As filed with the Securities and Exchange Commission on May 19, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 17, 2000
Petco Animal Supplies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 000-23574 33-0479906
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
9125 Rehco Road, San Diego, California 92121
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (858) 453-7845
Page 1 of 5
Exhibit Index on Page 5
<PAGE>
This Current Report on Form 8-K is filed by Petco Animal Supplies,
Inc., a Delaware corporation (the "Company"), in connection with the matters
described herein.
Item 5. Other Events.
On May 17, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of May 17, 2000, with BD
Recapitalization Corp., a Delaware corporation ("MergerSub").
Pursuant to the Merger Agreement, Merger Sub will be merged with and
into the Company (the "Merger"). In connection with the Merger, each issued and
outstanding share of the Company's common stock, par value $.0001 per share
("Company Common Stock"), other than (i) certain shares of Company Common Stock
retained by certain members of the Company's management, (ii) treasury shares
and shares of Company Common Stock owned by MergerSub or by any of the Company's
subsidiaries and (iii) shares held by dissenting stockholders in accordance with
Delaware law, will be converted into the right to receive $22.00 in cash.
Consummation of the Merger is subject to customary closing conditions,
including stockholder approval, receipt of regulatory and other approvals and
the completion of financing. The Company currently expects that the Merger will
be consummated during the fall of 2000.
On May 17, 2000, the Company entered into an amendment (the "Rights
Agreement Amendment") to its Rights Agreement, dated as of September 14, 1998,
by and between the Company and American Stock Transfer and Trust Company, as
Rights Agent, to, among other things, provide that the rights shall not become
exercisable as a result of the Merger Agreement or the Merger.
The information set forth above does not purport to be complete and is
qualified in its entirety by reference to the full text of the Merger Agreement
and the Rights Agreement Amendment, copies of which are attached hereto as
Exhibit 2.1 and 99.1, respectively, and are incorporated herein by reference.
On May 17, 2000, the Company issued a press release announcing the
Merger. A copy of the press release is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
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2.1 Agreement and Plan of Merger, dated as of May 17, 2000, by and between Petco
Animal Supplies, Inc. and BD Recapitalization Corp.
99.1 Amendment, dated as of May 17, 2000, to the Rights Agreement, dated as of
September 14, 1998, by and between Petco Animal Supplies, Inc. and American
Stock Transfer and Trust Company, as Rights Agent, as heretofore amended.
99.2 Press Release, dated May 17, 2000, issued by Petco Animal Supplies, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 19, 2000 Petco Animal Supplies, Inc.
By: /s/ JAMES M. MYERS
----------------------------
James M. Myers
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
- ---------- ----
2.1 Agreement and Plan of Merger, dated as of May 17, 2000, by and
between Petco Animal Supplies, Inc. and BD Recapitalization Corp.
99.1 Amendment, dated as of May 17, 2000, to the Rights Agreement,
dated as of September 14, 1998, by and between Petco Animal
Supplies, Inc. and American Stock Transfer and Trust Company,
as Rights Agent, as heretofore amended.
99.2 Press Release, dated May 17, 2000, issued by Petco Animal
Supplies, Inc.
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and between
PETCO ANIMAL SUPPLIES, INC.
and
BD RECAPITALIZATION CORP.
Dated as of
May 17, 2000
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
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Page
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AGREEMENT AND PLAN OF MERGER...................................................1
ARTICLE I DEFINITIONS..................................................2
Section 1.1 Certain Definitions........................................2
-------------------
Section 1.2 Terms Generally............................................8
---------------
ARTICLE II THE MERGER...................................................9
Section 2.1 The Merger.................................................9
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Section 2.2 Conversion (Or Retention) of Shares........................9
-----------------------------------
Section 2.3 Payment of Cash for Other Shares..........................11
--------------------------------
Section 2.4 Exchange of Stock Certificates............................13
------------------------------
Section 2.5 Dissenting Shares.........................................14
-----------------
Section 2.6 Stock Options.............................................15
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ARTICLE III THE SURVIVING CORPORATION...................................15
Section 3.1 Certificate of Incorporation..............................15
----------------------------
Section 3.2 Bylaws....................................................16
------
Section 3.3 Directors and Officers....................................16
----------------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OFTHE COMPANY................16
Section 4.1 Corporate Existence and Power.............................16
-----------------------------
Section 4.2 Corporate Authorization...................................16
-----------------------
Section 4.3 Corporate Records.........................................17
-----------------
Section 4.4 Consents and Approvals; No Violation......................17
------------------------------------
Section 4.5 Capitalization............................................18
--------------
Section 4.6 Company SEC Reports.......................................20
-------------------
Section 4.7 Provided Information......................................21
--------------------
Section 4.8 Absence of Certain Changes or Events......................21
------------------------------------
Section 4.9 Accounts Payable and Inventory............................25
------------------------------
Section 4.10 No Undisclosed Material Liabilities.......................25
-----------------------------------
Section 4.11 Litigation................................................25
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Section 4.12 Taxes.....................................................26
-----
Section 4.13 Employee Benefit Plans; ERISA.............................28
-----------------------------
Section 4.14 Labor Matters.............................................31
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Section 4.15 Compliance with Laws and Court Orders.....................33
-------------------------------------
Section 4.16 Finders' Fees.............................................33
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Section 4.17 Environmental Matters.....................................33
---------------------
Section 4.18 Subsidiaries..............................................34
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Section 4.19 Year 2000 Matters.........................................35
-----------------
Section 4.20 Insurance.................................................35
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Section 4.21 Suppliers.................................................36
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Section 4.22 Personnel, etc............................................36
---------------
Section 4.23 Stockholders Rights Plan..................................36
------------------------
Section 4.24 Contracts.................................................36
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Section 4.25 Permits; Compliance with Applicable Laws and Material
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Agreements................................................38
----------
Section 4.26 Intellectual Property.....................................38
---------------------
Section 4.27 Related Party Transactions................................41
--------------------------
Section 4.28 Real Estate...............................................41
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Section 4.29 Assets....................................................44
------
Section 4.30 Opinion of Financial Advisor..............................44
----------------------------
Section 4.31 State Anti-takeover Statutes; Delaware Section 203........44
--------------------------------------------------
Section 4.32 International Trade Laws and Regulations..................46
----------------------------------------
Section 4.33 Investments in Affiliated Entities........................45
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Section 4.34 Nasdaq Listing; Holders of Equity Securities as of Record
---------------------------------------------------------
Date For Most Recent Meeting of Stockholders..............46
---------------------------------------------
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGERSUB.................46
Section 5.1 Corporate Existence and Power.............................46
-----------------------------
Section 5.2 Corporate Authorization...................................47
-----------------------
Section 5.3 Governmental Authorization................................47
--------------------------
Section 5.4 Non-contravention.........................................47
-----------------
Section 5.5 Disclosure Documents......................................47
--------------------
Section 5.6 Finders' Fees.............................................48
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Section 5.7 Financing.................................................48
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ARTICLE VI COVENANTS OF THE COMPANY....................................48
Section 6.1 Conduct of the Company....................................48
----------------------
Section 6.2 Company Stockholders Meeting..............................51
----------------------------
Section 6.3 Access to Information; Right of Inspection................52
------------------------------------------
Section 6.4 Other Potential Acquirers.................................52
-------------------------
Section 6.5 Resignation of Directors..................................56
------------------------
Section 6.6 WARN Act..................................................56
--------
Section 6.7 Lease Consents............................................56
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ARTICLE VII COVENANTS OF MERGERSUB......................................56
Section 7.1 Director and Officer Liability............................56
------------------------------
ARTICLE VIII COVENANTS OF MERGERSUB ANDTHE COMPANY.......................56
Section 8.1 Reasonable Best Efforts...................................57
-----------------------
Section 8.2 Consents and Approvals....................................57
----------------------
Section 8.3 Certain Filings...........................................58
---------------
Section 8.4 HSR Act...................................................59
-------
Section 8.5 Advice of Changes.........................................59
-----------------
Section 8.6 Financing.................................................59
---------
Section 8.7 Recapitalization..........................................60
----------------
Section 8.8 Public Announcements......................................60
--------------------
Section 8.9 Further Assurances........................................60
------------------
Section 8.10 Notices of Certain Events.................................60
-------------------------
ARTICLE IX CONDITIONS TO THE MERGER....................................61
Section 9.1 Conditions to the Obligations of Each Party...............61
-------------------------------------------
Section 9.2 Conditions to the Obligations of MergerSub................61
------------------------------------------
Section 9.3 Conditions to the Obligations of the Company..............63
--------------------------------------------
ARTICLE X TERMINATION.................................................63
Section 10.1 Termination...............................................63
-----------
Section 10.2 Termination Fee...........................................65
---------------
Section 10.3 Effect of Termination.....................................66
---------------------
ARTICLE XI MISCELLANEOUS...............................................66
Section 11.1 Notices...................................................66
-------
Section 11.2 Survival of Representations and Warranties................68
------------------------------------------
Section 11.3 Amendments and Waivers....................................68
----------------------
Section 11.4 Expenses..................................................68
--------
Section 11.5 Successors and Assigns; Assignment........................69
----------------------------------
Section 11.6 Governing Law.............................................69
-------------
Section 11.7 Counterparts; Effectiveness...............................69
---------------------------
Section 11.8 Severability..............................................69
------------
Section 11.9 Specific Performance......................................69
--------------------
Section 11.10 Entire Agreement; No Third-party Beneficiaries............69
----------------------------------------------
Section 11.11 "Knowledge"...............................................70
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 17, 2000 (this
"Agreement"), by and between Petco Animal Supplies, Inc., a Delaware corporation
(the "Company"), and BD Recapitalization Corp., a Delaware corporation
("MergerSub").
`WHEREAS, it is the intention of the parties that MergerSub shall merge
with and into the Company (the "Merger"), with the Company being the surviving
corporation;
WHEREAS, a Special Committee (the "Special Committee") of the Board of
Directors of the Company (composed entirely of directors who have no direct or
indirect interest in the transactions contemplated hereby) has unanimously
determined, and the Board of Directors of the Company has unanimously
determined, that the Merger and the other transactions contemplated by this
Agreement, are fair to, advisable and in the best interests of the Company and
its stockholders, and each of the Special Committee and the Board of Directors
of the Company has approved this Agreement and recommended its adoption by the
stockholders of the Company;
WHEREAS, the Special Committee, the Board of Directors of the Company
and the sole stockholder of MergerSub have each approved and adopted this
Agreement and have approved the transactions contemplated hereby;
WHEREAS, as of the date hereof, certain holders of outstanding capital
stock of the Company have entered into a voting agreement (the "Voting
Agreement") with respect to approximately 0.6% of the outstanding capital stock
of the Company and certain employees of the Company have entered into employment
agreements which are conditioned upon the consummation of the Merger and,
following the date hereof, but on or prior to the consummation of the Merger,
the stockholders who are parties to the Voting Agreement and certain additional
stockholders will enter into a stockholders agreement in the form attached as an
exhibit to the Voting Agreement;
WHEREAS, MergerSub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger (as defined below) and also to prescribe certain conditions to the
Merger; and
WHEREAS, it is intended that the Merger be accounted for as a
"Recapitalization" for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions. For purposes of this Agreement, the following
-------------------
terms shall have the respective meanings set forth below:
"Affiliate" of a Person shall mean any Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with such Person.
"Affiliated Entity" shall mean any corporation or other entity in which
the Company or any Subsidiary owns capital stock, a limited partnership interest
or other security which constitutes at least 10% of all of such outstanding
securities or class of securities.
"Aggregate Spread Amount" shall have the meaning given to it in Section
2.2(d).
"Balance Sheet" shall mean the consolidated balance sheet of the
Company as of January 29, 2000 (and the notes thereto) set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000.
"Balance Sheet Date" shall mean January 29, 2000.
"Business Day" shall mean any day that is not a Saturday, Sunday or
legal holiday in the State of New York.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Share Exchange Ratio" shall have the meaning set forth in
Section 2.2(d).
"Common Shares" shall mean the shares of Common Stock.
"Common Stock" shall mean the capital stock of the Company designated
as common stock, $0.0001 par value per share.
"Company" shall mean Petco Animal Supplies, Inc., a Delaware
corporation.
"Company Proxy Statement" shall have the meaning set forth in Section
4.4.
"Company SEC Reports" shall have the meaning set forth in Section 4.6.
"Company Securities" shall have the meaning set forth in Section
4.5(b).
"Company Stockholders Meeting" shall have the meaning set forth in
Section 6.2.
"Contracts" shall have the meaning set forth in Section 4.24.
"Current Policies" shall have the meaning set forth in Section 7.1.
"Delaware Corporate Law" shall mean the Delaware General Corporation
Law, as amended.
"Director Options" shall mean the outstanding options to acquire Shares
granted to directors of the Company.
"Disbursing Agent" shall have the meaning set forth in Section 2.3.
"Disclosure Letter" shall have the meaning set forth in the preamble to
Article IV.
"Dissenting Shares" shall have the meaning set forth in Section 2.5.
"Effective Time" shall have the meaning set forth in Section 2.1(b).
"Employee Options" shall mean the outstanding options to acquire Shares
granted to employees or consultants of the Company.
"Environmental Claims" shall have the meaning set forth in Section
4.17.
"Environmental Laws" shall have the meaning set forth in Section 4.17.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Expenses" shall have the meaning set forth in Section 10.2.
"Financing" shall have the meaning set forth in Section 5.7.
"Financing Letters" shall have the meaning set forth in Section 5.7.
"GAAP" shall mean generally accepted accounting principles, as in
effect in the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government, whether foreign or domestic and whether national,
federal, tribal, provincial, state, regional, local or municipal.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Insurance Policies" shall have the meaning set forth in Section 4.20.
"Intellectual Property" shall mean all trademarks, service marks, trade
names, Internet domain names, designs, logos, slogans, and general intangibles
of like nature, whether registered or unregistered, together with all goodwill,
registrations and applications related to the foregoing (collectively,
"Trademarks"); patents and industrial designs (including any continuations,
divisionals, continuations-in-part, renewals, reissues, and applications for any
of the foregoing); copyrights (including any registrations and applications for
any of the foregoing); Software; technology, trade secrets and other
confidential information, know-how, proprietary processes, formulae, algorithms,
models, and methodologies (collectively, "Trade Secrets"); rights of publicity
and privacy relating to the use of the names, likenesses, voices, signatures and
biographical information of real persons; in each case used in or necessary for
the conduct of Company's business as currently conducted or contemplated to be
conducted.
"Irrevocable Proxies" shall have the meaning set forth in the preamble
to this Agreement.
"IRS" shall mean the United States Internal Revenue Service.
"Law" shall mean statutes, common laws, rules, ordinances, regulations,
codes, licensing requirements, orders, judgments, injunctions, decrees,
licenses, agreements, settlements, governmental guidelines or interpretations,
permits, rules and bylaws of a Governmental Authority.
"Leased Real Property" shall have the meaning set forth in Section
4.28(b).
"Leases" shall have the meaning set forth in Section 4.28(b).
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
"Material Adverse Effect" shall mean, with respect to any Person, any
event, circumstance, change, condition, development or occurrence either
individually or in the aggregate with all other events, circumstances, changes,
conditions, developments or occurrences, resulting in or reasonably likely to
result in a material adverse effect on (i) the business (as now conducted or as
now proposed by such Person to be conducted), results of operations, condition
(financial or otherwise), assets or liabilities (contingent or otherwise), or
prospects of such Person and its Subsidiaries, taken as a whole, (ii) the
legality or enforceability of this Agreement, or (iii) the ability of such
Person to perform its obligations and to consummate the transactions under this
Agreement.
"Materials of Environmental Concern" shall have the meaning set forth
in Section 4.17.
"Merger" shall have the meaning set forth in Section 2.1(a).
"Merger Consideration" shall have the meaning set forth in Section
2.2(a).
"MergerSub" shall mean BD Recapitalization Corp., a Delaware
corporation.
"MergerSub Common Shares" shall mean the common stock, $0.01 par value,
of MergerSub.
"MergerSub Securities" shall have the meaning set forth in Section 5.8.
"MergerSub Series A Preferred Shares" shall mean the shares of 14%
Series A Senior Redeemable Exchangeable Cumulative Preferred Stock of MergerSub.
"MergerSub Series B Preferred Shares" shall mean the shares of 12%
Series B Junior Redeemable Exchangeable Cumulative Preferred Stock of MergerSub.
"Minimum Lease Consents" shall mean (i) any and all consents of
landlords under the Leases for all Leased Real Property at which the
distribution centers of the Company and its Subsidiaries are located, (ii) any
and all consents of landlords under the Leases required by MergerSub's lender(s)
in connection with the Financing, except with respect to leaseholds which the
Agents (as defined in the Financing Letters) determine are immaterial to the
collateral package (as contemplated by the Financing Letters) as a whole, and
(iii) any and all consents of landlords under the Leases sufficient to ensure
that, as of the Effective Time, the stores (on an annualized basis) occupied
under the Leases for which the consents of the landlords thereunder were
required under such Leases but have not been obtained do not account, in the
aggregate, for more than five percent (5%) of the Company's total annual gross
revenue for its fiscal year ended January 29, 2000 as indicated in the Company's
accounting books and records.
"New Series A Preferred Stock" shall have the meaning set forth in
Section 2.2(f).
"New Series A Preferred Stock Exchange Ratio" shall have the meaning
set forth in Section 2.2(e).
"New Series B Preferred Stock" shall have the meaning set forth in
Section 2.2(g).
"New Series B Preferred Stock Exchange Ratio" shall have the meaning
set forth in Section 2.2(g).
"Notice of Superior Proposal" shall have the meaning set forth in
Section 6.4(b).
"Other Shares" shall have the meaning set forth in Section 2.2(a).
"Options" shall mean Employee Options and Director Options.
"Owned Real Property" shall have the meaning set forth in Section
4.28(a).
"Permits" shall mean any licenses, franchises, permits, certificates,
consents, approvals or other similar authorizations affecting, or relating in
any way to, the assets or business of the Company.
"Person" shall mean any individual, corporation, limited liability
company, partnership, association, trust or any other entity or organization,
including any government or political subdivision or any agency or
instrumentality thereof.
"Plans" shall have the meaning set forth in Section 4.13(a).
"Proceeding" shall have the meaning set forth in Section 4.11.
"Real Property" shall have the meaning set forth in Section 4.28(c).
"Related Parties" shall have the meaning set forth in Section 4.27.
"Replacement Policies" shall have the meaning set forth in Section 7.1.
"Retained Shares" shall have the meaning set forth in Section 2.2(c).
"Retaining Stockholders" shall have the meaning set forth in Section
2.2(c).
"Rights" shall mean the preferred share purchase rights issued with
respect to each share of Common Stock pursuant to the Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated September 14,
1998, between the Company and American Stock Transfer and Trust Company as
Rights Agent.
