covenants that it will use its
reasonable best efforts to file any reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action as
any Holder may reasonably request, all to the extent reasonably required from
time to time to enable Holders and their Affiliates to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, as such Rules may be amended from time to time, or (b) any similar Rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION 5.3 Holdback Agreements. To the extent not inconsistent
with applicable law, each Holder of Registrable Securities agrees not to effect
any sale or distribution or to permit its Affiliate to effect any sale or
distribution of the issue being registered or of a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act, during the 14 days prior to, and during the 180-day period
beginning on, the effective date of the registration statement filed by the
Company (except as part of such registration) if, and to the extent, requested
by the managing Underwriter or Underwriters in the case of an underwritten
public offering.
SECTION 5.4 Stockholders Agreement. Notwithstanding anything above
to the contrary, all transfers of Registrable Securities subject to the
provisions of the Stockholders Agreement shall be made only in accordance with
such provisions.
