<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
WESTAFF, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
- --------------------------------------------------------------------------------
(Title of Class of Securities)
957070105
- --------------------------------------------------------------------------------
(CUSIP Number)
Frederick Tanne
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
(212)446-4831
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 7, 2000
------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box [].
NOTE: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7(b)
for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 12 Pages)
<PAGE> 2
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 2 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Cornerstone Equity Investors IV, L.P.
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7 |SOLE VOTING POWER
| |
| | None.
|------------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |------------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|------------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11 |AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
|
12 |CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
|
13 |PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
|
14 |TYPE OF REPORTING PERSON
|
|PN
===========================================================================================================================
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 3 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Cornerstone IV, L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7 |SOLE VOTING POWER
| |
| | None.
|------------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |------------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|------------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11 |AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
|
12 |CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
|
13 |PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
|
14 |TYPE OF REPORTING PERSON
|
| OO
===========================================================================================================================
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 4 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Centre Capital Investors III, L.P.
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7 |SOLE VOTING POWER
| |
| | None.
|------------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |------------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|------------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11 |AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
|
12 |CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
|
13 |PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
|
14 |TYPE OF REPORTING PERSON
|
|PN
===========================================================================================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 5 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Centre Partners III, L.P.
|
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7| SOLE VOTING POWER
| |
| | None.
|---------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |---------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|---------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
===========================================================================================================================
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 6 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Centre Partners III, L.L.C.
|
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7| SOLE VOTING POWER
| |
| | None.
|---------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |---------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|---------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11| AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
12| CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
13| PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
14| TYPE OF REPORTING PERSON
|
| OO
===========================================================================================================================
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
CUSIP No. 957070105 13D Page 7 of 12 Pages
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
|
|NAMES OF REPORTING PERSONS
1 |I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
|
|Westaff Acquisition Corp.
|
- ---------------------------------------------------------------------------------------------------------------------------
|
2 |CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
|
| (a) [ ]
|
| (b) [ X ]
- ---------------------------------------------------------------------------------------------------------------------------
|
3 |SEC USE ONLY
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
4 |SOURCE OF FUNDS
|
|BK, 00
|
- ---------------------------------------------------------------------------------------------------------------------------
|
5 |CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
|
|
- ---------------------------------------------------------------------------------------------------------------------------
|
6 |CITIZENSHIP OR PLACE OF ORGANIZATION
|
|Delaware
|
- ---------------------------------------------------------------------------------------------------------------------------
| |
| 7| SOLE VOTING POWER
| |
| | None.
|---------------------------------------------------------------------------------------------------
|
| 8 SHARED VOTING POWER
|
NUMBER OF SHARES | 8,462,968
BENEFICIALLY |---------------------------------------------------------------------------------------------------
OWNED BY EACH |
REPORTING PERSON | 9 SOLE DISPOSITIVE POWER
WITH |
| None.
|---------------------------------------------------------------------------------------------------
|
|10 SHARED DISPOSITIVE POWER
|
| None.
- ---------------------------------------------------------------------------------------------------------------------------
11| AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,462,968
- ---------------------------------------------------------------------------------------------------------------------------
12| CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------
13| PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 53.1%
- ---------------------------------------------------------------------------------------------------------------------------
14| TYPE OF REPORTING PERSON
|
| CO
===========================================================================================================================
</TABLE>
<PAGE> 8
ITEM 1. SECURITY AND ISSUER.
This Statement relates to the common stock, par value $0.01 per share
(the "Common Stock"), of Westaff, Inc., a Delaware corporation ("Issuer"). The
address of the principal executive offices of Issuer is 301 Lennon Lane, Walnut
Creek, CA 94598.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed by Cornerstone Equity Investors IV, L.P.
("Cornerstone"), Cornerstone IV, L.L.C. ("Cornerstone LLC"), Centre Capital
Investors III, L.P. ("Centre"), Centre Partners III, L.P. ("Centre Partners"),
Centre Partners III, L.L.C. ("Centre LLC") and Westaff Acquisition Corp.
("Merger Sub")(collectively, the "Reporting Entities").
(a)-(c) Cornerstone is a Delaware limited partnership. The address of
its principal business office is 717 Fifth Avenue, Suite 1100, New York, NY
10022. The principal business of Cornerstone is to make private equity
investments.
Cornerstone LLC is a Delaware limited liability company. The address
of its principal business office is 717 Fifth Avenue, Suite 1100, New York, NY
10022. The principal business of Cornerstone LLC is to be the general partner
of Cornerstone.