"Roll-over Schedule" shall have the meaning set forth in Section
2.2(d).
"Roll-over Share Number" shall have the meaning set forth in Section
2.2(d).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Shares" shall mean the Common Stock of the Company, including the
Rights.
"Software" means any and all (a) computer programs, including any and
all software implementation of algorithms, models and methodologies, whether in
source code or object code form, (b) databases and compilations, including any
and all data and collections of data, and (c) all documentation, including user
manuals and training materials, relating to any of the foregoing.
"Spread Amount" shall have the meaning set forth in section 2.6(b).
"Subsidiary" shall mean any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"Superior Proposal" shall have the meaning set forth in Section 6.4(c).
"Surviving Corporation" shall have the meaning set forth in Section
2.1(a).
"System" shall have the meaning set forth in Section 4.19.
"Tax or Taxes" shall mean (A) all taxes, charges, fees, duties, levies,
penalties or other assessments, including, without limitation, income, gross
receipts, excise, real and personal property, sales, use, transfer, license,
payroll, withholding, social security, franchise, unemployment insurance,
workers' compensation, employer health tax or other taxes, fees, assessments or
charges of any kind whatsoever, imposed by any Governmental Authority and shall
include any interest, penalties or additions to any of the foregoing, (B) any
liability for payment of amounts described in clause (A) whether as a result of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of law, and (C)
any liability for the payment of amounts described in clauses (A) or (B) as a
result of any tax sharing agreement, tax allocation agreement, tax indemnity
agreement, or other agreement that includes indemnification for any tax
liability.
"Tax Return" shall mean all returns, declarations, reports, forms,
estimates, information returns, statements or other documents (including any
related or supporting information) filed or required to be filed with or
supplied to any Governmental Authority or any Person, in each case, in
connection with any Taxes.
"Terminal Date" shall have the meaning set forth in Section 10.1(b).
"Third Party" shall have the meaning set forth in Section 6.4(c).
"Third Party Acquisition" shall have the meaning set forth in Section
6.4(c).
"Voting Agreement" shall have the meaning set forth in the Recitals
hereto.
"WARN Act" shall have the meaning set forth in section 6.6.
"Year 2000 Compliant" shall have the meaning set forth in Section 4.19.
Section 1.2 Terms Generally. The definitions in Sections 1.1 shall apply
---------------
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation" even if not followed
actually by such phrase unless the context expressly provides otherwise. All
references herein to Sections, paragraphs and Exhibits shall be deemed
references to Sections or paragraphs of or Exhibits to this Agreement unless the
context shall otherwise require. Unless otherwise expressly defined, terms
defined in this Agreement shall have the same meanings when used in any Exhibit
and terms defined in any Exhibit shall have the same meanings when used in this
Agreement or in any other Exhibit. The words "herein," "hereof," "hereto" and
"hereunder" and similar words refer to this Agreement as a whole and not to any
particular provision of this Agreement.
ARTICLE II
THE MERGER
Section 2.1 The Merger.
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(a) At the Effective Time, MergerSub shall be merged with and into the Company
in accordance with Delaware Corporate Law and the terms and conditions hereof
(the "Merger"). Upon consummation of the Merger, the separate existence of
MergerSub shall cease and the Company shall be the surviving corporation (the
"Surviving Corporation").
(b) As soon as practicable after satisfaction (or, to the extent permitted
hereunder, waiver) of all conditions to the Merger, the Company and MergerSub
will file a certificate of merger with the Secretary of State of the State of
Delaware in accordance with Delaware Corporate Law and make all other filings or
recordings required by Law in connection with the Merger. The Merger shall
become effective at such time as the certificate of merger is certified by the
Secretary of State of the State of Delaware or at such later time as is
specified in the certificate of merger (such date and time being referred to
herein as the "Effective Time").
(c) The Merger shall have the effects set forth in the Delaware Corporate Law.
Section 2.2 Conversion (or Retention) of Shares. At the Effective Time, pursuant
-----------------------------------
to this Agreement and by virtue of the Merger and without any action on the part
of MergerSub, the Company or the holders of any of the following securities:
(a) Each share of Common Stock issued and outstanding immediately prior to the
Effective Time other than: (i) any shares of Common Stock to be canceled
pursuant to Section 2.2(b), (ii) each share of Common Stock to remain
outstanding pursuant to Section 2.2(c) or 2.2(d), and (iii) each Dissenting
Share complying with Section 2.5, shall be canceled, retired and shall cease to
exist and shall be converted automatically into the right to receive an amount
equal to $22 in cash, without interest (the "Merger Consideration"), payable to
the holder thereof upon surrender of the certificate formerly representing such
share of Common Stock in the manner provided in Section 2.3; and no other
consideration shall be delivered or deliverable on or in exchange therefor (the
shares of Common Stock being converted into the right to receive the Merger
Consideration are hereinafter referred to as the "Other Shares.")
(b) Each Share held in the treasury of the Company and each Share owned by any
of the Company's Subsidiaries or by MergerSub, if any, immediately prior to the
Effective Time shall be canceled without any conversion thereof and no payment
or distribution shall be made with respect thereto.
(c) The shares of Common Stock registered in the names of the persons (the
"Retaining Stockholders") listed and as set forth in Section 2.2(c) of the
Disclosure Letter (collectively, the "Retained Shares") shall not be converted,
exchanged or canceled as provided above but shall remain outstanding.
(d) That number of shares of Common Stock registered in the names of the persons
(which shall not include the Retained Shares) and as identified in a schedule
prepared by the Company (the "Roll-over Schedule"), shall not be converted,
exchanged or canceled as provided in Sections 2.2(a) or (b) above, but shall
remain outstanding. The Roll-over Schedule shall be delivered by the Company to
MergerSub prior to the consummation of the Merger, and shall identify a number
of shares of Common Stock to remain outstanding (the "Rollover Share Number")
and a number of Options to remain outstanding such that (x) the sum of (A) the
product of $22 and the Rollover Share Number, and (B) the Aggregate Spread
Amount (as defined in Section 2.6(b) hereof and subject to the adjustment
provided in Section 2.6(c)) for all Options identified in the Roll-over Schedule
(the "Aggregate Spread Amount") shall be less than or equal to (y) $1,735,927.
(e) Each MergerSub Common Share that is issued and outstanding immediately prior
to the Effective Time shall be converted into one newly issued, fully paid and
nonassessable shares of Common Stock (the "Common Share Exchange Ratio").
(f) Each MergerSub Series A Preferred Share that is issued and outstanding
immediately prior to the Effective Time shall be converted into one newly
issued, fully paid and nonassessable share of Series A Preferred Stock (the "New
Series A Preferred Stock") of the Surviving Corporation (the "New Series A
Preferred Stock Exchange Ratio"). The terms of the New Series A Preferred Stock
shall be as provided in the Surviving Corporation's certificate of
incorporation.
(g) Each MergerSub Series B Preferred Share that is issued and outstanding
immediately prior to the Effective Time shall be converted into one newly
issued, fully paid and nonassessable share of Series B Preferred Stock (the "New
Series B Preferred Stock") of the Surviving Corporation (the "New Series B
Preferred Stock Exchange Ratio"). The terms of the New Series B Preferred Stock
shall be as provided in the Surviving Corporation's certificate of
incorporation.
(h) If between the date of this Agreement and the Effective Time the number of
outstanding Shares shall have been changed into a different number of shares or
a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, exchange of shares or
the like other than pursuant to the Merger, the amount of the Merger
Consideration, the Common Share Exchange Ratio, the New Series A Preferred Stock
Exchange Ratio and the New Series B Preferred Stock Exchange Ratio and the
Roll-over Share Number shall be correspondingly adjusted and, if and as
appropriate, all other appropriate corresponding adjustments shall be made,
including, without limitation, as necessary to properly adjust the numbers in
Sections 2.2(c) and (d).
Section 2.3 Payment of Cash for Other Shares.
--------------------------------
(a) At the Effective Time, the Surviving Corporation shall irrevocably deposit
or cause to be deposited with a bank or trust company to be designated by the
Surviving Corporation which is organized and doing business under the laws of
the United States or any state thereof and has a combined capital and surplus of
at least $100,000,000 (the "Disbursing Agent"), as agent for the holders of
Other Shares, cash in the aggregate amount required to pay the Merger
Consideration in respect of the Other Shares outstanding immediately prior to
the Effective Time. Pending distribution pursuant to Section 2.3(b) hereof of
the cash deposited with the Disbursing Agent, such cash shall be held in trust
for the benefit of the holders of Other Shares and such cash shall not be used
for any other purposes; provided, however, that the Surviving Corporation may
direct the Disbursing Agent to invest such cash, provided that such investments
(i) shall be obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest rating from either Moody's
Investors Services, Inc. or Standard & Poor's Corporation, or in certificates of
deposit, bank repurchase agreements or bankers acceptances of domestic
commercial banks with capital exceeding $250,000,000 (collectively "Permitted
Investments") or in money market funds which are invested solely in Permitted
Investments and (ii) shall have maturities that will not prevent or delay
payments to be made pursuant to Section 2.3(b) hereof. Each holder of a
certificate or certificates representing Other Shares canceled and extinguished
at the Effective Time pursuant to Section 2.2(a) hereof may thereafter in
accordance with the provisions of Section 2.3(b) hereof, surrender such
certificate or certificates to the Disbursing Agent, as agent for such holder of
Other Shares, to effect the exchange of such certificate or certificates on such
holder's behalf for a period ending six months after the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the Surviving
Corporation shall cause the Disbursing Agent to mail to each holder of record of
Other Shares, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the certificates representing
Other Shares shall pass, only upon delivery of such certificates to the
Disbursing Agent and shall be in such form and have such other provisions not
inconsistent with this Agreement as the Surviving Corporation may specify) and
(ii) instructions for use in effecting the surrender of certificates
representing Other Shares in exchange for payment of the Merger Consideration.
Upon surrender of a certificate or certificates representing Other Shares for
cancellation to the Disbursing Agent or to such other agent or agents as may be
appointed by the Surviving Corporation, together with such letter of
transmittal, duly executed and completed, the holder of such certificate or
certificates shall be entitled to receive in exchange therefor the Merger
Consideration for each Other Share formerly represented by such certificate or
certificates, and the certificate or certificates so surrendered shall forthwith
be cancelled, less any amounts required to be withheld by applicable law. Until
so surrendered and exchanged, each such certificate shall, after the Effective
Time, be deemed to represent only the right to receive the Merger Consideration,
and until such surrender and exchange, no cash or other consideration or payment
of any kind shall be paid to the holder of such outstanding certificate in
respect thereof.
(c) If payment is to be made to a Person other than the registered holder of the
Other Shares represented by the certificate or certificates surrendered in
exchange therefor, it shall be a condition to such payment that the certificate
or certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such payment shall pay
to the Disbursing Agent any transfer or other Taxes required as a result of such
payment to a Person other than the registered holder of such Other Shares or
establish to the satisfaction of the Disbursing Agent that such Tax has been
paid or is not payable.
(d) After the Effective Time, there shall be no further transfers on the stock
transfer books of the Surviving Corporation of the Other Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Other Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration provided
for, and in accordance with the procedures set forth, in this Article II.
(e) If any cash deposited with the Disbursing Agent for purposes of payment in
exchange for Other Shares remains unclaimed six months after the Effective Time,
such cash; together with all interest and earnings thereon shall be returned to
the Surviving Corporation, upon demand, and any such holder who has not
converted his Other Shares into the Merger Consideration prior to that time
shall thereafter look only to the Surviving Corporation for payment of the
Merger Consideration. Notwithstanding the foregoing, the Surviving Corporation
shall not be liable to any holder of Other Shares for any amount paid to a
public official pursuant to applicable unclaimed property laws. Any amounts
remaining unclaimed by holders of Other Shares six (6) years after the Effective
Time (or such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental Authority) shall, to
the extent permitted by applicable Law, become the property of the Surviving
Corporation free and clear of any claims or interest of any Person previously
entitled thereto.
(f) Any portion of the Merger Consideration; together with all interest and
earnings thereon made available to the Disbursing Agent pursuant to Section
2.5(a) to pay for Other Shares for which dissenter's rights have been perfected
shall be returned to the Surviving Corporation, upon demand.
(g) No dividends or other distributions with respect to capital stock of the
Surviving Corporation with a record date after the Effective Time shall be paid
to the holder of any unsurrendered certificate for Other Shares.
(h) From and after the Effective Time, the holders of Other Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Other Shares, other than the right to receive the Merger
Consideration as provided in this Agreement.
(i) In the event that any certificate representing Other Shares shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such certificate representing Other Shares to be lost, stolen or
destroyed and, if required by the Company, the posting by such holder of a bond
in such reasonable amount as the Company may direct as indemnity against any
claim that may be made against it with respect to such certificate representing
Other Shares, the Disbursing Agent will issue in exchange for such lost, stolen
or destroyed certificate representing Other Shares the Merger Consideration, and
unpaid dividends and distributions on Other Shares deliverable in respect
thereof pursuant to this Agreement and the Merger.
Section 2.4 Exchange of Stock Certificates. Immediately after the Effective
-------------------------------
Time, the Surviving Corporation shall (i) deliver to the record holder of the
certificates which immediately prior to the Effective Time represented all the
outstanding shares of MergerSub Common Shares that were converted into the right
to receive shares of Common Stock in accordance with Section 2.2(e), in exchange
for such certificates, duly endorsed in blank, share certificates, registered in
the name of such record holder, representing the number of shares of Common
Stock to which such record holder is so entitled by virtue of Section 2.2(e),
(ii) deliver to the record holder of the certificates which immediately prior to
the Effective Time represented all the outstanding MergerSub Series A Preferred
Shares that were converted into the right to receive shares of New Series A
Preferred Stock in accordance with Section 2.2(f), in exchange for such
certificates, duly endorsed in blank, share certificates, registered in the name
of such record holder, representing the number of shares of New Series A
Preferred Stock to which such record holder is so entitled by virtue of Section
2.2(f), and (iii) deliver to the record holder of the certificates which
immediately prior to the Effective Time represented all the outstanding
MergerSub Series B Preferred Shares that were converted into the right to
receive shares of New Series B Preferred Stock in accordance with Section
2.2(g), in exchange for such certificates, duly endorsed in blank, share
certificates, registered in the name of such record holder, representing the
number of shares of New Series B Preferred Stock to which such record holder is
so entitled by virtue of Section 2.2(g). Such certificate will bear a legend
restricting the transferability of such shares to the extent contemplated by the
form of stockholders agreement attached as an exhibit to the Voting Agreement,
which restrictions include restrictions designed to assure the Surviving
Corporation that these shares will not be offered or sold in contravention of
any federal or state securities laws.
Section 2.5 Dissenting Shares. Notwithstanding Section 2.2, Shares which are
------------------
issued and outstanding immediately prior to the Effective Time and which are
held by a holder who has not voted such Shares in favor of the Merger and who
has delivered a written demand for relief as a dissenting stockholder in the
manner provided by Delaware Corporate Law and who, as of the Effective Time,
shall not have effectively withdrawn or lost such right to relief as a
dissenting stockholder ("Dissenting Shares") shall not be converted into a right
to receive the Merger Consideration. The holders of such Dissenting Shares shall
be entitled only to such rights as are granted by Section 262 of Delaware
Corporate Law. Each holder of Dissenting Shares who becomes entitled to payment
for such Shares pursuant to Section 262 of Delaware Corporate Law shall receive
payment therefor from the Surviving Corporation in accordance with Delaware
Corporate Law; provided, however, that if any such holder of Dissenting Shares
(i) shall have failed to establish his entitlement to relief as a dissenting
stockholder as provided in Section 262 of Delaware Corporate Law, (ii) shall
have effectively withdrawn his demand for relief as a dissenting stockholder
with respect to such Shares or lost his right to relief as a dissenting
stockholder and payment for his Shares under Section 262 of Delaware Corporate
Law, or (iii) shall have failed to file a complaint with the appropriate court
seeking relief as to determination of the value of all Dissenting Shares within
the time provided in Section 262 of Delaware Corporate Law, such holder shall
forfeit the right to relief as a dissenting stockholder with respect to such
Shares and each such Share shall be converted into the right to receive the
appropriate Merger Consideration without interest thereon, from the Surviving
Corporation as provided in Section 2.2. The Company shall give MergerSub prompt
written notice of any demands received by the Company for relief as a dissenting
stockholder and MergerSub shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of MergerSub, make any payment with
respect to, or settle or offer to settle, any such demands.
Section 2.6 Stock Options.
-------------
(a) Each Option, whether vested or unvested, that has an exercise price equal to
or greater than $22 shall be canceled immediately prior to the Effective Time
for no consideration.
(b) Immediately prior to the Effective Time, all other outstanding and vested
Options (other than Options being retained pursuant to Section 2.6(c) hereof)
shall be canceled and, in lieu thereof, as soon as reasonably practicable as of
or after the Effective Time, the holders of such Options shall receive a cash
payment from the Company equal to the product of (i) the total number of Shares
previously subject to such Option and (ii) the excess (x) of the Merger
Consideration that would be paid with respect to the Share subject to such
Option if the Option were exercised over (y) the exercise price per Share
subject to such Option (such excess, the "Spread Amount"), as reduced by any
required withholding of taxes. Immediately prior to the Effective Time, all
unvested Options other than Options being retained pursuant to Section 2.6(c)
hereof shall be vested.
(c) Subject to the provisions of Section 2.2(d) hereof, at the Effective Time,
those Options identified in the Roll-over Schedule shall not be converted,
exchanged or canceled as provided above but shall remain outstanding, provided,
however, that the exercise price of such Options shall be adjusted to $4.40 per
Share and the number of Shares subject to such Options shall be adjusted such
that the Aggregate Spread Amount for all such Options, after such adjustments,
shall be equal to 80% of the Aggregate Spread Amount for all such Options
immediately prior to such adjustments.
ARTICLE III
THE SURVIVING CORPORATION
Section 3.1 Certificate of Incorporation. The certificate of incorporation of
-----------------------------
the Surviving Corporation shall be amended in the Merger to be the Certificate
of Incorporation of MergerSub immediately prior to the Effective Time until
amended in accordance therewith and with applicable law, except that Article
First thereof shall continue to read, "The name of the Corporation (hereafter
the "Corporation") is PETCO ANIMAL SUPPLIES, INC.".
Section 3.2 Bylaws. The bylaws of MergerSub in effect at the Effective Time
------
shall be the bylaws of the Surviving Corporation (with the name of the Surviving
Corporation changed, as appropriate) until amended in accordance therewith and
in accordance with the certificate of incorporation of the Surviving Corporation
and applicable law.
Section 3.3 Directors and Officers. From and after the Effective Time, until
----------------------
successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) the directors of MergerSub at the Effective Time shall be
the initial directors of the Surviving Corporation and (ii) the officers of the
Company at the Effective Time shall be the initial officers of the Surviving
Corporation, in each case to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergerSub that, except as set
forth in the corresponding sections or subsections of the Disclosure Letter
delivered to MergerSub by the Company concurrently with entering into this
Agreement (the "Disclosure Letter"):
Section 4.1 Corporate Existence and Power. Each of the Company and its
--------------------------------
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers required to carry on its business as now conducted. Each of the
Company and its Subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, the Company and it Subsidiaries are qualified to do
business in the states shown on Section 4.1 of the Disclosure Letter. The
Company has heretofore made available to MergerSub true and complete copies of
the currently effective amended and restated certificate of incorporation and
bylaws or similar organizational documents of the Company and each of its
Subsidiaries (as the same may be amended and restated as of the date hereof).
Section 4.2 Corporate Authorization. (a) The Company has the full corporate
------------------------
power and authority to execute and deliver this Agreement and, subject to
approval of this Agreement by the affirmative vote of a majority of the votes
represented by the shares of Common Stock outstanding on the record date to be
established for the Company Stockholders Meeting, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby on the part of the
Company have been (i) duly and validly authorized and adopted by the unanimous
vote of the Special Committee and by the unanimous vote of the Company's Board
of Directors, and (ii) determined to be fair to, advisable and in the best
interests of the stockholders of the Company (other than the Retaining
Stockholders) by the Special Committee and the Company's Board of Directors. The
Special Committee and the Board of Directors have each recommended that the
Stockholders of the Company adopt this Agreement and approve the Merger. No
corporate proceedings on the part of the Company are necessary, as a matter of
law or otherwise, for the consummation of the transactions contemplated hereby,
other than the approval of this Agreement by the Company's stockholders at the
Company Stockholders Meeting. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery of this Agreement by MergerSub, is a valid and binding agreement of the
Company enforceable against it in accordance with its terms, except to the
extent that the enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditor's rights generally, (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity) and (iii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
the discretion of the court before which any enforcement proceeding therefor may
be brought.
Section 4.3 Corporate Records. The Company has made available to MergerSub a
------------------
complete and correct copy of the certificate of incorporation and bylaws, each
as amended to date, of each of the Company and the Company's Subsidiaries. Each
of the certificates of incorporation and bylaws so delivered is in full force
and effect. The corporate records and minute books of the Company and the
Company's Subsidiaries provided to MergerSub reflect all material action taken
and authorizations made at meetings of such companies' Boards of Directors or
any committees thereof and at any stockholders' meetings thereof.
Section 4.4 Consents and Approvals; No Violation. The execution and delivery of
------------------------------------
this Agreement by the Company, the consummation of the transactions contemplated
hereby (including completion of the Financing on the terms set forth in the
Financing Letters) and the performance by the Company of its obligations
hereunder will not:
(a) conflict with or result in any breach of any provision of the Company's
Certificate of Incorporation or the Bylaws or other organizational documents;
(b) require any consent, approval, order, authorization or permit of, or
registration, filing with or notification to, any Governmental Authority or any
private third party except for (i) the filing of a pre-merger notification and
report form by the Company under the HSR Act, (ii) the filing with the SEC of
(A) a proxy statement relating to the Company Stockholders Meeting (together
with any amendments thereof or supplements thereto and any other required proxy
materials, the "Company Proxy Statement"), (B) a Rule 13e-3 transaction
statement on Schedule 13E-3 (the "Schedule 13E-3"), and (C) such reports under
Section 13(a) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iii) any registration,
filing or notification required pursuant to state securities or Blue Sky laws,
and (iv) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware in connection with the Merger;
(c) result in the creation or imposition of any material Lien on any asset of
the Company or any of its Subsidiaries or Affiliated Entities;
(d) result in any violation of or the breach of or constitute a default (with
notice or lapse of time or both) under (or give rise to any right of
termination, cancellation or acceleration or guaranteed payments under or to, a
loss of a material benefit or result in the creation or imposition of a lien
under) any of the terms, conditions or provisions of any note, lease, mortgage,
indenture, license, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company, any of
its Subsidiaries or any of their respective Affiliates may be bound, except for
such violations, breaches, defaults, or rights of termination, cancellation or
acceleration, losses or the imposition of liens as to which requisite waivers or
consents have been obtained or will be obtained prior to the Effective Time or
which, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect; or
(e) violate the provisions of any order, writ, injunction, judgment, decree,
statute, rule or regulation applicable to the Company or any of its
Subsidiaries, in such a manner as could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 4.5 Capitalization. (a) The authorized capital stock of the Company
--------------
consists of 100,000,000 shares of Common Stock, par value $0.0001 per share
including the associated Rights and 2,000,000 shares of preferred stock, par
value $0.0001 per share. As of the date hereof, (i) 21,107,329 shares of Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable and were issued free of preemptive (or similar) rights, and
(ii) an aggregate of 250,000 shares of preferred stock were designated as the
company's Series A Junior Participating Preferred Stock, none of which are
issued and outstanding. Section 4.5 of the Disclosure Letter contains a true,
complete and correct list of all outstanding Options and all other options,
warrants, rights or other securities convertible into or exercisable for shares
of capital stock of the Company, the holders of such options, warrants, rights
and other securities and the exercise price with respect to such securities.
(b) Except as set forth in this Section 4.5 and except as may result from the
exercise, prior to the consummation of the Merger, of Options outstanding on the
date hereof, there are no outstanding (i) shares of capital stock or other
voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or its Subsidiaries, (iii) options or other rights, other than the
Rights, to acquire from the Company or its Subsidiaries, or obligations of the
Company or its Subsidiaries to issue, any shares of capital stock, voting
securities or securities of the Company, and (iv) no equity equivalent interests
in the ownership or earnings of the Company or its Subsidiaries or other similar
rights (the items in clauses (b)(i), (ii), (iii) and (iv) being referred to
collectively as the "Company Securities"). There are no outstanding obligations
of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
Company Securities.
(c) Other than the Voting Agreement, there are no voting trusts or other
agreements or understandings to which the Company or any of its Subsidiaries is
a party with respect to the voting of the shares of any capital stock of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries will be required to redeem, repurchase or otherwise acquire any
shares of capital stock of the Company (other than pursuant to the Merger in
accordance with the terms of this Agreement) or any of its Subsidiaries, as a
result of the transactions contemplated by this Agreement.
(d) No agreement or other document grants or imposes on any shares of Common
Stock any right, preference, privilege or restriction with respect to the
transactions contemplated hereby (including, without limitation, any rights of
first refusal). All of the outstanding shares of Common Stock are, and all
shares of Common Stock that may be issued upon the exercise of outstanding
Options will be, when issued in accordance with the terms thereof, duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. There are no outstanding contractual obligations of the Company or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiary or to provide funds to
make any investment (in the form of a loan, capital contribution or otherwise)
in the Company, any of its Subsidiaries or any other Person.
(e) All of the issued and outstanding shares of capital stock of the Company's
Subsidiaries are owned beneficially and of record by the Company, free and clear
of all liens, charges, pledges, encumbrances, equities, voting restrictions,
claims and options of any nature, and all such shares have been duly authorized,
validly issued and are fully paid, nonassessable and free of preemptive rights.
The Company has not made, directly or indirectly, any material investment in,
advance to or purchase or guaranty of any obligations of, any Person other than
obligations of its Subsidiaries.
Section 4.6 Company SEC Reports.
-------------------
(a) The Company has filed with the SEC all forms, reports, schedules, statements
and other documents required to be filed by it since January 1, 1996 under the
Securities Act or the Exchange Act (such documents, as supplemented or amended
since the time of filing, collectively, the "Company SEC Reports"). As of their
respective dates, the Company SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
at the time filed (and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of mailing,
respectively) (a) complied, in all material respects, with all applicable
requirements of the Securities Act and the Exchange Act, as the case may be and
(b) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
consolidated interim financial statements (the "Financial Statements") included
or incorporated by reference in the Company SEC Reports (including any related
notes and schedules) fairly present, in all material respects, the financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the results of their operations and their cash flows for the periods
set forth therein, in each case in accordance with past practices and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto and subject, where appropriate, to normal year-end
adjustments that would not be material in amount or effect).
(b) The Company has heretofore made available or promptly will make available to
MergerSub a complete and correct copy of any amendments or modifications to any
Company SEC Reports filed prior to the date hereof which are required to be
filed with the SEC but have not yet been filed with the SEC.
(c) The Company will file with the SEC and promptly will make available to
MergerSub true and complete copies of each form, registration statement, report,
schedule, proxy or information statement and other documents (including exhibits
thereto) required to be filed with the SEC under the Securities Act or the
Exchange Act.
Section 4.7 Provided Information. The information supplied or to be supplied by
--------------------
the Company, for inclusion in (a) offering documents (the "Offering Documents")
in connection with the Financing; (b) the Schedule 13E-3; and (c) the Company
Proxy Statement will not, in the case of the Offering Documents and the Schedule
13E-3, as of the date thereof, of each amendment or supplement thereto and as of
the Effective Time, and in the case of the Company Proxy Statement, either at
the date mailed to the Company's Stockholders or at the time of the Company
Stockholders Meeting, contain any 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, in the light of the circumstances under which they were
made, not misleading. Each of the Company Proxy Statement and the Schedule
13E-3, as to information supplied by the Company, will comply in all material
respects with all applicable provisions of the Exchange Act.
Section 4.8 Absence of Certain Changes or Events.
------------------------------------
(a) Except as expressly contemplated by this Agreement, since the Balance Sheet
Date, the business of the Company and its Subsidiaries has been conducted in all
material respects in the ordinary course of business and consistent with past
practices, neither the Company nor any of its Subsidiaries has engaged in any
transaction or series of related transactions material to the Company or its
Subsidiaries other than in the ordinary course of business and consistent with
past practices, and there has not been any event, occurrence or development,
alone or taken together with all other existing facts, that, individually or in
the aggregate, constitutes a Material Adverse Effect on the Company.
(b) Without limiting the generality of the foregoing Section 4.8(a), since the
Balance Sheet Date there has not been:
(i) any damage, destruction or loss to any of the assets or
propertie of the Company or any of its Subsidiaries that, individually
or in the aggregate, constitutes a Material Adverse Effect on the
Company;
(ii) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) or capital return in
respect of any shares of the Company's capital stock or any
redemption, purchase or other acquisition by the Company or any of its
Subsidiaries of any shares of the Company's capital stock or any
repurchase, redemption or other purchase by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of
its Subsidiaries, or any amendment of any material term of any
outstanding security of the Company or any of its Subsidiaries;
(iii) any sale, assignment, transfer, lease or other disposition
or agreement to sell, assign, transfer, lease or otherwise dispose of
any of the assets of the Company or any of its Subsidiaries or other
than in the ordinary course of business consistent with past
practices;
(iv) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by the Company or any of its Subsidiaries of any
corporation, partnership or other business organization or division
thereof or any equity interest therein for consideration, or any loans
or advances to any Person;
(v) any (a) incurrence of, (b) guarantee with respect to, or (c)
provision of credit support for, any indebtedness by the Company or
any of its Subsidiaries other than pursuant to the Company's existing
credit facilities in the ordinary course of business or any creation
or assumption by the Company or any of its Subsidiaries of any
material Lien on any material asset;
(vi) any material change in any method of accounting or
accounting practice (whether for financial accounting or Tax purposes)
used by the Company or any of its Subsidiaries;
(vii) (A) any employment, deferred compensation, severance or
similar agreement entered into or amended by the Company or any of its
Subsidiaries and any employee, in each case other than sales
commission agreements and product promotional agreements entered into
in the ordinary course of business consistent with past practices, (B)
any increase in the compensation payable or to become payable by it to
any of its directors or officers or generally applicable to all or any
category of the Company's or any of its Subsidiaries' employees, (C)
any increase in the coverage or benefits available under any vacation
pay, company awards, salary continuation or disability, sick leave,
deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any of the directors or officers of
the Company or any of its Subsidiaries or generally applicable to all
or any category of the Company's or any of its Subsidiaries' employees
or (D) severance pay arrangements made to, for or with such directors,
officers or employees other than, in the case of (B) and (C) above and
only with respect to employees who are not officers or directors of
the Company or any of its Subsidiaries, increases in the ordinary
course of business consistent with past practices and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expense of the Company or any of its Subsidiaries;
(viii) any revaluing in any material respect any of the assets of
the Company or any of its Subsidiaries, including without limitation
writing down the value of any assets or inventory or writing off notes
or accounts receivable other than in the ordinary course of business
and consistent with past practices;
(ix) any loan, advance or capital contribution made by the
Company or any of its Subsidiaries to, or investment in, any person
other than loans, advances or capital contributions, or investments of
the Company made in the ordinary course of business consistent with
past practices;
(x) any adoption or amendment of any Plan (as defined in Section
4.13);
(xi) any waiver, direct or indirect, by the Company or any of its
Subsidiaries of (A) any right or rights of material value or (B) any
payment of any material debt, liability or other obligation, except
for non-material waivers and payments made in the ordinary course of
business consistent with past practice;
(xii) any change in or amendment to the Company's or any of its
Subsidiaries' Certificate of Incorporation, Bylaws or other
organizational documents;
(xiii) any payment, loan or advance of any amount to or in
respect of, or the sale, transfer or lease of any properties or assets
(whether real, personal or mixed, tangible or intangible) to, or
entering into of any agreement arrangement or transaction with or on
behalf of, any officer, director, or employee of the Company, any of
its Subsidiaries or any Affiliate of any of them, or any business or
entity in which the Company, any Subsidiary or any Affiliate of any of
them, or relative of any such Person, has any material, direct or
indirect, interest, except for (i) directors' fees, (ii) compensation
to the officers and employees of the Company in the ordinary course of
business and consistent with past practices and (iii) advancement or
reimbursement of expenses in the ordinary course of business and
consistent with past practices;
(xiv) any material modification or change that would result in a
diminishment of coverage under any insurance policies; or
(xv) any material reduction in any cash or short-term investments
or their equivalent, other than to meet cash needs arising in the
ordinary course of business, generally consistent with past practices;
sale, assignment, disposition, transfer, pledge, mortgage or lease of
any Owned Real Estate or Leased Real Estate;
(xvi) any issuance, sale or disposition of any capital stock or
other equity interest in the Company, except upon the valid exercise
of Options in accordance with the terms thereof, or issuance or grant
of any options, warrants or other rights to purchase any such capital
stock or equity interest or any securities convertible into or
exchangeable for such capital stock or equity interest or any other
change in the issued and outstanding capitalization of the Company;
(xvii) any amendment, alteration or modification in the terms of
any currently outstanding options, warrants or other rights to
purchase any capital stock or equity interest in the Company or any
securities convertible into or exchangeable for such capital stock or
equity interest, including without limitation any reduction in the
exercise or conversion price of any such rights or securities, any
change to the vesting or acceleration terms of any such rights or
securities, or any change to terms relating to the grant of any such
rights or securities;
(xviii) any material changes in the business policies (including
advertising, investment, marketing, pricing, purchasing, production,
personnel, sales or budgeting) or organization of the Company, the
Company's relationships with employees or the Company's relationships
with suppliers, agents, servicers or customers that are material to
the Company;
(xix) any closure, shut down or other elimination of any of the
Company's stores, offices, store franchises or any material change in
the basic character of its business, properties or assets, other than
those store closures effected or proposed to be effected as set forth
in Section 4.8(b)(xix) of the Disclosure Letter and additional
closures of stores which did not account in the aggregate for more
than 1% of the Company's total annual gross revenue for the fiscal
year ended January 29, 2000 as indicated in the Company's accounting
books and records;
(xx) any action which, if it had been taken after the date
hereof, would have required the consent of MergerSub under Section 6.1
hereof.
(xxi) any agreement to take any actions specified in this Section
4.8(b), except for this Agreement;
Section 4.9 Accounts Payable and Inventory. Since the Balance Sheet Date to the
------------------------------
date hereof, the Company has (i) discharged its material accounts payable and
other material current liabilities and obligations in accordance with past
practice, and (ii) purchased and maintained inventory in an amount which it
reasonably believes to be appropriate for normal seasonal requirements of the
Company's business and current business conditions and consistent with its past
practices.
Section 4.10 No Undisclosed Material Liabilities. There are no liabilities of
-------------------------------------
the Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, which would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of the Company (including the notes thereto), other
than:
(i) liabilities disclosed in the Company SEC Reports filed prior to the date
hereof;
(ii) actual trade payables incurred in the ordinary course of business
consistent with past practices;
(iii) liabilities incurred to perform this Agreement and permitted pursuant to
Section 6.1 hereof; and.
(iv) liabilities incurred in the ordinary course of business consistent with
past practices;
provided, however, that, no liability listed in clauses (ii) and (iv) above,
- -------- -------
individually or in the aggregate, constitutes a Material Adverse Effect on the
Company or any of its Subsidiaries, taken as a whole.
Section 4.11 Litigation. (a) There is no action, suit, investigation or
----------
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries or their respective
properties before any court or arbitrator or any Governmental Authority which,
if determined adversely, would constitute a Material Adverse Effect on the
Company (a "Proceeding") and (b) to the knowledge of the Company, there is no
basis for any such Proceeding. All Proceedings disclosed in Section 4.11 of the
Disclosure Letter have been timely reported to all applicable insurance carriers
and no reservation of rights or denial of coverage has been issued by any such
carrier. Neither the Company, any of its Subsidiaries nor any officer, director
or employee of the Company or any of its Subsidiaries has been permanently or
temporarily enjoined by any order, judgment or decree of any court or any other
Governmental Authority from engaging in or continuing any conduct or practice in
connection with the business or assets of the Company or any of its Subsidiaries
nor, to the Company's and its Subsidiaries' knowledge, is the Company, any of
its Subsidiaries or any officer, director or employee of the Company or any of
its Subsidiaries under investigation by any Governmental Authority related to
the conduct of the Company's or any of its Subsidiaries' business. There is not
in existence any order, judgment or decree of any court or other tribunal or
other agency that is specifically applicable to the Company or any of its
Subsidiaries enjoining or requiring the Company or any of its Subsidiaries' to
take any action of any kind with respect to its business or assets.
Section 4.12 Taxes.
-----
(a) The Company and each of its Subsidiaries and each of its Affiliated
Entities:
(i) have timely paid or caused to be paid all material Taxes
required to be paid by it. The accruals for Taxes payable in Company's
most recent consolidated financial statements are adequate to cover
all material Taxes attributable to periods (or portions thereof)
ending on the date of such financial statements, and no material Taxes
attributable to periods following the date of such financial
statements have been incurred other than in the ordinary course of
business;
(ii) have filed or caused to be filed in a timely and proper
manner all material Tax Returns required to be filed by such entities
with the appropriate Governmental Authority in all jurisdictions in
which Tax Returns are required to be filed, and all such Tax Returns
are true, correct and complete in all material respects; and
(iii) have not requested or caused to be requested any extension
of time within which to file any material Tax Return, which Tax Return
has not since been filed.