Centre is a Delaware limited partnership. The address of its principal
business office is 30 Rockefeller Plaza, 50th Floor, New York, NY 10020. The
principal business of Centre is to make private equity investments.
Centre Partners is a Delaware limited partnership. The address of its
principal business office is 30 Rockefeller Plaza, 50th Floor, New York, NY
10020. The principal business of Centre Partners is to be the general partner
of Centre.
Centre LLC is a Delaware limited liability company. The address of its
principal business office is 30 Rockefeller Plaza, 50th Floor, New York, NY
10020. The principal business of Centre LLC is to be the general partner of
Centre Partners.
Merger Sub is a Delaware corporation. The address of its office is c/o
Michael Najjar, 717 Fifth Avenue, Suite 1100, New York, NY 10022. Merger Sub is
a new corporation formed by Cornerstone and Centre for the purpose of merging
with and into Issuer, at which time the separate corporate existence of Merger
Sub will cease and Issuer will continue in existence as the surviving
corporation in the Merger (the "Surviving Corporation").
A joint filing agreement of the Reporting Entities is attached hereto as
Exhibit 5.
(d)-(e) During the last five years, none of the Reporting Entities has
been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which such entity
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) Citizenship is not applicable, as none of the Reporting Entities
are natural persons.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On March 7, 2000, Issuer executed a definitive merger agreement (the
"Merger Agreement") with Merger Sub, and for purposes of certain provisions
therein Cornerstone, Centre, The Stover Revocable Trust, The Stover 1999
Charitable Remainder Unitrust and The Stover Foundation (The Stover Revocable
Trust, The Stover 1999 Charitable Remainder Unitrust and The Stover Foundation
are collectively referred to herein as the "Stover Stockholders"). Under the
terms of the Merger Agreement, Merger Sub will merge with and into Issuer (the
"Merger") and Issuer will be the Surviving Corporation. Pursuant to the Merger
Agreement, immediately after the Merger, Cornerstone and Centre will each own
approximately 46.3% of the issued and outstanding common and preferred stock of
the Surviving Corporation (subject to the right of each of Cornerstone and
Centre contained in the Merger Agreement to assign to other persons all or a
portion of its right to make its equity contribution).
In the Merger, the stockholders of Issuer (other than The Stover
Revocable Trust for certain of its shares of Common Stock) will receive cash
consideration of $10.00 per share of Common Stock of Issuer (the "Merger
Consideration") held by such stockholder in exchange for their shares of Common
Stock. The Stover Revocable Trust will roll-over 500,000 shares of Common Stock
of Issuer into preferred and common equity securities of the Surviving
Corporation with an aggregate value of $5 million, and will receive the Merger
Consideration for the remainder of their shares of Common Stock. Taking into
account both the Merger Consideration and the value of the Surviving
Corporation securities to be received by the Stover Stockholders, after giving
effect to the transactions contemplated by the Merger Agreement and the Support
Agreement, the Stover Stockholders will receive consideration valued at $10.00
per share of Common Stock.
The Merger Agreement requires approval by the holders of 66-2/3% of
Issuer's Common Stock, as required by Issuer's Certificate of Incorporation.
The Merger is also subject to other conditions, including consummation of the
debt financing contemplated by the Merger Agreement. The Merger is expected to
be completed during the third quarter of calendar year 2000 assuming
satisfaction or waiver of all applicable conditions. Pursuant to the Merger
Agreement, to the extent required by the fiduciary obligations of the board of
directors of Issuer, under certain circumstances Issuer may withdraw or modify
its recommendation of the Merger, and may terminate the Merger Agreement. If
the Merger Agreement is terminated pursuant to the fiduciary obligations of the
board of directors of Issuer, Issuer will be obligated to pay to Cornerstone
and Centre their Reimbursable Expenses (as defined in the Merger Agreement) up
to $1.5 million plus a break up fee set forth therein.
Page 8 of 12 Pages
<PAGE> 9
The foregoing discussion of the Merger Agreement is qualified in its
entirety by reference to the Merger Agreement filed with this Schedule 13D as
Exhibit 1 and incorporated herein by reference.