(b) The Company has made available to MergerSub true, correct and complete
copies of all United States federal Tax Returns filed by or on behalf of the
Company or any of its Subsidiaries for all taxable periods ending on or after
December 31, 1995.
(c) Neither the Company nor any of its Subsidiaries has been notified in writing
by the Internal Revenue Service or any other Governmental Authority of any
issues relating to Taxes in connection with any Tax Return filed by or on behalf
of the Company or any of its Subsidiaries.
(d) There are no pending Tax audits relating to the Company or any of its
Subsidiaries and no waivers of statutes of limitations have been given or
requested by the Company or any of its Subsidiaries that are currently
outstanding.
(e) No Liens for Taxes have been filed against the Company or any of its
Subsidiaries, except for Liens for Taxes not yet due or payable for which
adequate reserves have been provided for in the latest balance sheet of the
Company.
(f) No unresolved deficiencies or additions to Taxes have been proposed,
asserted, or assessed against the Company or any of its Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has received notice within
the last three years from any Governmental Authority in a jurisdiction in which
the Company or any of its Subsidiaries does not file Tax Returns that the
Company or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction.
(h) Neither the Company nor any of its Subsidiaries is (i) a party to any Tax
sharing, Tax allocation or similar agreement, or (ii) bound by any closing
agreement, offer in compromise or other agreement with any Governmental
Authority.
(i) Neither the Company nor any of its Subsidiaries is required to include in
its income any adjustment pursuant to Section 481 of the Code following the
Effective Time.
(j) The Company is not currently a "United States real property holding
corporation" ("USRPHC") within the meaning of Section 897(c)(2) of the Code, and
the Company will not have been a USRPHC at any time within the period beginning
five (5) years prior to the Effective Time and ending as of the Effective Time.
(k) As of the date of this Agreement, the Company has not undergone an
"ownership change" within the meaning of Section 382(g) of the Code at any time
during the period set forth in Section 382(i) of the Code. The Company will not
undergo an "ownership change" (other than as a result of the Merger) at any time
within the period beginning three (3) years prior to the Effective Time and
ending as of the Effective Time.
Section 4.13 Employee Benefit Plans; ERISA.
-----------------------------
(a) Section 4.13 of the Disclosure Letter contains a true and complete list of
each employment, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, stock appreciation right or other stock-based incentive,
severance, change-in-control, or termination pay, hospitalization or other
medical, disability, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension, or retirement plan, program, agreement or
arrangement and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by the Company or any of its Subsidiaries, or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), that together with
the Company or any of its Subsidiaries would be deemed a "single employer"
within the meaning of Section 4001(b)(1) of ERISA, for the benefit of any
current or former employee or director of the Company, or any of its
Subsidiaries or any ERISA Affiliate (the "Plans"). Section 4.13(a) of the
Disclosure Letter identifies each of the Plans that is an "employee welfare
benefit plan," or "employee pension benefit plan" as such terms are defined in
Sections 3(1) and 3(2) of ERISA (such plans being hereinafter referred to
collectively as the "ERISA Plans"). None of the Company, any of its Subsidiaries
nor any ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any current or former employee or director of the
Company, any of its Subsidiaries or any ERISA Affiliate.
(b) With respect to each of the Plans, the Company has heretofore delivered or
made available to MergerSub true and complete copies of each of the following
documents, as applicable:
(i) a copy of the Plan documents (including all amendments
thereto) for each written Plan or a written description of any Plan
that is not otherwise in writing;
(ii) a copy of the annual report or Internal Revenue Service Form
5500 Series, if required under ERISA, with respect to each ERISA Plan
for the last three Plan years ending prior to the date of this
Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required under ERISA,
with respect to each ERISA Plan for the last three Plan years ending
prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan Description ("SPD"),
together with all Summaries of Material Modification issued with
respect to such SPD, if required under ERISA, with respect to each
ERISA Plan, and all other material employee communications relating to
each ERISA Plan;
(v) if the Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, if
any;
(vi) all contracts relating to the Plans with respect to which
the Company, any of its Subsidiaries or any ERISA Affiliate may have
any liability, including insurance contracts, investment management
agreements, subscription and participation agreements and record
keeping agreements; and
(vii) the most recent determination letter received from the IRS
with respect to each Plan that is intended to be qualified under
Section 401(a) of the Code.
(c) No liability under Title IV of ERISA has been incurred by the Company, any
of its Subsidiaries or any ERISA Affiliate since the Effective Date of ERISA
that has not been satisfied in full, and no condition exists that presents a
material risk to the Company, or any of its Subsidiaries or any ERISA Affiliate
of incurring any liability under such Title, other than liability for premiums
due the Pension Benefit Guaranty Corporation ("PBGC"), which payments have been
or will be made when due. To the extent this representation applies to Sections
4064, 4069 or 4204 of Title IV of ERISA, it is made not only with respect to the
ERISA Plans but also with respect to any employee benefit plan, program,
agreement or arrangement subject to Title IV of ERISA to which the Company, any
of its Subsidiaries or any ERISA Affiliate made, or was required to make,
contributions during the past six years.
(d) The PBGC has not instituted proceedings pursuant to Section 4042 of ERISA to
terminate any of the ERISA Plans subject to Title IV of ERISA, and no condition
exists that presents a material risk that such proceedings will be instituted by
the PBGC.
(e) With respect to each of the ERISA Plans that is subject to Title IV of
ERISA, the present value of accumulated benefit obligations under such Plan, as
determined by the Plan's actuary based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such Plan's
actuary with respect to such Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Plan allocable to such
accumulated benefit obligations.
(f) None of the Company, any of its Subsidiaries, any ERISA Affiliate, any of
the ERISA Plans, any trust created thereunder, nor, to the Company's knowledge,
any trustee or administrator thereof has engaged in a transaction or has taken
or failed to take any action in connection with which the Company, any of its
Subsidiaries or any ERISA Affiliate could be subject to any material liability
for either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a tax imposed pursuant to Section 4975(a) or (b), 4976 or 4980B of the Code.
(g) All contributions and premiums which the Company, any of its Subsidiaries or
any ERISA Affiliate is required to pay under the terms of each of the ERISA
Plans and Section 412 of the Code, have, to the extent due, been paid in full or
properly recorded on the financial statements or records of the Company or its
Subsidiaries, and none of the ERISA Plans or any trust established thereunder
has incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each of the ERISA Plans ended prior to the date
of this Agreement. No lien has been imposed under Section 412(n) of the Code or
Section 302(f) of ERISA on the assets of the Company, any of its Subsidiaries or
any ERISA Affiliate, and no event or circumstance has occurred that is
reasonably likely to result in the imposition of any such lien on any such
assets on account of any ERISA Plan.
(h) With respect to any ERISA Plan that is a "multiemployer plan," as such term
is defined in Section 3(37) of ERISA, (i) neither the Company, any of its
Subsidiaries nor any ERISA Affiliate has, since September 26, 1980, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA, (ii) no event has
occurred that presents a material risk of a complete or partial withdrawal,
(iii) neither the Company, each of its Subsidiaries nor any ERISA Affiliate has
any contingent liability under Section 4204 of ERISA, (iv) no circumstances
exist that present a material risk that any such multi-employer plan will go
into reorganization, and (v) the aggregate withdrawal liability of the Company,
each of its Subsidiaries and the ERISA Affiliates, computed as if a complete
withdrawal by the Company, each of its Subsidiaries and all of its ERISA
Affiliates had occurred under each such multiemployer plan on the date hereof,
would be zero.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code.
(j) Each of the ERISA Plans that is intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified. The Company has applied
for and received a currently effective determination letter from the IRS stating
that it is so qualified, and no event has occurred which would affect such
qualified status.
(k) Any fund established under an ERISA Plan that is intended to satisfy the
requirements of Section 501(c)(9) of the Code has so satisfied such
requirements.
(l) No amounts payable under any of the Plans or any other contract, agreement
or arrangement with respect to which the Company or any of its Subsidiaries may
have any liability could fail to be deductible for federal income tax purposes
by virtue of Section 162(m) or Section 280G of the Code.
(m) No Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
of the Company, its Subsidiaries or any ERISA Affiliate after retirement or
other termination of service (other than (i) coverage mandated by applicable
laws, (ii) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the books of the Company, any of
its Subsidiaries or an ERISA Affiliate, or (iv) benefits, the full direct cost
of which is borne by the current or former employee (or beneficiary thereof)).
(n) The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with any other event, (i) entitle any
current or former employee, officer or director of the Company, any of its
Subsidiaries or any ERISA Affiliate to severance pay, unemployment compensation
or any other similar termination payment, or (ii) accelerate the time of payment
or vesting, or increase the amount of or otherwise enhance any benefit due any
such employee, officer or director.
(o) There are no pending or, to the Company's knowledge, threatened or
anticipated claims by or on behalf of any Plan, by any employee or beneficiary
under any such Plan or otherwise involving any such Plan (other than routine
claims for benefits).
Section 4.14 Labor Matters.
-------------
(a) (i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or to the knowledge of the Company and the Subsidiaries,
threatened against or affecting the Company or any Subsidiary and during the
past five years there has not been any such action; (ii) to the knowledge of the
Company and the Subsidiaries, no union claims to represent the employees of the
Company or any Subsidiary; (iii) neither the Company nor any Subsidiary is a
party to or bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company or
any Subsidiary; (iv) none of the employees of the Company or any Subsidiary are
represented by any labor organization and none of the Company or any Subsidiary
have any knowledge of any current union organizing activities among the
employees of the Company or any Subsidiary, nor does any question concerning
representation exist concerning such employees; (v) Section 4.14 of the
Disclosure Letter contains a true and complete list of each written personnel
policy, rule or procedure applicable to employees of the Company or any of its
Subsidiaries, true correct and complete copies of which have heretofore been
made available to MergerSub; (vi) the Company and the Subsidiaries are, and have
at all times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation; (vii) there is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending or, to the
knowledge of the Company and the Subsidiaries, threatened before the National
Labor Relations Board or any similar state or foreign agency; (viii) there is no
grievance or arbitration proceeding arising out of any collective bargaining
agreement or other grievance procedure relating to the Company or any
Subsidiary; (ix) to the knowledge of the Company and the Subsidiaries, no
charges with respect to or relating to the Company or the Subsidiaries are
pending before the Equal Employment Opportunity Commission or any other
corresponding state agency, and the Company and the Subsidiaries have at all
times been in material compliance with all federal and state laws and
regulations prohibiting discrimination in the workplace including, without
limitation, laws and regulations that prohibit discrimination and/or harassment
on account of race, national origin, religion, gender, disability, age, workers
compensation status or otherwise; (x) to the knowledge of the Company and the
Subsidiaries, no federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws intends to conduct an investigation with
respect to or relating to the Company and the Subsidiaries and no such
investigation is in progress; and (xi) there are no material lawsuits,
complaints, controversies or other proceedings pending or, to the knowledge of
the Company and the Subsidiaries, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract or employment, any
law or regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship. There are no employment contracts or severance agreements with any
employees of the Company and the Subsidiaries. The execution of this Agreement
and the consummation of the transactions contemplated hereby shall not result in
a breach or other violation of any collective bargaining agreement to which the
Company or any Subsidiary is a party.
(b) Since the enactment of Worker Adjustment and Retraining Notification Act of
1988 (the "WARN Act"), the Company and the Subsidiaries have not effectuated (i)
a "plant closing" (as defined in the WARN Act) affecting any site of employment
or one or more facilities or operating units within any site of employment or
facility of the Company or any Subsidiary, or (ii) a "mass layoff" (as defined
in the WARN Act) affecting any site of employment or facility of the Company or
any Subsidiary; nor has the Company or any Subsidiary been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law. None of the
employees of the Company and the Subsidiaries has suffered an"employment loss"
(as defined in the WARN Act).
Section 4.15 Compliance with Laws and Court Orders.
-------------------------------------
(a) Neither the Company nor its Subsidiaries is in violation of, nor has it
since January 1, 1996 violated, and to the knowledge of the Company nothing is
under investigation with respect to or has been threatened to be charged with or
given notice of any violation of, any applicable Law, except for possible
violations that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. This
Section does not relate to matters with respect to Taxes or Environmental Laws
which are exclusively the subject of Sections 4.12 and 4.17, respectively.
(b) None of the Company, any of its Subsidiaries or any directors, officers,
agents or employees of the Company or any of its Subsidiaries has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
Neither the Company nor any of its Subsidiaries has participated in any
boycotts.
Section 4.16 Finders' Fees. There is no fee payable to any investment banker,
-------------
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf, of the Company or any of its Subsidiaries by the Company or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
Section 4.17 Environmental Matters. (a) The Company, its Subsidiaries and its
----------------------
Affiliated Entities are in compliance in all material respects with federal,
state, local and foreign laws and regulations relating to pollution, protection
or preservation of human health or the environment, including, without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of toxic or hazardous substances, materials or wastes,
petroleum and petroleum products, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon, or lead or lead-based paints or materials
("Materials of Environmental Concern"), or otherwise relating to the generation,
storage, containment (whether above ground or underground), disposal, transport
or handling of Materials of Environmental Concern, or the preservation of the
environment or mitigation of adverse effects thereon (collectively,
"Environmental Laws"), and including, but not limited to, compliance in all
material respects with any Permits or the terms and conditions thereof; (b)
neither the Company nor any of its Subsidiaries or its Affiliated Entities has
received any communication or notice, whether from a Governmental Authority or
otherwise, alleging any violation of or noncompliance with any Environmental
Laws by any of the Company or its Subsidiaries or its Affiliated Entities or for
which any of them is responsible, and there is no pending or, to the knowledge
of the Company, threatened claim, action, investigation or notice by any person
or entity alleging potential liability for investigatory, cleanup or
governmental response costs, or natural resources or property damages, or
personal injuries, attorney's fees or penalties relating to (i) the presence, or
release into the environment, of any Materials of Environmental Concern at any
location owned or operated by the Company or its Subsidiaries or its Affiliated
Entities, now or in the past, or (ii) any violation, or alleged violation, of
any Environmental Law (collectively, "Environmental Claims"); and (c) to the
knowledge of the Company, there are no past or present facts or circumstances
that could reasonably be expected to form the basis of any material
Environmental Claim against the Company or its Subsidiaries or its Affiliated
Entities or against any person or entity whose liability for any Environmental
Claim the Company or its Subsidiaries or its Affiliated Entities have retained
or assumed either contractually or by operation of law. All Permits currently
held or required to be held by the Company, its Subsidiaries and Affiliated
Entities pursuant to any Environmental Laws are identified in Section 4.17 of
the Disclosure Letter. The Company has provided or made available to MergerSub
all assessments, reports, data, results of investigations or audits, and other
information that is in the possession of or reasonably available to the Company
and its Subsidiaries and Affiliated Entities regarding environmental matters
pertaining to, or the environmental condition of the business of the Company and
its Subsidiaries and Affiliated Entities, or the compliance (or noncompliance)
by the Company, its Subsidiaries or Affiliated Entities with any Environmental
Laws.
Section 4.18 Subsidiaries. Section 4.18 of the Disclosure Letter lists each
------------
Subsidiary of the Company together with the jurisdiction of incorporation of
each Subsidiary and the percentage of each Subsidiary's outstanding capital
stock or other equity interests owned by the Company or another Subsidiary of
the Company. All the outstanding shares of capital stock of each Subsidiary have
been validly issued, are fully paid and nonassessable and are owned by the
Company, by another Subsidiary or by the Company and another such Subsidiary,
free and clear of all Liens or any other limitation or restriction. Except for
the capital stock of the Subsidiaries and ownership interests in the Affiliates
described in Section 4.33, the Company does not own directly or indirectly, any
capital stock or other ownership interest in any other Person.
Section 4.19 Year 2000 Matters.
-----------------
(a) Except as disclosed in the Company SEC Reports, to the knowledge of the
Company, the Company's central operating and accounting systems described in the
Company's most recently filed Form 10-K (the "System") are Year 2000 Compliant.
(b) "Year 2000 Compliant" means the System:
(i) will accurately input, process and output all date and time
data, whether from years in the same century or in different
centuries, including by yielding correct results in arithmetic
operations, comparisons, sequencing and sorting of date and time data
and in leap year calculations; and
(ii) will not operate abnormally or cease to operate, return an
error message or otherwise fail due to date- or time-related
processing relating to the then current date being on or after January
1, 2000 or any other date.
(c) The Company has not received any notification from any supplier of critical
information technology systems or material service provider of any Year
2000-related problem that affects the Company.
Section 4.20 Insurance. Each of the Company and its Subsidiaries maintains
---------
insurance policies (the "Insurance Policies") against all risks of a character
and in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Section 4.20 of the Disclosure
Letter contains a complete and accurate list of all Insurance Policies of the
Company and its Subsidiaries. Each Insurance Policy is in full force and effect
and is valid, outstanding and enforceable, and all premiums due thereon have
been paid in full. None of the Insurance Policies will terminate or lapse (or be
affected in any other materially adverse manner) by reason of the transactions
contemplated by this Agreement. Each of the Company and its Subsidiaries has
complied in all material respects with the provisions of each Insurance Policy
under which it is the insured party. No insurer under any Insurance Policy has
canceled or generally disclaimed liability under any such policy or, to the
Company's knowledge, indicated any intent to do so or not to renew any such
policy. All material claims under the Insurance Policies have been filed in a
timely fashion. Since the Company's formation, there have been no historical
gaps in insurance coverage of the Company and/or its Subsidiaries.
Section 4.21 Suppliers. Set forth in Section 4.21 of the Disclosure Letter is a
---------
list of the ten largest suppliers of the Company based on the dollar value of
materials or products purchased by the Company for the fiscal year ended January
29, 2000. Since such date, there has not been, nor as a result of the Merger is
there anticipated to be, any change in relations with any of the major suppliers
of the Company and its Subsidiaries that, individually or in the aggregate,
would result in a Material Adverse Effect. The existing suppliers of the Company
and its Subsidiaries are adequate for the operation of the Company's business as
operated on the date hereof.
Section 4.22 Personnel, etc. (a) Set forth in Section 4.22 of the Disclosure
---------------
Letter is a list setting forth:
(i) the name of each officer of each of the Company and the
Company's Subsidiaries, specifying the title of each such Person; and
(ii) the name of each director of each of the Company and the
Company's Subsidiaries.
(b) The Company has heretofore provided MergerSub with a complete and accurate
schedule of compensation which each of the officers referred to in clause (a)
above is currently entitled to receive, and all payroll records relating to
non-officer employees heretofore provided to MergerSub are accurate and
complete.
Section 4.23 Stockholders Rights Plan. The Board of Directors of the Company has
------------------------
approved and adopted an amendment to the Rights Agreement, a copy of which has
been previously delivered to MergerSub and which provides that neither the
execution nor delivery of this Agreement nor the consummation of any of the
transactions contemplated by this Agreement, including, without limitation, the
Merger, shall be deemed to (i) cause MergerSub or any of its respective
Affiliates to be deemed to be "Acquiring Persons" within the meaning of the
Rights Agreement, (ii) constitute a "Triggering Event" within the meaning of the
Rights Agreement, (iii) cause any Rights to become exercisable or to separate
from the shares of Common Stock to which they are attached, or (iii) trigger any
other provisions of the Rights Agreement, including giving rise to a
Distribution Date (as defined in the Rights Agreement), and such amendment shall
remain in full force and effect at all times from and after the date hereof.
Section 4.24 Contracts. (a) Section 4.24 of the Disclosure Letter contains a
---------
complete and accurate list of all contracts (written or oral), undertakings,
commitments or agreements (other than contracts, undertakings, commitments or
agreements for employee benefit matters set forth in Section 4.13 of the
Disclosure Letter and real property leases set forth in Section 4.28(b) of the
Disclosure Letter) of the following categories to which the Company or any of
its Subsidiaries is a party or by which any of them is bound (collectively, and
together with the contracts, undertakings, commitments or agreements for
employee benefit matters set forth in Section 4.13 of the Disclosure Letter and
the real property leases set forth in Section 4.28(b) of the Disclosure Letter,
the "Contracts"):
(i) contracts requiring annual expenditures by or liabilities of
the Company and its Subsidiaries in excess of One Million Dollars
($1,000,000) which have a remaining term in excess of one hundred
eighty (180) days or are not cancellable (without material penalty,
cost or other liability) within one hundred eighty (180) days;
(ii) promissory notes, loans, agreements, indentures, evidences
of indebtedness or other instruments relating to the lending of money,
whether as borrower, lender or guarantor, in excess of One Million
Dollars ($1,000,000).
(iii) contracts containing covenants limiting the freedom of the
Company or any of its Subsidiaries to engage in any line of business
(other than prohibitions against engaging in business relating to
specific product lines) or compete with any person, in any product
line or line of business, or operate at any location;
(iv) joint venture or partnership agreements or joint development
or similar agreements pursuant to which any third party has been
entitled or is reasonably expected to be entitled to share in profits
or losses of the Company or its Subsidiaries;
(v) contracts with any federal, state or local government which
have a remaining term in excess of one year or are not cancellable
(without material penalty, cost or other liability) within one year;
(vi) other contract or commitment in which the Company or any of
its Subsidiaries has granted manufacturing rights or exclusive
marketing rights relating to any product or service, any group of
products or services or any territory; and
(vii) as of the date hereof any other contract the performance of
which could be reasonably expected to require annual expenditures by
the Company or any of its Subsidiaries in excess of One Million
Dollars ($1,000,000), except for purchase orders received in the
ordinary course of business consistent with past practices.
(b) True and complete copies of the written Contracts and descriptions of verbal
Contracts, if any, have been delivered or made available to MergerSub. Each of
the Contracts is a valid and binding obligation of the Company and, to the
Company's knowledge, the other parties thereto, enforceable against the other
parties thereto in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization, arrangement or
similar laws affecting creditors' rights generally and by general principles of
equity. Except for the execution of this Agreement and the consummation of the
transactions contemplated hereby and thereby, no event has occurred which would,
on notice or lapse of time or both, entitle the holder of any indebtedness
issued pursuant to a Contract identified in Section 4.24 of the Disclosure
Letter in response to paragraph (ii) above to accelerate, or which does
accelerate, the maturity of any such indebtedness.
(c) None of the Company or its Subsidiaries is in breach, default or violation
(and no event has occurred or not occurred through the Company's action or
inaction or, to the knowledge of the Company, through the action or inaction of
any third parties, which with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or provision
of any Contract to which the Company or any of its Subsidiaries is now a party
or by which any of them or any of their respective properties or assets may be
bound, except for violations, breaches or defaults that, individually or in the
aggregate, would not have a Material Adverse Effect on the Company.
Section 4.25 Permits; Compliance with Applicable Laws and Material Agreements.
------------------------------------------------------------------
The Company and its Subsidiaries hold all material licenses, permits and
authorizations necessary for the lawful conduct of its business, as now
conducted, and such business is not being, and the Company and its Subsidiaries
has not received any notice from any authority or person that such business has
been or is being, conducted in material violation of any law, ordinance or
regulation except to the extent that any such failure of conduct does not,
individually or in the aggregate, constitute a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole. The Company and its Subsidiaries
are not in conflict with, or in default or violation of any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which the Company and its Subsidiaries or any of their
respective properties is bound or affected, except to the extent that any such
conflict, default or violation does not, constitute a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole.
Section 4.26 Intellectual Property.
---------------------
(a) Section 4.26(a) of the Disclosure Letter sets forth, for the Intellectual
Property owned by the Company, a complete and accurate list of all U.S. and
foreign (i) patents and patent applications; (ii) trademark registrations
(including Internet domain registrations), trademark applications, and material
unregistered trademarks; (iii) copyright registrations, and material
unregistered copyrights. Section 4.26(a) of the Disclosure Letter lists all
Software (other than readily available commercial software programs having an
acquisition price of less than $50,000) which are owned, licensed, leased, by
Company, and identifies which Software is owned, licensed, or leased, as the
case may be.
(b) Section 4.26(b) of the Disclosure Letter sets forth a complete and accurate
list of all agreements (whether oral or written) to which Company is a party or
otherwise bound, (i) granting or obtaining any right to use or practice any
rights under any Intellectual Property other than (A) licenses entered into in
connection with acquisitions by the Company pursuant to which the Company or any
of its Subsidiaries was granted the right to use any trademark or service mark
previously used in the conduct of the business of the acquired company prior to
such acquisition which are not, individually or in the aggregate, material to
the Company and its Subsidiaries, taken as a whole, and (B) non-exclusive
licenses to use Intellectual Property in connection with co-promotion or other
marketing efforts which are not, individually or in the aggregate, material to
the Company and its Subsidiaries, taken as a whole, or (ii) restricting the
Company's rights to use any Intellectual Property, including license agreements,
development agreements, distribution agreements, settlement agreements, consent
to use agreements, and covenants not to sue (collectively, and including those
licenses not set forth in Section 4.26(b) of the Disclosure Letter pursuant to
Section 4.26(b)(i)(A) and (B) above, the "License Agreements"). The License
Agreements are valid and binding obligations of all parties thereto, enforceable
in accordance with their terms, and there exists no event or condition which
will result in a violation or breach of, or constitute (with or without due
notice of lapse of time or both) a default by any party under any such License
Agreement. Company has not licensed or sublicensed its rights in any
Intellectual Property other than pursuant to the License Agreements. No
royalties, honoraria or other fees are payable by Company to any third parties
for the use of or right to use any Intellectual Property except pursuant to the
License Agreements.
(c) The Company owns, or has a valid right to use, free and clear of all Liens,
all of the Intellectual Property. The Company is listed in the records of the
appropriate United States, state, or foreign registry as the sole current owner
of record for each application and registration listed on Section 4.26(b) of the
Disclosure Letter.
(d) The Intellectual Property owned by Company, to the best of Company's
knowledge, and any Intellectual Property used by Company, is subsisting, in full
force and effect, and has not been cancelled, expired, or abandoned, and, to the
best of the Company's knowledge, is valid and enforceable.
(e) There is no pending or threatened claim, suit, arbitration or other
adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction (i) involving the Intellectual
Property owned by Company or licensed to Company, or (ii) alleging that the
activities or the conduct of the Company infringes upon, violates or constitutes
the unauthorized use of the intellectual property rights of any third party or
challenging the Company's ownership, use, validity, enforceability or
registrability of any Intellectual Property. There are no settlements,
forebearances to sue, consents, judgments, or orders or similar obligations
other than the License Agreements which (i) restrict the Company's rights to use
any Intellectual Property, (ii) restrict Company's business in order to
accommodate a third party's intellectual property rights, or (iii) permit third
parties to use any Intellectual Property owned or controlled by the Company.
(f) The conduct of Company's business as currently conducted or planned to be
conducted does not infringe upon (either directly or indirectly such as through
contributory infringement or inducement to infringe) any intellectual property
rights owned or controlled by any third party. No third party is
misappropriating, infringing, diluting or violating any Intellectual Property
owned or used by Company, and no such claims, suits, arbitrations or other
adversarial proceedings have been brought against any third party by the
Company.
(g) Company takes reasonable measures to protect the confidentiality of Trade
Secrets, including requiring its employees and other parties having access
thereto to execute written non-disclosure agreements. To the best of Company's
knowledge, no Trade Secret has been disclosed or authorized to be disclosed to
any third party other than pursuant to a non-disclosure agreement. To the best
of Company's knowledge, no party to any non-disclosure agreement relating to its
Trade Secrets is in breach or default thereof.
(h) No current or former partner, director, officer, or employee of Company (or
any of their respective predecessors in interest) will, after giving effect to
the transactions contemplated herein, own or retain any rights to use any of the
Intellectual Property owned or used by the Company where such ownership or
retention of rights would, individually or in the aggregate, constitute a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(i) The consummation of the transaction contemplated hereby will not result in
the loss or impairment of Company's right to own or use any of the Intellectual
Property, nor will it require the consent of any Governmental Authority or third
party in respect of any such Intellectual Property.
Section 4.27 Related Party Transactions. No (a) beneficial owner of 5% or more
---------------------------
of the Company's outstanding capital stock, nor (b) officer or director of the
Company or (c) any Person (other than the Company) in which any such beneficial
owner, officer or director owns any beneficial interest (other than a publicly
held corporation whose stock is traded on a national securities exchange or in
the over-the-counter market and less than 1% of the stock of which is
beneficially owned by all such Persons) (collectively, "Related Parties") has
any interest in: (i) any contract, arrangement or understanding with, or
relating to, the business or operations of, the Company or any of its
Subsidiaries; (ii) any loan, arrangement, understanding, agreement or contract
for or relating to indebtedness of the Company or any of its Subsidiaries; or
(iii) any property (real, personal or mixed), tangible or intangible, used in
the business or operations of the Company or any of its Subsidiaries, excluding
any such contract, arrangement, understanding or agreement constituting a Plan.
Following the Effective Time, except for obligations set forth in this
Agreement, neither the Company nor any of its Subsidiaries will have any
obligations to any Related Party except for (i) accrued salary for the pay
period commencing immediately prior to the Effective Time and (ii) the
obligations set forth in the Company SEC Reports.
Section 4.28 Real Estate.
-----------
(a) Owned Properties. Section 4.28 of the Disclosure Letter sets forth a true,
-----------------
correct and complete list of all real property (including improvements thereon)
owned by the Company (collectively, the "Owned Real Property"). With respect to
each such parcel of Owned Real Property: (i) such parcel is free and clear of
all encumbrances other than such encumbrances which do not materially interfere
with the present use thereof; (ii) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any person the
right of use or occupancy of any portion of such parcel; and (iii) there are no
outstanding actions, rights of first refusal or options to purchase such parcel.
(b) Leased Properties. Section 4.28(b) of the Disclosure Letter sets forth a
------------------
true, correct and complete list of all of the leases and subleases ("Leases")
and each leased and subleased parcel of real property in which the Company or
any of its Subsidiaries is a tenant, subtenant, landlord or sublandlord
(collectively, the "Leased Real Property") and for each Lease indicates whether
or not the consent of the landlord thereunder will be required in connection
with (i) the Merger, (ii) the assignment of the Leases as collateral in respect
of the Financing (assuming it occurs on the terms set forth in the Financing
Letters) or (iii) the other transactions contemplated by this Agreement. The
Company (either directly or through a Subsidiary) holds a valid and existing
leasehold or subleasehold interest or landlord or sublandlord interest as
applicable, under each of the Leases described in Section 4.28(b) of the
Disclosure Letter. The Company has delivered or made available to MergerSub
true, correct, and complete copies of each of the Leases. With respect to each
Lease: (i) the Lease is legal, valid, binding, enforceable and in full force and
effect; (ii) the Lease will continue to be legal, valid, binding, enforceable
and in full force and effect on the same terms and conditions following the
Effective Time; (iii) neither the Company (or its applicable Subsidiary), nor to
the knowledge of the Company, any other party to the Lease, is in breach or
default under the Lease, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default by the Company (or such
Subsidiary) or permit termination, modification or acceleration under the Lease
by any other party thereto; (iv) the Company (or its applicable Subsidiary) has
performed and will continue to perform all of its obligations under the Lease,
(v) the Company has not, and to the knowledge of the Company, no third party has
repudiated any provision of the Lease; (vi) there are no disputes, oral
agreements, or forbearance programs in effect as to the Lease other than (x)
those arising in the ordinary course of business and (y) those which,
individually or in the aggregate, do not constitute a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole; (vii) the Lease has not been
modified in any respect, except to the extent that such modifications are
disclosed by the documents previously delivered or made available to MergerSub;
and (viii) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the Lease.
(c) Real Property Disclosure. Except as disclosed on Section 4.28 of the
--------------------------
Disclosure Letter, there is no Real Property leased or owned by the Company or
any of its Subsidiaries that is used in their business. The Owned Real Property
and Leased Real Property are referred to collectively herein as the "Real
Property." To the knowledge of the Company, each parcel of Real Property is in
material compliance with all existing Laws, including, without limitation, (a)
the Americans with Disabilities Act, 42 U.S. C. Section 12102 et seq., together
with all rules, regulations and official interpretations promulgated pursuant
thereto, and (b) all Laws with respect to zoning, building, fire, life safety,
health codes and sanitation. The Company and its Subsidiaries have received no
notice of, and have no knowledge of, any condition currently or previously
existing on the Real Property or any portion thereof which may give rise to any
violation of any existing Law applicable to the Real Property if it were
disclosed to the authorities having jurisdiction over such Real Property other
than those (x) arising in the ordinary course of business or (y) which do not
constitute, individually or in the aggregate, a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole.
(d) No Proceedings. There are no proceedings in eminent domain, condemnation or
--------------
other similar proceedings pending or, to the knowledge of the Company,
threatened, affecting any portion of the Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any litigation, pending
or, to the knowledge of the Company, threatened, relating to the ownership,
lease, use, occupancy or operation by any person of the Real Property.
(e) Current Use. The current use of the Real Property does not violate in any
------------
material respect any instrument of record or agreement affecting such Real
Property. There are no violations of any covenants, conditions, restrictions,
easements, agreements or orders of any Governmental Authority having
jurisdiction over any of the Real Property that affect such Real Property or the
use or occupancy thereof other than those (x) arising in the ordinary course of
business or (y) which do not, individually or in the aggregate, constitutes a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
No damage or destruction has occurred with respect to any of the Real Property
that, individually or in the aggregate, has had or resulted in, or is reasonably
likely to have or result in, a Material Adverse Effect on the Company or any of
its Subsidiaries.
(f) Insurance. There are currently in effect such insurance policies for the
---------
Real Property as are customarily maintained with respect to similar properties.
True, correct and complete copies of all insurance policies maintained by the
Company and its Subsidiaries with respect to the Real Property have been
delivered or made available to MergerSub. All premiums due on such insurance
policies have been paid by the Company and the Company will maintain such
insurance policies from the date hereof through the Effective Time or earlier
termination of this Agreement. The Company has not received and has no knowledge
of any notice or request from any insurance company requesting the performance
of any work or alteration with respect to the Real Property or any portion
thereof. The Company has received no notice from any insurance company
concerning, nor is the Company aware of, any defects or inadequacies in the Real
Property, which, if not corrected, would result in the termination of insurance
coverage or increase its cost.
(g) Condition and Operation of Improvements. All buildings and other
---------------------------------------------
improvements included within the Real Property (the "Improvements") are, in all
material respects, in good condition and repair and adequate to operate such
facilities as currently used, and, to the Company's knowledge, there are no
facts or conditions affecting any of the Improvements which would, individually
or in the aggregate, interfere in any significant respect with the current use,
occupancy or operation thereof which interference would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. No Improvement or portion thereof is dependent for its access,
operation or utility on any land, building or other improvement not included in
the Real Property.
(h) Permits. All required or appropriate certificates of occupancy, permits,
-------
licenses, franchises, approvals and authorizations (collectively, the "Real
Property Permits") of all Governmental Authorities having jurisdiction over the
Real Property, the absence of which constitute a Material Adverse Effect on the
Company, have been issued to the Company to enable the Real Property to be
lawfully occupied and used for all of the purposes for which it is currently
occupied and used have been lawfully issued and are, as of the date hereof, in
full force and effect. The Company has delivered or made available to MergerSub
true, correct and complete copies of the Real Property Permits to MergerSub. The
Company has not received or been informed by a third party of the receipt by it
of any notice which constitutes a Material Adverse Effect on the Company from
any Governmental Authority having jurisdiction over the Real Property
threatening a suspension, revocation, modification or cancellation of any Real
Property Permit and, to the knowledge of the Company, there is no basis for the
issuance of any such notice or the taking of any such action.
Section 4.29 Assets. The assets and properties of the Company and its
------
Subsidiaries, considered as a whole, constitute all of the material assets and
properties which are reasonably required for the business and operations of the
Company and its Subsidiaries as presently conducted. The Company and its
Subsidiaries have good and marketable title to or a valid leasehold estate in,
free and clear of any Liens, (i) all personal properties and assets reflected on
the Company's Balance Sheet at the Balance Sheet Date (except for properties or
assets subsequently sold in the ordinary course of business consistent with past
practices), except as such, individually or in the aggregate, do not constitute
a Material Adverse Effect on the Company.
Section 4.30 Opinion of Financial Advisor. The Special Committee and the Company
----------------------------
have received the opinion of Donaldson, Lufkin & Jenrette Securities
Corporation, the Special Committee's and the Company's financial advisor, to the
effect that, as of the date hereof, the Merger Consideration to be received by
the Company's stockholders (other than the Retaining Stockholders and the
persons named in the Roll-over Schedule) is fair to such stockholders from a
financial point of view. The written confirmation of such opinion has been
provided to MergerSub.
Section 4.31 State Anti-takeover Statutes; Delaware Section 203. The Company,
-----------------------------------------------------
the Special Committee and the Board of Directors of the Company have each taken
all action required to be taken by it in order to exempt this Agreement (as it
may be amended from time to time), the Voting Agreement and the transactions
contemplated hereby and thereby from, and such agreements and the transactions
contemplated hereby and thereby are exempt from, the requirements of the
provisions of Section 203 of the Delaware Corporate Law and other antitakeover
laws and regulations of any state, including without limitation the State of
Delaware. The Company has heretofore delivered to MergerSub complete and correct
copies of (i) a resolution of the Special Committee and of the Board of
Directors of the Company that Section 203 of Delaware Corporate Law and other
antitakeover laws and regulations of any state, including without limitation the
State of Delaware, are and shall be inapplicable to the Merger and the
transactions contemplated by this Agreement and the Voting Agreement, as they
may be amended from time to time, and (ii) the Company's certificate of
incorporation, which provides that the Company elects not to be governed by
Section 203 of Delaware Corporate Law.