Financing the Merger will require approximately $215.8 million to pay
the aggregate cash consideration due to all stockholders and option holders of
Issuer upon consummation of the Merger and to refinance Issuer's existing debt
and to pay related fees and expenses. These funds are expected to be provided
through (a) a senior secured term loan facility of $100.0 million and a $12.5
million draw down on a $55.0 million revolving credit facility (the "Senior
Debt Financing"); (b) the issuance of $35.0 million of senior subordinated
notes (the "Senior Sub Notes") of the Surviving Corporation; (c) equity
financing (i) in the amount of $63.3 million provided by Cornerstone and Centre
through the purchase of senior preferred stock and common stock of the
Surviving Corporation (the "Investor Equity Financing"), and (ii) in the amount
of up to $5.0 million provided by the Stover Revocable Trust (though this
amount may be reduced by purchases of equity securities in the Surviving
Corporation made by officers of Issuer) by way of a contribution of a portion
of their existing equity in Issuer in exchange for senior preferred stock and
common stock of the Surviving Corporation (the "Stover Equity Financing").
Cornerstone and Centre have received a commitment letter from Bank of
America, N.A. and Bank of America Securities LLC with respect to the terms and
conditions of the Senior Debt Financing. A copy of the commitment letter with
respect to the Senior Debt Financing is attached hereto as Exhibit 3.
Cornerstone and Centre have also received a commitment letter (the "Mezzanine
Commitment Letter") from Albion Alliance LLC to provide $35.0 million of senior
subordinated notes. A copy of the Mezzanine Commitment Letter is attached
hereto as Exhibit 4. Additionally, pursuant to the Merger Agreement, the Stover
Stockholders have agreed to provide the Stover Equity Financing, and
Cornerstone and Centre have agreed to provide the Investor Equity Financing.
ITEM 4. PURPOSE OF TRANSACTION.
(a)-(b) The information set forth in item 3 above is incorporated
herein by reference. The Merger is being consummated to permit Cornerstone and
Centre, together with The Stover Revocable Trust (and officers of Issuer to the
extent such officers purchase an equity interest in the Surviving Corporation),
to acquire the Issuer from the public stockholders of Issuer and take Issuer
from being a public corporation to being a private corporation. After the
Merger, Cornerstone and Centre will control Issuer through their combined
equity ownership.
Each of the Reporting Entities acquired beneficial ownership of
8,462,968 shares (representing approximately 53.1% of the outstanding Common
Stock as of the date hereof) of the securities that are the subject of this
filing upon the execution of a support agreement (the "Support Agreement")
dated March 7, 2000 between the Stover Stockholders and Merger Sub. The Stover
Stockholders entered into the Support Agreement in order to induce Cornerstone,
Centre and Merger Sub to enter into the Merger Agreement. For the purpose of
enforcing certain obligations of the Stover Stockholders under the Support
Agreement, each of the Stover Stockholders granted to Merger Sub its proxy for
the purposes of such obligations.
Each Stover Stockholder agreed, pursuant to the Support agreement, to
(i) hold its shares subject to transferability and voting restrictions, (ii)
abstain from any action which would interfere with the performance of its
obligations under the Support Agreement, (iii) approve, vote its shares of
Common Stock in favor of, and consent to , the Merger Agreement and the
transactions contemplated thereby, at the direction of Merger Sub, and (iv)
vote its shares of Common Stock against (A) any Competing Transaction (as
defined in the Support Agreement), and (B) any Frustrating Transactions (as
defined in the Support Agreement).
The foregoing discussion of the Support Agreement is qualified in its
entirety by reference to the Support Agreement filed with this Schedule 13D as
Exhibit 2 and incorporated herein by reference.
(c) Not Applicable.
(d) Not Applicable.
(e) In connection with the Merger and pursuant to the Merger
Agreement, each share of Common Stock of Issuer outstanding at the time of the
Merger (other than shares of Common Stock held by Merger Sub) will be converted
into the right to receive the Merger Consideration. Following completion of the
Merger, all of the issued and outstanding capital stock of the Surviving
Corporation will be owned by Cornerstone, Centre and The Stover Revocable
Trust.
(f) Not Applicable.
Page 9 of 12 Pages
<PAGE> 10
(g) Not Applicable.
(h) - (i) In connection with the Merger, Issuer's Common Stock will be
delisted from the Nasdaq Stock Market and become eligible for termination of
registration pursuant to Section 12(g)(4) of the Act.
(j) Not applicable.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
(a)-(b) As of the date hereof, each of the Reporting Entities
beneficially owns an aggregate of 8,462,968 shares of Common Stock, or
approximately 53.1% of the shares of Common Stock deemed outstanding due to the
irrevocable proxy granted to Merger Sub by each of the Stover Stockholders
pursuant to the Support Agreement. The Reporting Entities expressly disclaim
membership in a "group" as such term is used in Rule 13d-5.
(c) Not Applicable.
(d) Not Applicable.
(e) Not Applicable.