Section 4.32 International Trade Laws and Regulations.
----------------------------------------
(a) The Company and each of its Subsidiaries has complied and is in compliance
with all Laws respecting international trade ("International Trade Laws")
applicable in connection with the conduct of their respective businesses
(including as the same relates to record keeping requirements), except for
possible violations which do not, individually or in the aggregate, constitute a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company nor any of its Subsidiaries is or has been the subject
of any civil or criminal investigation, litigation, audit, penalty, proceeding
or assessment, liquidated damages proceeding or claim, forfeiture or forfeiture
action, claim for additional customs duties or fees, denial orders, suspension
of export privileges, governmental sanctions, or any other action, proceeding or
claim by any foreign, federal, state, local or other Governmental Authority
involving or otherwise relating to any alleged or actual violation of
International Trade Laws or relating to any alleged or actual underpayment of
customs duties, fees, taxes or other amounts owed pursuant to any International
Trade Laws and, to the knowledge of the Company and its Subsidiaries, there is
no basis for any of the foregoing, except for possible proceedings, claims or
actions which do not, individually or in the aggregate, constitute a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(c) Neither the Company nor any of its Subsidiaries has engaged in or otherwise
participated in, assisted or facilitated any transaction that is prohibited by
any applicable embargo or related trade restriction imposed by the United States
Office of Foreign Assets Control or any other agency of the United States
government.
(d) Set forth on Section 4.32 of the Disclosure Letter is a list of each foreign
jurisdiction to which the Company or any of its Subsidiaries exports any
products, equipment, services or technology, each foreign jurisdiction from
which the Company or any of its Subsidiaries imports any products, equipment,
services or technology and each foreign jurisdiction to which the Company's or
any of its Subsidiaries' products, equipment, services or technology (or
products of such technology) are reexported. The Company and each of its
Subsidiaries has complied and is in compliance with all International Trade Laws
applicable in connection with the conduct of their respective businesses
(including as the same relates to recordkeeping requirements), except for
possible violations which do not, individually or in the aggregate, constitute a
Material Adverse Effect on the Company.
Section 4.33 Investments in Affiliated Entities. Section 4.33 of the Disclosure
----------------------------------
Letter contains a true, complete and correct schedule of all securities of
Persons other than Subsidiaries ("Affiliated Entities") that are owned by the
Company (or its Subsidiaries) (the "Affiliated Entity Securities"). The
Affiliated Entity Securities have been validly issued, are fully paid and
nonassessable and are owned by the Company (or its Subsidiaries, as the case may
be) free and clear of all Liens or any other limitation or restriction
(including limitations of transfer, rights of first refusal or similar rights).
Section 4.34 Nasdaq Listing; Holders of Equity Securities as of Record Date For
-------------------------------------------------------------------
Most Recent Meeting of Stockholders. As of the date hereof, all outstanding
- -------------------------------------
shares of the Common Stock are designated as qualified for trading as a national
market security on the National Association of Securities Dealers Automatic
Quotation System. As of May 7, 1999, the record date (the "Annual Meeting Record
Date") for the most recent meeting of the Company's stockholders , the Company
had more than 800 holders of its equity securities, within the meaning of
California Corporations Code Section 2115 ("Section 2115"). The Company is not
subject to the requirements of subdivision (b) of Section 2115 of the California
Corporations Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGERSUB
MergerSub represents and warrants to the Company that:
Section 5.1 Corporate Existence and Power. MergerSub is a corporation duly
-------------------------------
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers to execute and
deliver this Agreement and to consummate the Merger and the transactions
contemplated hereby (including, without limitation, the Voting Agreements).
Since the date of its incorporation, MergerSub has not engaged in any activities
other than in connection with or as contemplated by this Agreement and the
Merger or in connection with arranging any financing required to consummate the
transactions contemplated hereby.
Section 5.2 Corporate Authorization. No corporate proceedings on the part of
------------------------
MergerSub are necessary, as a matter of law or otherwise, for the consummation
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by MergerSub and, assuming the due authorization,
execution and delivery of this Agreement by the Company, is a valid and binding
agreement of MergerSub enforceable against it in accordance with its terms,
except to the extent that the enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditor's rights
generally, (ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or in equity) and (iii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the discretion of the court before which any
enforcement proceeding therefor may be brought.
Section 5.3 Governmental Authorization. The execution, delivery and performance
--------------------------
by MergerSub of this Agreement and the consummation by MergerSub of the
transactions contemplated by this Agreement require no action by or in respect
of, or filing with, any Governmental Authority other than (a) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, (b)
compliance with any applicable requirements of the HSR Act; (c) compliance with
the applicable requirements of the Exchange Act; (d) compliance with the
applicable requirements of the Securities Act; (e) compliance with any
applicable Federal, foreign or state securities or Blue Sky laws; and (f) such
other items the failure of which to be obtained will not constitute a Material
Adverse Effect on MergerSub.
Section 5.4 Non-contravention. The execution, delivery and performance by
-----------------
MergerSub of this Agreement and the consummation by MergerSub of the
transactions contemplated hereby do not and will not (a) contravene or conflict
with the certificate of incorporation or bylaws of MergerSub, (b) contravene,
conflict with or constitute a violation of any provision of law, regulation,
judgment, order or decree binding upon MergerSub, or (c) constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of MergerSub or to a loss of any benefit to which
MergerSub is entitled under any agreement, contract or other instrument binding
upon MergerSub which constitutes a Material Adverse Effect on MergerSub.
Section 5.5 Disclosure Documents. None of the information supplied or to be
---------------------
supplied by MergerSub regarding MergerSub for inclusion in the Company Proxy
Statement will, at the date it is first mailed to stockholders of the Company or
at the time of the Company Stockholder Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
Section 5.6 Finders' Fees. Except for Credit Suisse First Boston and the parties
-------------
providing the Financing, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
MergerSub who would be entitled to any fee or commission from MergerSub or any
of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
Section 5.7 Financing. MergerSub has delivered to the Company; (i) signed
---------
counterpart(s) of the commitment letter(s) of Goldman Sachs Credit Partners
L.P., Wells Fargo Bank N.A. and Trust Company of the West, dated as of the date
hereof, pursuant to which such persons have agreed, subject to the terms and
conditions set forth therein, to provide up to an aggregate of $525,000,000 of
debt financing to the Company in connection with the transactions contemplated
hereby and for working capital of the Company; (ii) the signed commitment letter
of Green Equity Investors III, LP, pursuant to which Green Equity Investors III,
LP has agreed, subject to the terms and conditions set forth in such letter, to
make or cause to be made an equity investment in MergerSub of $92,500,000 and
(iii) the signed commitment letter of TPG Partners III, L.P., pursuant to which
TPG Partners III, L.P. has agreed, subject to the terms and conditions set forth
in such letter, to make or cause to be made an equity investment in MergerSub of
$92,500,000. The foregoing commitment letters are referred to herein as the
"Financing Letters". The Financing Letters are in full force and effect as of
the date hereof. The funds contemplated to be provided by the Financing Letters
would be sufficient to enable MergerSub and the Company to pay the full Merger
Consideration as provided herein, to make all other necessary payments by it in
connection with the Merger (including the repayment of certain outstanding
indebtedness of the Surviving Corporation) and to pay all of the related fees
and expenses (such amount of funds, the "Financing"). The Company shall use all
reasonable efforts to cooperate with and assist MergerSub in obtaining the
Financing.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Conduct of the Company. Except as otherwise specifically provided in
----------------------
this Agreement, without the prior written consent of MergerSub, from the date
hereof to the Effective Time, the Company and each of its Subsidiaries shall
carry on its business in the ordinary and usual course of business and
consistent with past practices and shall use its best efforts to (i) preserve
intact its present business organization, (ii) maintain in effect all material
federal, state and local Permits that are required for the Company or any of its
Subsidiaries to carry on its business, (iii) keep available the services of its
present employees and consultants and (iv) preserve its present relationships
with its employees, consultants, customers, lenders, suppliers, licensors,
licensees, landlords and others having significant business relationships with
it. Without limiting the generality of the foregoing, and except as otherwise
specifically provided in this Agreement, without the prior written consent of
MergerSub, prior to the Effective Time, the Company and each of its Subsidiaries
shall not and shall not permit its Subsidiaries to:
(a) propose or adopt any change in its certificate of incorporation or bylaws or
comparable organizational documents;
(b) (i) merge with or acquire (by merger, consolidation, acquisition of stock or
assets, joint venture or otherwise of a direct or indirect ownership interest or
investment) any corporation, partnership or other business organization or
division thereof, or sell, lease or otherwise dispose of a material amount of
assets (excluding sales of inventory or other assets in the ordinary course of
business) or securities; (ii) waive, release, grant, or transfer any rights of
value which are, individually or in the aggregate, material; (iii) modify or
change in any respect any material Permit; (iv) incur, assume or prepay any
indebtedness for borrowed money except in the ordinary course of business,
consistent with past practices; (v) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
any indebtedness of any other Person, except in the ordinary course of business
consistent with past practices; (vi) mortgage, pledge or subject to any lien,
charge or other encumbrance any of the Company's or its Subsidiaries' material
assets, properties or business, whether tangible or intangible; (vii) make any
loans, advances or capital contributions to, or investments in, any other
Person, except in the ordinary course of business, consistent with past
practices; (viii) authorize any capital expenditure or expenditures not in the
ordinary course of business; (ix) pledge or otherwise encumber shares of capital
stock of the Company or any of its Subsidiaries; (x) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practices that would be material to the Company and its Subsidiaries, taken as a
whole; or (xi) amend, modify or waive in any material respects any right under
any material contract of the Company or any of its Subsidiaries, except as
permitted by Section 6.1(d);
(c) enter into any new lease, sublease or other agreement in respect of the Real
Property without MergerSub's prior written consent (which consent may be
withheld in MergerSub's sole and absolute discretion), other than leases related
to the opening of new stores entered into in the ordinary course of business
consistent with past practices that are on terms consistent with the Company's
past practices;
(d) extend, renew, replace, amend, modify or alter any existing Lease (other
than in the ordinary course of business and consistent with past practices in
connection with new store openings and distribution center expansions) in
respect of the Real Property without MergerSub's prior written consent (which
consent may be withheld in MergerSub's sole and absolute discretion);
(e) sell, contribute, assign or create any right, title or interest whatsoever
in or to the Owned Real Property, or create or permit to exist thereon any lien,
charge or encumbrance, or enter into any agreement to do any of the foregoing,
without the prior written consent of MergerSub (which consent may be granted or
withheld in MergerSub's sole and absolute discretion);
(f) take any action that would result in any representation or warranty of the
Company contained in this Agreement which are qualified as to materiality
becoming untrue as of the Effective Time or any representation or warranty not
so qualified becoming untrue in any material respect as of the Effective Time;
(g) split, combine or reclassify any shares of, or declare, or set aside or pay
any dividend (including, without limitation, an extraordinary dividend) or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of, Company Securities or any other securities of the Company or any of
its Subsidiaries or redeem, repurchase or otherwise acquire or offer to redeem,
repurchase, or otherwise acquire any Company Securities or any other securities
of the Company or any of its Subsidiaries;
(h) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director, officer, employee,
agent, consultant or person providing management services or increase in any
manner the compensation or fringe benefits of any director, officer or any class
of employees or pay any benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options or stock
appreciation rights or the removal of existing restrictions in any benefit plans
or agreements); make any loans to any of its officers, directors, employees,
Affiliates, agents or consultants or make any change in its existing borrowing
or lending arrangements for or on behalf of any of such persons, whether
pursuant to a Plan or otherwise; or grant, issue, accelerate, pay, accrue or
agree to pay or make any accrual or arrangement for payment of salary or other
payments or benefits pursuant to, or adopt or amend, any new or existing Plan;
provided, however, that notwithstanding the foregoing, the Company shall be
entitled to increase the compensation of employees and make minor modifications
in personnel policies and procedures for non-officer employees, in each case in
the ordinary course of business and consistent with past practices;
(i) except as required by applicable Law or GAAP, revalue in any material
respect any of its assets, including writing down the value of inventory in any
material manner, or write-off notes or accounts receivable in any material
manner;
(j) pay, discharge or satisfy any material claims, liabilities or obligations
(whether absolute, accrued, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business, consistent with past practices;
(k) make any material Tax election or settle or compromise any material Tax
liability;
(l) make any change in accounting methods, principles or practices materially
affecting the reported consolidated assets, liabilities or results of operations
of the Company;
(m) authorize for issuance, issue, sell, deliver or agree or commit to issue
sell or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any Company
Securities or any other securities of the Company or any of its Subsidiaries or
equity equivalents;
(n) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries;
(o) alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure or ownership of any Subsidiary;
(p) permit to lapse any material Permits;
(q) permit to lapse any registrations or applications for material Intellectual
Property owned, licensed, or used by the Company; or
(r) agree or commit to do any of the foregoing.
Section 6.2 Company Stockholders Meeting. The Company shall cause a meeting of
------------------------------
its stockholders (the "Company Stockholder Meeting") to be duly called, noticed
and held as promptly as practicable for the purpose of voting on the adoption of
this Agreement and the Merger. In connection with the Company Stockholders
Meeting, the Company will use its best efforts to obtain the necessary vote for
adoption by its stockholders of this Agreement and the Merger and shall take all
other action necessary or, in the reasonable opinion of MergerSub, advisable to
secure any vote of stockholders required by Delaware Corporate Law to effect the
Merger and will otherwise comply with all legal requirements applicable to such
meeting. The Special Committee and the Board of Directors of the Company shall,
unless the Special Committee or the Board of Directors of the Company, as the
case may be, determines in its good faith judgment, after receiving the advice
of its outside legal counsel and otherwise in accordance with the terms of this
Agreement, that in order for the Special Committee or the Board of Directors of
the Company, as the case may be, to comply with its fiduciary duties under
applicable Law it must recommend a Superior Proposal, recommend that the
stockholders of the Company approve this Agreement and the Merger.
Section 6.3 Access to Information; Right of Inspection. From the date hereof
---------------------------------------------
until the Effective Time, the Company and each of its Subsidiaries will, during
normal business hours, (i) give MergerSub, its Affiliates and their respective
officers, employees, counsel, accountants, financial advisors, financing sources
and other agents and representatives full access to the offices, properties,
warehouses and other facilities and to all contracts, internal reports, data
processing files, books and records, Federal, state, local and foreign tax
returns and records, commitments, books, records and affairs of the Company,
whether located on the premises of the Company, its Subsidiaries or at another
location; (ii) furnish promptly to MergerSub or its Affiliates a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of Federal securities laws or
regulations; (iii) permit MergerSub or its Affiliates to make such inspections
as they may reasonably require; (iv) cause its officers to furnish MergerSub and
its Affiliates such existing financial, operating and product data and other
information with respect to the business and properties of the Company and its
Subsidiaries as MergerSub or its Affiliates from time to time may reasonably
request, including without limitation financial statements and schedules; (v)
allow MergerSub and its Affiliates the opportunity to interview such employees
and other personnel of the Company and its Subsidiaries; and (iv) otherwise
instruct and cause the Company's and its Subsidiaries' employees, accountants,
counsel and financial advisors to fully cooperate with MergerSub in its
investigation of the business of the Company and its Subsidiaries; provided,
however, that no investigation pursuant to this Section 6.3 or notice pursuant
to Section 8.5 shall affect or be deemed to modify any representation or
warranty made by the Company herein.
Section 6.4 Other Potential Acquirers.
-------------------------
(a) Neither the Company, its Subsidiaries nor any of their respective Affiliates
shall, nor shall the Company or its Subsidiaries or Affiliates authorize or
permit any of their respective officers, directors, employees, representatives,
legal counsel, financial advisors or other agents to, directly or indirectly,
encourage, solicit, initiate, or engage in discussions or negotiations with or
provide any non-public information to any person or group (other than MergerSub
or its Affiliates or any designees of MergerSub or its Affiliates), or take any
action designed to facilitate any inquiries or the making of any proposal with
respect to, any Third Party Acquisition; and neither the Company nor any
Subsidiary or Affiliated Entity shall enter into any agreement with respect to a
Third Party Acquisition; provided, however, that nothing contained in this
Section 6.4(a) shall prevent the Special Committee or the Board of Directors of
the Company from (i) taking and disclosing to the Company's stockholders a
position as required by Rules 14d-9 and 14e-2 promulgated under the Exchange Act
with regard to any tender or exchange offer, provided, that such disclosure
states that no action will be taken by the Special Committee or the Board of
Directors of the Company or any other committee thereof, as applicable, in
violation of this Section 6.4; and (ii) if it receives a written unsolicited
expression of interest from a Person relating to the submission by such Person
of a Superior Proposal, supplying to and receiving non-public information from
such Person (subject to a customary confidentiality agreement which expressly
permits the Company to fulfill its obligations set forth in the last sentence of
this Section 6.4(a)), in response to such unsolicited Third Party Acquisition
proposal as, and to the extent that, the Special Committee or the Board of
Directors of the Company, as applicable, determines in its good faith judgment,
after consultation with outside legal counsel, (A) such action is required in
order to comply with its fiduciary duties under applicable Law, and (B) there is
a reasonable prospect that such expression of interest will result in a Superior
Proposal from such Person, provided, that, after consultation with outside legal
counsel, the Company may conduct such discussions and negotiations as it
believes are necessary in light of the fiduciary duties of the Special Committee
and the Board of Directors of the Company concerning such unsolicited Third
Party Acquisition proposal. The Company shall immediately terminate any pending
discussion regarding any Third Party Acquisition (other than with MergerSub or
its Affiliates or any designees of MergerSub or its Affiliates) and shall
promptly notify MergerSub of (i) any inquiries or proposals received by, any
non-public information requested from, or any negotiations or discussions sought
to be initiated or continued with, the Company or any of its Subsidiaries or
Affiliated Entities, (ii) any inquiries or proposals known by the Company to
have been received by, any non-public information known by the Company to have
been requested from, or any negotiation or discussions known by the Company to
have been sought to be initiated or continued with, the Company or any of its
Affiliates or any of the respective directors, officers, employees, agents or
representatives of the foregoing, in each case from a person (other than
MergerSub and its representatives and Affiliates) with respect to a Third Party
Acquisition, and (iii) the terms thereof, including the identity of such third
party and the general terms of any financing arrangement or commitment in
connection with such Third Party Acquisition, and the Company agrees to promptly
update MergerSub on an ongoing basis of the status thereof, including furnishing
copies of any such written inquiries or offers.
(b) Except as set forth in this Section 6.4(b), neither the Special Committee
nor the Board of Directors of the Company shall withdraw or modify its approval
or recommendation of this Agreement, the Merger or the transactions contemplated
hereby or approve or recommend, or cause or allow the Company or any Subsidiary
to enter into any agreement with respect to, any Third Party Acquisition. If the
Special Committee or the Board of Directors of the Company, by a majority
disinterested vote determines in its good faith judgment after consultation with
its outside legal counsel, that it is required to do so in order to comply with
its fiduciary duties under applicable Law, the Special Committee or the Board of
Directors of the Company, as applicable, may, in the event that it receives a
Superior Proposal and in response thereto, (x) withdraw its recommendation of
the transactions contemplated hereby or (y) approve or recommend such Superior
Proposal but in each case only (i) after providing written notice to MergerSub
(a "Notice of Superior Proposal") advising MergerSub that the Special Committee
or the Board of Directors of the Company, as applicable, has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal, and (ii) the Special
Committee or the Board of Directors of the Company, as applicable, by a majority
disinterested vote determines in its good faith judgment (after receipt of
written advice of a financial adviser of nationally recognized reputation
consistent with such determination and consultation with outside legal counsel)
that any transaction proposed by MergerSub is not at least as favorable to the
Company's stockholders (other than the Retaining Stockholders) as the Superior
Proposal; provided, however, that (I) no action specified in clause (x) or (y)
above shall be taken until the sixth Business Day after receipt of a Notice of
Superior Proposal by MergerSub and (II) the Company shall not be entitled to
enter into any agreement with respect to a Superior Proposal unless and until
this Agreement is terminated by its terms pursuant to Section 10.1 and the
Company has paid all amounts due to MergerSub pursuant to Section 10.2. Nothing
contained in this Section 6.4(b) shall prevent the Special Committee or the
Board of Directors of the Company from (i) taking and disclosing to the
Company's stockholders a position as required by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender or exchange offer,
provided, that such disclosure states that no action will be taken by the
Special Committee or the Board of Directors of the Company in violation of this
Section 6.4, or (ii) disclosing the fact that the Special Committee or the Board
of Directors, as applicable, has received a proposal for a Third Party
Acquisition and the terms of such proposal, if the Special Committee or the
Board of Directors of the Company, as applicable, determines, after consultation
with outside legal counsel, that it is compelled to make such disclosure in
order to comply with its fiduciary duties under applicable law or with federal
securities laws.
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than MergerSub (a "Third
Party"); (ii) the acquisition by a Third Party of any material portion of the
assets of the Company and its Subsidiaries taken as a whole; (iii) the
acquisition by a Third Party of fifteen percent (15%) or more of the outstanding
Common Stock or the issuance by the Company of capital stock containing terms
which are inconsistent with the consummation of the transactions contemplated by
this Agreement; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by the
Company or any of its Subsidiaries of more than fifteen percent (15%) of the
outstanding Shares; or (vi) the acquisition by the Company or any of its
Subsidiaries by merger, joint venture or otherwise of any person, or any
purchase of stock or assets or acquisition of any direct or indirect ownership
interest or investment in any business such that, after such acquisition, the
Company and its Subsidiaries' interest or investment in such business's annual
revenues, net income or assets is greater than or equal to fifteen percent (15%)
of the annual revenues, net income or assets of the Company. For purposes of
this Agreement, a "Superior Proposal" means any bona fide written unsolicited
proposal to acquire, by merger or otherwise, directly or indirectly for
consideration consisting of cash and/or securities more than fifty percent (50%)
of the Shares then outstanding or all or substantially all the assets of the
Company and its Subsidiaries, taken as a whole (in either case, with funding
that is at least as committed as the funding commitments in the Financing
Letters), and otherwise for a consideration with a value higher than the Merger
Consideration and on terms and conditions that the Special Committee or the
Board of Directors of the Company, as applicable, by a majority disinterested
vote determines in its good faith judgment (after receipt of written advice of a
financial advisor of nationally recognized reputation consistent with such
determination and consultation with outside legal counsel) (i) is capable of
being so funded, and (ii) would, if consummated provide a higher value to the
Company's stockholders (excluding the Retaining Stockholders) from a financial
point of view than the transactions contemplated hereby and by any alternative
transaction proposal made by MergerSub pursuant to Section 6.4(b) hereof;
provided, however, that such proposal or offer shall not be deemed to be a
"Superior Proposal" unless the Special Committee or the Board of Directors of
the Company, as applicable, reasonably determines that such proposal is
reasonably likely to be consummated in accordance with its terms and that the
financing required to consummate the transaction contemplated by such proposal
or offer is capable of being, and is reasonably likely to be, obtained.
Section 6.5 Resignation of Directors. Prior to the Effective Time, the Company
------------------------
shall deliver to MergerSub evidence satisfactory to MergerSub of the resignation
of all directors of the Company effective as of the Effective Time.
Section 6.6 WARN Act. The Company shall not, at any time prior to the Effective
--------
Time, without the written consent of MergerSub and without complying fully with
the notice and other requirements of the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act"), effectuate (1) a "plant closing" as
defined in the WARN Act affecting any site of employment or one or more
facilities or operating units within any site of employment of the Company; or
(2) a "mass layoff" as defined in the WARN Act affecting any site of employment
of the Company; or any similar action under applicable state or foreign law
requiring notice to employees in the event of a plant closing or layoff.
Section 6.7 Lease Consents. Notwithstanding the provisions of Section 8.2 below,
--------------
the Company hereby covenants and agrees to use its reasonable best efforts to
obtain the Minimum Lease Consents.
ARTICLE VII
COVENANTS OF MERGERSUB
Section 7.1 Director and Officer Liability. The Surviving Corporation shall
-------------------------------
honor all of the Company's obligations to indemnify and hold harmless (including
any obligations to advance funds for expenses) the present and former officers
and directors of the Company in respect of acts or omissions occurring prior to
the Effective Time to the extent provided under the Delaware General Corporate
Law and the Company's certificate of incorporation and bylaws in effect on the
date hereof, and such obligations shall survive the Merger and shall continue in
full force and effect from the Effective Time until six (6) years after the
Effective Time; provided, however, that such indemnification shall be subject to
any limitation imposed from time to time under applicable Law. For a period of
six (6) years after the Effective Time, the Surviving Corporation shall cause to
be maintained the current policies of officers' and directors' liability
insurance maintained by the Company (the "Current Policies") (provided that the
Surviving Corporation may substitute therefor policies with reputable and
financially sound carriers of at least the same coverage and amount containing
terms and conditions that are no less favorable (the "Replacement Policies")) in
respect of acts or omissions occurring prior to the Effective Time covering each
such Person currently covered by such Current Policies; provided, however, that
in no event will the Surviving Corporation be required to expend, per annum, in
excess of 250% of the annual premium currently paid by the Company for such
coverage (or such coverage as is available for 250% of such annual premium);
provided, further, that if the annual premium required to provide the foregoing
insurance exceeds 250% of the annual premium currently paid by the Company, the
Company shall provide as much of such insurance as can be purchased for such
premium, and, any present or former officer or director of the Company who
desires to be covered by the Current Policies may so elect and shall be covered
by the Current Policies so long as such former officer or director pays the
portion of the premium for such Current Policies in excess of the amount which
the Surviving Corporation is obligated to pay pursuant to this Section 7.1.
ARTICLE VIII
COVENANTS OF MERGERSUB AND THE COMPANY
The parties hereto agree that:
Section 8.1 Reasonable Best Efforts. Subject to the terms and conditions of this
-----------------------
Agreement, each party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Each party shall also refrain from
taking, directly or indirectly, any action which would impair such party's
ability to consummate the Merger and the other transactions contemplated hereby.
Without limiting the foregoing, the Company shall use its reasonable best
efforts to (i) take all action necessary or desirable so that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger
or any of the other transactions contemplated by this Agreement and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
any of the foregoing, take all action necessary so that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and the other
transactions contemplated by this Agreement. Each of the Company and MergerSub
will use their reasonable best efforts to exempt the Company, the Surviving
Corporation, this Agreement and the transactions contemplated hereby from the
applicability and provisions of Section 2115 of the California Corporations
Code. The Company shall deliver to MergerSub, within ten Business Days of the
date hereof, a complete list of the Company's Leases as of the date hereof, and
any amendments to such Leases.
Section 8.2 Consents and Approvals. The Company and MergerSub shall cooperate
----------------------
with one another in determining whether any action by or in respect of, or
filing with, any Governmental Authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement. Each of the Company and MergerSub will, and will cause its
respective Subsidiaries, if any, to, take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) any consent, approval,
waiver, authorization, order or approval of, or any exemption by, any
Governmental Authority or other public or private third party required to be
obtained or made by the Company, MergerSub, or any of their respective
Subsidiaries, if any, in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
Section 8.3 Certain Filings.
---------------
(a) Securities Laws. The Company and MergerSub shall use their respective
----------------
reasonable best efforts to take or cause to be taken such actions as may be
required to be taken under the Exchange Act, the Securities Act and any other
federal securities laws, and under any applicable state securities or Blue Sky
Laws in connection with the Merger and the other transactions contemplated
hereby, including, without limitation, the Company Proxy Statement, the Schedule
13E-3 and any other filings that may be required in connection with the
Financing and the Offering Documents.
(b) Company Proxy Statement; Schedule 13E-3. In connection with the Merger and
------------------------
the Company Stockholders Meeting, the Company shall prepare and file with the
SEC the Company Proxy Statement and a Rule 13e-3 Transaction Statement on
Schedule 13E-3 (the "Schedule 13E-3") relating to the Merger and the other
transactions contemplated by this Agreement and shall use its best efforts to
respond to the comments of the SEC and to cause the Company Proxy Statement to
be mailed to the Company's stockholders, all as promptly as practicable;
provided, however, that prior to the filing of the Company Proxy Statement and
the Schedule 13E-3, the Company shall consult with MergerSub with respect to
such filings and shall afford MergerSub reasonable opportunity to comment
thereon. MergerSub shall provide the Company with any information for inclusion
in the Company Proxy Statement and the Schedule 13E-3 which may be required
under applicable law and which is reasonably requested by the Company. The
Company shall promptly notify MergerSub of the receipt of comments of the SEC
and of any request from the SEC for amendments or supplements to the Company
Proxy Statement or the Schedule 13E-3 or for additional information, and will
promptly supply MergerSub with copies of all correspondence between the Company
or its representatives, on the one hand, and the SEC or members of its staff, on
the other hand, with respect to the Company Proxy Statement, the Schedule 13E-3
or the Merger. If at any time prior to the Company Stockholder Meeting any event
should occur which is required by applicable law to be set forth in an amendment
of, or a supplement to, the Company Proxy Statement or the Schedule 13E-3, the
Company will promptly inform MergerSub. In such case, the Company, with the
cooperation of MergerSub, will, upon learning of such event, promptly prepare
and mail such amendment or supplement; provided, however, that prior to such
mailing, the Company shall consult with MergerSub with respect to such amendment
or supplement and shall afford MergerSub reasonable opportunity to comment
thereon. The Company will notify MergerSub at least 48 hours prior to the
mailing of the Company Proxy Statement, or 24 hours prior to the mailing of any
amendment or supplement thereto, to the stockholders of the Company.
(c) Provided Information. The information supplied by each of the Company and
---------------------
MergerSub for inclusion in any filing with the SEC, including, but not limited
to, the Company Proxy Statement and the Schedule 13E-3, shall not, in the case
of the Schedule 13E-3 as of the date thereof, the date of any amendment thereto,
and as of the Effective Time, and in the case of the Company Proxy Statement, as
of the time the Company Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the stockholders of the Company, as of the time of
the Company Stockholders Meeting, or as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein, in circumstances when made, or necessary in order to make
the statements therein not misleading.
Section 8.4 HSR Act. The Company and MergerSub shall take all reasonable actions
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necessary to file as soon as practicable notifications under the HSR Act and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any state attorney
general or other Governmental Authority in connection with antitrust matters.
Section 8.5 Advice of Changes. The Company and MergerSub shall promptly give
-----------------
notice to the other party upon becoming aware of any representation or warranty
of the Company or MergerSub contained in this Agreement which is qualified as to
materiality becoming untrue or inaccurate or, which is not qualified as to
materiality, becoming untrue or inaccurate in any material respect or the
failure by the Company or MergerSub to timely comply with or satisfy any
material covenant or agreement to be complied with or satisfied by it under this
Agreement and shall use its reasonable best efforts to prevent or promptly
remedy same. No notice given hereunder shall affect or be deemed to modify any
representation or warranty made by the Company or MergerSub herein.
Section 8.6 Financing. MergerSub shall use commercially reasonable efforts to
---------
obtain the Financing, on terms reasonably acceptable to MergerSub, prior to the
Terminal Date, provided, however, that the terms of the Financing Letters as of
the date hereof shall be deemed to be acceptable to MergerSub. The Company
agrees to provide, and will use commercially reasonable efforts to cause its
Subsidiaries, its officers, employees, representatives and advisors, including
legal and accounting, to provide, all necessary cooperation reasonably requested
by MergerSub in connection with the Financing, including, without limitation,
using commercially reasonable efforts to cause (a) appropriate officers and
employees to be available on a customary basis for "road show" appearances and
the preparation of disclosure documents in connection therewith and (b) its
independent accountants and counsel to provide assistance to MergerSub for fees
consistent with the Company's existing arrangements with such accountants and
counsel.
Section 8.7 Recapitalization. Each of the Company and MergerSub shall use
----------------
reasonable best efforts to cause the transactions contemplated by this
Agreement, including but not limited to the Merger, to be accounted for as a
recapitalization and such accounting treatment to be accepted by their
respective accountants and the SEC, and each of the Company and MergerSub agrees
that it shall take no action that would reasonably be likely to cause such
accounting treatment not to be obtained.
Section 8.8 Public Announcements. MergerSub and the Company will consult with
---------------------
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby, and will not
issue any such press release or make any such public statement prior to such
consultation.
Section 8.9 Further Assurances. At and after the Effective Time, the officers
-------------------
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or MergerSub, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on behalf
of the Company or MergerSub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
the Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
Section 8.10 Notices of Certain Events. Each of the parties hereto shall
---------------------------
promptly notify the other party of:
(i) the receipt by such party of any notice or other
communication from any Person alleging that the consent of such Person
is or may be required in connection with the transactions contemplated
by this Agreement;
(ii) the receipt by such party of any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of such party's knowledge threatened
against, or affecting such party which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
this Agreement or which relate to the consummation of the transactions
contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO THE MERGER
Section 9.1 Conditions to the Obligations of Each Party. The obligations of the
-------------------------------------------
Company and MergerSub to consummate the Merger are subject to the satisfaction
or waiver of the following conditions:
(a) This Agreement shall have been approved and adopted in accordance with the
Delaware Corporation Law by the affirmative vote of the holders of a majority of
the outstanding Common Shares;
(b) Any applicable waiting period under the HSR Act relating to the Merger shall
have expired or been terminated; and
(c) No provision of any applicable Law and no judgment, order, decree or
injunction shall prohibit or restrain the consummation of the Merger; provided,
however, that the Company and MergerSub shall each use their reasonable best
efforts to have any such judgment, order, decree or injunction vacated.
Section 9.2 Conditions to the Obligations of MergerSub. The obligations of
--------------------------------------------
MergerSub to consummate the Merger are subject to the satisfaction or waiver of
the following further conditions:
(a) The Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained in
this Agreement which are qualified as to materiality shall be true and all
representations and warranties not so qualified shall be true in all material
respects on the date hereof and as of the Effective Time (provided that
representations made as of a specific date shall be required to be true as of
such date only) as if made at and as of such time and MergerSub shall have
received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of the Company to the foregoing effect;
(b) There shall not be pending (i) any action or proceeding by any Governmental
Authority or (ii) any action or proceeding by any other Person, in any case
referred to in clauses (i) and (ii), before any court or Governmental Authority
that has reasonable likelihood of success seeking (w) to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger or seeking to obtain material damages, (x) to
restrain or prohibit MergerSub's (including its Affiliates) ownership or
operation of all or any material portion of the business or assets of the
Surviving Corporation or the Company or any of their Subsidiaries or Affiliated
Entities, or to compel MergerSub or any of its Affiliates to dispose of or hold
separate all or any material portion of the business or assets of the Surviving
Corporation or the Company or any of their Subsidiaries, (y) to impose or
confirm material limitations on the ability of MergerSub or any of its
Affiliates to effectively control the business or operations of the Surviving
Corporation or the Company or any of their Subsidiaries or effectively to
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote any Shares acquired or owned by MergerSub or any of its
Affiliates on all matters properly presented to the Company's stockholders, or
(z) to require divestiture by MergerSub or any of its Affiliates of any material
amount of Shares, and no court, arbitrator or Governmental Authority shall have
issued any judgment, order, decree or injunction, and there shall not be any
statute, rule or regulation, that, in the sole judgment of MergerSub is likely,
directly or indirectly, to result in any of the consequences referred to in the
preceding clauses (w) through (z); provided, however, that MergerSub shall use
its reasonable efforts to have any such judgment, order, decree or injunction
vacated;
(c) The Company shall have obtained the Minimum Lease Consents and all consents,
approvals, authorizations and permits required to be obtained prior to the
consummation of the Merger from any third party in connection with this
Agreement, the Merger and the other transactions contemplated hereby including,
without limitation, the Financing (assuming it occurs on the terms set forth in
the Financing Letters).
(d) The Financing and the retirement of all of the Company's and its
Subsidiaries' indebtedness and the release of any related Liens shall have been
consummated on terms acceptable to MergerSub, provided, however, that the terms
of the Financing Letters as of the date hereof shall be deemed to be acceptable
to MergerSub.
(e) The aggregate number of Shares of the Company at the Effective Time, the
holders of which have demanded purchase of their shares from the Company in
accordance with the provisions of Section 262 of the Delaware Corporate Law,
shall not equal 10% or more of the Shares of the Company outstanding as of the
record date for the Company Stockholder Meeting; (1)
(f) No change in accounting practices or policies after the date hereof shall
cause MergerSub (after consultation with its accountants) to conclude that the
Merger will not be recorded as a recapitalization for financial reporting
purposes;
(g) The SEC shall not object (or, if the SEC so objects, shall not have
withdrawn such objection) to the treatment of the transactions contemplated
hereby as a recapitalization for accounting purposes.
(h) Since the date of this Agreement, there shall not have occurred any change,
event, occurrence, development or circumstance which, individually or in the
aggregate, constitutes a Material Adverse Effect on the Company.