Except as stated above, none of the Reporting Entities beneficially
owns any of the shares of capital stock of Issuer.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF ISSUER.
The information set forth in items 3 and 4 above is incorporated
herein by reference.
To induce Cornerstone, Centre and Merger Sub to enter into the Merger
Agreement, the Stover Stockholders entered into the Support Agreement. The
Support Agreement obligates the Stover Stockholders to vote the shares of
Common Stock of Issuer held by the Stover Stockholders as directed by Merger
Sub in favor of the Merger and against certain changes that could impede the
completion of the Merger. Although the Reporting Entities and the Stover
Stockholders may be deemed to be have formed a "group" within the meaning of
Section 13(d) or 13(g) of the Act, the disclosure set forth in this Schedule
shall not be construed as an admission that such persons have in fact formed
such a "group."
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Agreement and Plan of Merger, dated as of March 7, 2000, by
and among Issuer, Merger Sub, Cornerstone, Centre and the Stover
Stockholders.
2. Support Agreement, dated as of March 7, 2000, by and among
Merger Sub and the Stover Stockholders.
3. Commitment Letter dated March 7, 2000 to Cornerstone and
Centre from Bank of America with respect to the Senior Debt Financing.
4. Commitment Letter dated March 7, 2000 to Cornerstone and
Centre from Albion Alliance LLC with respect to the Senior Sub Notes.
5. Joint Filing Agreement, dated as of March 15, 2000, by and
among Cornerstone, Cornerstone LLC, Centre, Centre Partners, Centre LLC and
Merger Sub.
Page 10 of 12 Pages
<PAGE> 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: March 16, 2000
CORNERSTONE EQUITY INVESTORS IV, L.P
By: CORNERSTONE IV, L.L.C.
Its: General Partner
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: Managing Director
CORNERSTONE IV, L.L.C.
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: Managing Director
CENTRE CAPITAL INVESTORS III, L.P.
By: Centre Partners III, L.P,
As general partner of such partnership
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Robert Bergmann
----------------------------
Name: Robert Bergmann
Title: Managing Director
CENTRE PARTNERS III, L.P.
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Robert Bergmann
----------------------------
Name: Robert Bergmann
Title: Managing Director
CENTRE PARTNERS III, L.L.C.
By: /s/ Robert Bergmann
-------------------------------------
Name: Robert Bergmann
Title: Managing Director
WESTAFF ACQUISITION CORP.
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: President and Secretary
Page 11 of 12 Pages
<PAGE> 1
EXHIBIT 1
- ------------------------------------------------------------------------------
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
AMONG
WESTAFF ACQUISITION CORP.,
WESTAFF, INC.
AND
CERTAIN STOCKHOLDERS OF
WESTSTAFF, INC.
- ------------------------------------------------------------------------------
March 7, 2000
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE ITHE
RECAPITALIZATION AND THE MERGER.....................................................................................2
SECTION 1.01 Issuance of Preference Shares.........................................................................2
-----------------------------
SECTION 1.02 Debt Financing........................................................................................3
--------------
SECTION 1.03 The Merger............................................................................................3
----------
SECTION 1.04 Effective Time; Closing...............................................................................3
-----------------------
SECTION 1.05 Effect of the Merger..................................................................................3
--------------------
SECTION 1.06 Certificate of Incorporation; By-laws.................................................................4
-------------------------------------
SECTION 1.07 Directors and Officers................................................................................4
----------------------
SECTION 1.08 Additional Actions....................................................................................4
------------------
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DEPOSIT
....................................................................................................................5
SECTION 2.01 Effect on Capital Stock and Company Stock Options.....................................................5
-------------------------------------------------
SECTION 2.02 Exchange of Certificates..............................................................................6
------------------------
SECTION 2.03 Company Stock Options; Plans..........................................................................8
----------------------------
SECTION 2.04 Shares of Dissenting Stockholders.....................................................................9
---------------------------------
SECTION 2.05 Adjustment of Merger Consideration...................................................................10
----------------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................................10
SECTION 3.01 Organization and Qualification; Subsidiaries.........................................................10
--------------------------------------------
SECTION 3.02 Certificate of Incorporation and By-laws.............................................................11
----------------------------------------
SECTION 3.03 Capitalization.......................................................................................11
--------------
SECTION 3.04 Authority Relative to this Agreement.................................................................12
------------------------------------
SECTION 3.05 No Conflict; Required Filings and Consents...........................................................12
------------------------------------------
SECTION 3.06 SEC Filings; Financial Statements; Undisclosed Liabilities...........................................13
----------------------------------------------------------
SECTION 3.07 Absence of Certain Changes or Events.................................................................14
------------------------------------
SECTION 3.08 Absence of Litigation................................................................................16
---------------------
SECTION 3.09 Stockholder Vote Required............................................................................16
-------------------------
SECTION 3.10 Opinion of Financial Advisor.........................................................................16
----------------------------
SECTION 3.11 Brokers..............................................................................................16
-------
SECTION 3.12 Company Action; State Takeover Statutes..............................................................16
---------------------------------------
SECTION 3.13 Information Supplied.................................................................................17
--------------------
SECTION 3.14 Environmental and Safety Matters.....................................................................17