Section 9.3 Conditions to the Obligations of the Company. The obligation of the
--------------------------------------------
Company to consummate the Merger is subject to the satisfaction or waiver of the
following further condition:
(a) MergerSub shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of MergerSub contained in
this Agreement which are qualified as to materiality shall be true and all
representations and warranties not so qualified shall be true in all material
respects on the date hereof and as of the Effective Time (provided that
representations made as of a specific date shall be required to be true as of
such date only) as if made at and as of such time and the Company shall have
received a certificate signed by the President or any Vice President of
MergerSub to the foregoing effect.
(b) The Company shall have received the opinion of a firm of nationally
recognized reputation in such area to the effect that as of the Closing Date,
after giving effect to the transactions contemplated hereby, including the
Financing, the Company will not be insolvent or unable to pay its debts as they
mature, and will not have unreasonably small capital. Such opinion shall be in
form and substance similar to the opinion to such effect provided by a firm of
nationally recognized reputation in such area to the lenders referred to in the
Financing Letters, and otherwise as reasonably acceptable to the Company.
ARTICLE X
TERMINATION
Section 10.1 Termination. This Agreement may be terminated and the Merger may be
-----------
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by the stockholders of the Company):
(a) By mutual written consent of the Company on the one hand and MergerSub on
the other hand;
(b) By either the Company or MergerSub, if the Merger has not been consummated
on or prior to (the "Terminal Date") the earlier of (x) November 1, 2000, and
(y) the later of (i) September 30, 2000, provided that such date shall be
extended by one Business Day for each Business Day beyond 10 calendar weeks that
pass between the date of the initial filing with the SEC of the Company Proxy
Statement and the date the SEC advises the Company that it has completed its
review of the Company Proxy Statement such that the Company may deliver
definitive copies of the Company Proxy Statement to its stockholders; and (ii)
the date 45 days after the SEC notifies the Company that it has completed its
review of the Company Proxy Statement such that the Company may deliver
definitive copies of the Company Proxy Statement to its stockholders; provided,
however, that neither party shall have the right to terminate this Agreement if
such party seeking to terminate this Agreement pursuant to this Section 10.1(b)
is then in breach of any of its representations, warranties or obligations which
are qualified as to materiality, or is then in breach in any material respect of
any of its representations, warranties or obligations which are not so
qualified;
(c) By either the Company or MergerSub, if MergerSub (in the case of termination
by the Company) or the Company (in the case of termination by MergerSub) shall
have breached any of its covenants or obligations under this Agreement which are
qualified as to materiality, or breached in any material respect any of its
covenants or obligations under this Agreement which are not so qualified, or any
representation or warranty of MergerSub (in the case of termination by the
Company) or of the Company (in the case of termination by MergerSub) shall have
been incorrect as to those which are qualified as to materiality or incorrect in
any material respect as to those which are not so qualified, when made or at the
Effective Time, provided, however, that the party terminating pursuant to this
Section 10.1 (c) shall not be, at the time of such termination, in material
breach of any of its covenants or obligations hereunder;
(d) By either the Company or MergerSub, if any court of competent jurisdiction
in the United States or other United States federal or state Governmental
Authority shall have issued a final order, decree or ruling, or taken any other
final action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable;
provided, that, the right to terminate this Agreement pursuant to this Section
10.1(d) shall not be available to any party whose breach of any provision of
this Agreement results in the imposition of such order, decree, ruling or other
action.
(e) By MergerSub (i) if prior to the consummation of the Merger, the Special
Committee or the Board of Directors of the Company shall have withdrawn, or
modified or changed in a manner adverse to MergerSub its approval or
recommendation of this Agreement or the Merger or shall have recommended or
approved a Third Party Acquisition or, when required by applicable law, failed
to take a position with respect thereto; or (ii) if there shall have occurred a
Third Party Acquisition or the Company shall have entered into an agreement to
effect a Third Party Acquisition; or (iii) if the Company, or any of the
Company's Affiliates, or any of their respective officers, directors, employees,
representatives, legal counsel, financial advisors or other agents, shall have
breached any of the provisions of Section 6.4 hereof; or (iv) if prior to the
consummation of the Merger, the Company shall have breached any of its
obligations under Sections 6.2, 8.6 or 8.7 hereof or breached any of its
obligations under Section 6.3 hereof in any material respect;
(f) By the Company if the Company simultaneously enters into a definitive
agreement for a Superior Proposal in accordance with, and has otherwise complied
with the terms of, Section 6.4 hereof, provided the Company has complied with
all provisions thereof, including the notice provisions therein, and that it
makes payment of the Termination Fee; or
(g) By either the Company or MergerSub if, at a duly held stockholders meeting
of the Company or any adjournment thereof at which this Agreement is voted upon,
the requisite stockholder vote in favor of the adoption of this Agreement shall
not have been obtained.
The party desiring to terminate this Agreement pursuant to Sections 10.1(b)
through (g) shall give written notice of such termination to the other party in
accordance with Section 11.1 hereof.
Section 10.2 Termination Fee.
---------------
(a) Notwithstanding any other provision of this Agreement, if this Agreement is
terminated pursuant to either of Sections 10.1(e)(i), (ii) or 10.l(f), then the
Company shall immediately pay to MergerSub a break-up fee of $11,000,000 (the
"Termination Fee"). In addition, (i) if this Agreement is terminated pursuant to
Section 10.1(e)(iv) or 10.1(g) then in the event that, after the date hereof and
prior to such termination, either (A) a Third Party Acquisition occurs, or (B)
any Third Party shall have made, proposed, communicated or disclosed an
intention to make a proposal with respect to a Third Party Acquisition then the
Company shall immediately pay to MergerSub the Termination Fee; or (ii) if this
Agreement is terminated pursuant to Section 10.1(e)(iii) and within eighteen
(18) months following the termination of this Agreement (A) a Third Party
Acquisition occurs or (B) the Company or any of its Subsidiaries shall have
entered into a definitive agreement with respect to a Third Party Acquisition,
then the Company shall immediately pay to MergerSub the Termination Fee upon the
first to occur of any of the events specified in clause (A) or (B) of this
clause (ii).
(b) The Company shall pay, or reimburse MergerSub, within two Business Days of
submission of one or more statements therefor, accompanied by reasonable
supporting documentation, for the amount of all out of pocket costs, fees and
expenses reasonably incurred by any of them or on their behalf arising out of,
in connection with, or related to this Agreement, the Merger and the
consummation of all transactions contemplated by this Agreement (including,
without limitation, HSR Act and other filing fees, fees and expenses of
printers, accountants, financial advisors, attorneys, consultants and
appraisers, or any Person providing or proposing to provide any portion of the
Financing, as well as commitment and other fees, charges and expenses of any
such Person) (the "Expenses"); if this Agreement is terminated by MergerSub
pursuant to Section 10.1(c), provided, that, the Company's aggregate payments
and reimbursements pursuant to this Section 10.2(b) shall in no event exceed
$3,000,000.
Section 10.3 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto except to the extent that such
termination results from the willful and material breach by a party of any
representation, warranty or covenant contained in this Agreement and except that
the agreements contained in Sections 10.2, 10.3, 11.1, 11.4 and 11.7 shall
survive the termination hereof.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given, if to MergerSub, to:
BD Recapitalization Corp.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Attention: Mr. John G. Danhakl
Telephone: (310) 954-0444
Facsimile: (310) 954-0404
and
c/o Texas Pacific Group
345 California Street, Suite 3300
San Francisco, CA 94104
Attention: Jonathan Coslet
Telephone: (415) 743-1500
Facsimile: (415) 743-1501
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Attention: Nicholas P. Saggese, Esq.
Telephone: (213) 687-5000
Facsimile: (213) 687-5600
and
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: David Leinwand, Esq.
Telephone: (212) 225-2000
Facsimile: (212) 225-3999
if to the Company, to:
Petco Animal Supplies, Inc.
9125 Rehco Road
San Diego, CA 92121-2270
Attention: Mr. Brian Devine
Telephone: (858) 453-7845
Facsimile: (858) 638-2197
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Andrew E. Bogen, Esq.
Telephone: (213) 229-7000
Facsimile: (213) 229-7520
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (ii) if given by any other
means when delivered at the address specified in this Section 11.1.
Section 11.2 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained herein and in any certificate or other writing delivered
pursuant hereto shall survive until (but not beyond) the Effective Time. This
Section 11.2 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
Section 11.3 Amendments and Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed by each party, in the case of an amendment by the Company and MergerSub,
or in the case of a waiver, by the party against whom the waiver is to be
effective; provided, however, that after the adoption of this Agreement by the
-------- -------
stockholders of the Company, there shall be no amendment that by applicable Law
requires further approval by the stockholders of the Company without the further
approval of such stockholders.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
Section 11.4 Expenses. Except as provided in Sections 6.4 and 10.2 all costs and
--------
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
Section 11.5 Successors and Assigns; Assignment. The provisions of this
-------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that MergerSub
may assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Green Equity Investors III, LP, or TPG Partners III,
L.P., or to any, direct or indirect, wholly owned subsidiary of either of them.
Section 11.6 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the law of the State of Delaware.
Section 11.7 Counterparts; Effectiveness. This Agreement may be signed in any
----------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 11.8 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any 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
transactions contemplated hereby 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 an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
Section 11.9 Specific Performance. The parties hereby acknowledge and agree that
--------------------
the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties,
for which damages, even if available, will not be an adequate remedy.
Accordingly, each party hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
Section 11.10 Entire Agreement; No Third-party Beneficiaries. This Agreement,
------------------------------------------------
(i) constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (ii) except for the provisions of Section
7.1, is not intended to confer upon any Person other than the parties any rights
or remedies.
Section 11.1 "Knowledge". As used in Article IV hereof, all references to the
-----------
knowledge of the Company shall refer to the actual knowledge of the officers and
directors, regional managers and other employees with relevant compliance
responsibility, of the Company.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PETCO ANIMAL SUPPLIES, INC.
By:_____________________________________
Name:
Title:
BD Recapitalization Corp.
By:______________________________________
Name: John G. Danhakl
Title: President
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of May 17, 2000, to the Rights Agreement, dated as
of September 14, 1998 (as heretofore amended, the "Rights Agreement"), by and
between Petco Animal Supplies, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer and Trust Company, a New York corporation (the "Rights
Agent").
WHEREAS, the Company and the Rights Agent have heretofore executed and
entered into the Rights Agreement; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
may from time to time supplement or amend the Rights Agreement in accordance
with the provisions of Section 26 thereof; and
WHEREAS, the Company intends to enter into an Agreement and Plan of
Merger (as it may be amended or supplemented from time to time, the "Merger
Agreement"), to be dated as of May 17, 2000, by and between the Company and BD
Recapitalization Corp., a Delaware corporation, as the same may be amended from
time to time; and
WHEREAS, the Board of Directors has determined that the Merger (as
defined in the Merger Agreement) and the other transactions contemplated by the
Merger Agreement are fair to and in the best interests of the Company and its
stockholders; and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company and its stockholders to amend the Rights Agreement to
exempt the Merger Agreement and the transactions contemplated thereby from the
application of the Rights Agreement.
NOW, THEREFORE, the Company hereby amends the Rights Agreement as
follows:
1. The first sentence of Section 1.1 of the Rights Agreement is hereby
modified and amended to read in its entirety as follows:
"`Acquiring Person' shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
15% or more of the Common Shares of the Company then outstanding but
shall not include (i) an Exempt Person (as such term is hereinafter
defined) or (ii) if as of the date hereof, any Person is the Beneficial
Owner of 15% or more of the Common Shares outstanding (an "Existing
Holder"), such Existing Holder shall not be or become an "Acquiring
Person" unless and until such time as such Existing Holder shall become
the Beneficial Owner of one or more additional Common Shares of the
Company (other than pursuant to a dividend or distribution paid or made
on by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares),
unless, upon becoming the Beneficial Owner of such additional Common
Shares, such Existing Holder is not then the Beneficial Owner of 15% or
more of the Common Shares then outstanding; provided, however, that
neither BD Recapitalization Corp., a Delaware corporation (together
with its Affiliates and Associates and any assignee thereof pursuant to
the Merger Agreement) ("BD Recapitalization Corp."), nor any other
Person, shall be deemed to be or become an Acquiring Person by virtue
of the Agreement and Plan of Merger (as it may be amended or
supplemented from time to time, the "Merger Agreement") to be entered
into as of May 17, 2000, by and between the Company and BD
Recapitalization Corp., or as a result of the consummation of the
transactions contemplated thereby."
2. Section 1.7 of the Rights Agreement is hereby modified and amended
to read in its entirety as follows:
"'Exempt Person' shall mean the Company, any Subsidiary of the
Company, in each case including, without limitation, its fiduciary
capacity, any employee benefit plan of the Company or of any Subsidiary
of the Company or any entity or trustee holding shares of capital stock
of the Company for or pursuant to the terms of any such plan, or for
the purpose of funding other employee benefits for employees of the
Company or any Subsidiary of the Company in its capacity as an agent or
trustee for any such plan or BD Recapitalization Corp.; provided,
however, that BD Recapitalization Corp. will not be an Exempt Person in
the event that BD Recapitalization Corp. becomes the Beneficial Owner
of 15% or more of the Common Shares of the Company other than pursuant
to the terms of the Merger Agreement."
3. A Section 35 is hereby added to the Rights Agreement which shall
read in its entirety as follows:
Section 35. Certain Exclusions. Notwithstanding anything in
this Agreement to the contrary, a Shares Acquisition Date, Distribution
Date or Trigger Event (as each such term is defined in the Rights
Agreement) shall not be deemed to have occurred solely as a result of
(i) the approval, execution or delivery of the Merger Agreement, or
(ii) the announcement or consummation of the Merger (as defined in the
Merger Agreement) or any other transaction contemplated thereby.
4. Except as expressly amended hereby, the Rights Agreement remains in
full force and effect in accordance with its terms.
5. The Rights Agreement, as amended by this Amendment, and each Right
and each Right Certificate exist under and pursuant to the Delaware General
Corporation Law.
6. This Amendment to the Rights Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
7. This Amendment to the Rights Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
an original, and all such counterparts shall together constitute but one and the
same instrument.
8. Except as expressly set forth herein, this Amendment to the Rights
Agreement shall not by implication or otherwise alter, modify, amend or in any
way affect any of the terms, conditions, obligations, covenants or agreements
contained in the Rights Agreement, all of which are ratified and affirmed in all
respects and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Rights Agreement to be duly executed as of the day and year first above
written.
PETCO ANIMAL SUPPLIES, INC.,
a Delaware corporation
By:
--------------------------
Title:
AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By:
--------------------------
Title:
FOR IMMEDIATE RELEASE James M. Myers, Senior Vice President
- --------------------- and Chief Financial Officer
(858) 677-3005
PETCO ANNOUNCES MERGER AGREEMENT
AND RECAPITALIZATION
SAN DIEGO - May 17, 2000 - PETCO Animal Supplies, Inc. (NASDAQ: PETC)
today announced the signing of a definitive merger agreement with a company
organized by Leonard Green & Partners, L.P. and Texas Pacific Group.
Under the terms of the merger agreement, the Company's stockholders
will receive $22 per share in cash in a transaction with a total value of
approximately $600 million including assumed debt. Brian K. Devine, Chairman,
President and Chief Executive Officer of the Company and other members of
management have agreed to retain equity in the Company.
The Company entered into the merger agreement following the unanimous
recommendation by a special committee comprised of non-management directors of
the Company's Board of Directors.
Mr. Devine stated, "The transaction announced today fulfills our
long-standing commitment to deliver maximum value to our stockholders. In
addition, we welcome the opportunity to partner with Leonard Green & Partners,
L.P. and Texas Pacific Group, two of the most respected firms in the private
equity arena, to position PETCO for continued long-term growth as the leader in
the pet food and supplies industry."
John Danhakl, partner with Leonard Green & Partners, L.P., and Jonathan
Coslet, partner with Texas Pacific Group stated, "We are enthusiastic about the
prospects of PETCO and excited to play a role in the Company's future growth. We
expect PETCO's outstanding management team to continue the high standards of
leadership that have made the Company such a success in the pet retailing
industry."
Completion of the transaction is subject to customary closing
conditions, including stockholder approval, receipt of regulatory and other
approvals and the completion of debt financing. Stockholder approval will be
solicited by means of a proxy statement, which will be mailed to stockholders
upon completion of the required Securities and Exchange Commission filing and
review process. The Company currently anticipates completing the transaction in
the fall of 2000. The equity and debt financing necessary for the transaction
has been fully committed by Leonard Green & Partners, L.P., Texas Pacific Group,
Goldman Sachs Credit Partners L.P., Wells Fargo Bank N.A., and affiliates of
Trust Company of the West. Credit Suisse First Boston acted as financial advisor
to Leonard Green & Partners, L.P. and Texas Pacific Group.
Leonard Green & Partners, L.P., is a private Los Angeles-based merchant
banking firm specializing in organizing, structuring and sponsoring management
buy-outs, going private transactions and recapitalizations of established public
and private companies. Leonard Green & Partners, L.P. has significant
investments in Liberty Group Publishing, Inc., a chain of 284 community
newspapers; RiteAid, a national chain of 3,800 drug stores; Twinlabs
Corporation, a leading manufacturer of vitamins and nutritional supplements;
Leslie's Poolmart, Inc., the nation's leading retailer of pool supplies; Gart
Sports Company, the nation's second largest sporting goods retailer; and White
Cap Industries, Inc., a leading business-to-business retailer of specialty tools
and materials to professional contractors in the Western United States. Leonard
Green & Partners, L.P. is the largest private equity fund in Southern
California, managing in excess of $1.7 billion of private equity capital.
Texas Pacific Group, founded in 1993 and based in Fort Worth, TX, San
Francisco, CA, and London, is a private investment partnership with capital of
approximately $7 billion. TPG's principals include David Bonderman, James G.
Coulter, and William S. Price. The partnership has made significant investments
in a broad range of industries, including consumer products (Beringer Wine
Estates, Del Monte), luxury goods (Bally, Ducati, J.Crew), technology (ON
Semiconductor, Gemplus), telecommunications (First World, Advanced TelCom
Group), airlines (Continental, America West), and healthcare services (Oxford
Health Plans).
PETCO is a leading specialty retailer of premium pet food and supplies.
PETCO operated 503 stores in 39 states and the District of Columbia as of April
29, 2000.
Certain statements in this news release that are not historical fact
constitute "forward-looking statements" within the meaning of Section 21E of the
Securities and Exchange Act of 1934 and the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results of PETCO to
be materially different from historical results or from any results expressed or
implied by such forward-looking statements. These factors, such as integration
of operations as a result of acquisitions, competition, reliance on vendors,
product lines and exclusive distribution arrangements, dependence on senior
management and performance of new superstores, are discussed under the caption
"Certain Cautionary Statements" in PETCO's Annual Report on Form 10-K for the
year ended January 29, 2000.
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