--------------------------------
SECTION 3.15 Real Property........................................................................................18
-------------
SECTION 3.16 Personal Property..................................................................................20
-----------------
SECTION 3.17 Contracts............................................................................................20
---------
SECTION 3.18 Insurance Policies...................................................................................21
------------------
SECTION 3.19 Compliance with Laws.................................................................................21
--------------------
SECTION 3.20 Tax Matters..........................................................................................22
-----------
SECTION 3.21 Employment Agreements................................................................................24
---------------------
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.22 Change of Control Provisions.........................................................................24
----------------------------
SECTION 3.23 Employees............................................................................................24
---------
SECTION 3.24 Permits..............................................................................................24
-------
SECTION 3.25 Employee Benefit Plans...............................................................................25
----------------------
SECTION 3.26 Intellectual Property Rights.........................................................................26
----------------------------
SECTION 3.27 Year 2000............................................................................................27
---------
SECTION 3.28 Unions...............................................................................................27
------
SECTION 3.29 Franchise Matters....................................................................................27
-----------------
SECTION 3.30 Notes and Accounts Receivable........................................................................29
-----------------------------
SECTION 3.31 Affiliated Transactions..............................................................................29
-----------------------
SECTION 3.32 Contributions........................................................................................29
-------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND THE INVESTOR GROUP................................................29
SECTION 4.01 Organization and Qualification; Subsidiaries.........................................................29
--------------------------------------------
SECTION 4.02 Charter Documents and By-laws........................................................................30
-----------------------------
SECTION 4.03 Authority Relative to this Agreement.................................................................30
------------------------------------
SECTION 4.04 No Conflict; Required Filings and Consents...........................................................30
------------------------------------------
SECTION 4.05 Interim Operations of Merger Sub.....................................................................31
--------------------------------
SECTION 4.06 Information Supplied.................................................................................31
--------------------
SECTION 4.07 Brokers..............................................................................................31
-------
SECTION 4.08 Financing............................................................................................31
---------
SECTION 4.09 Litigation...........................................................................................32
----------
SECTION 4.10 Capitalization.......................................................................................32
--------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.................................................................32
SECTION 5.01 No Conflict; Required Filings and Consents...........................................................32
------------------------------------------
SECTION 5.02 Ownership of Shares..................................................................................33
-------------------
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER.............................................................................33
SECTION 6.01 Conduct of Business by the Company Pending the Merger................................................33
-----------------------------------------------------
ARTICLE VII
ADDITIONAL AGREEMENTS..............................................................................................36
SECTION 7.01 Stockholders' Meeting................................................................................36
---------------------
SECTION 7.02 Preparation of Proxy Statement.......................................................................37
------------------------------
SECTION 7.03 Appropriate Action; Consents; Filings; Further Assurances............................................38
---------------------------------------------------------
SECTION 7.04 Access to Information; Confidentiality...............................................................39
--------------------------------------
SECTION 7.05 No Solicitation......................................................................................40
---------------
SECTION 7.06 Indemnification and Insurance........................................................................42
-----------------------------
SECTION 7.07 Notification of Certain Matters......................................................................43
-------------------------------
SECTION 7.08 Public Announcements.................................................................................44
--------------------
SECTION 7.09 Assistance with Financing............................................................................44
-------------------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 7.10 Stockholder Approval.................................................................................45
--------------------
SECTION 7.11 Exchange Act and NASDAQ Filings......................................................................45
-------------------------------
SECTION 7.12 Alternative Financing; Disclosure....................................................................45
---------------------------------
SECTION 7.13 Representations......................................................................................46
---------------
SECTION 7.14 Support Agreement....................................................................................46
-----------------
SECTION 7.15 Guarantee; Limitation on Liability...................................................................46
----------------------------------
SECTION 7.16 Purchase of Promissory Note by Stover................................................................47
-------------------------------------
ARTICLE VIII
CONDITIONS TO THE MERGER
...................................................................................................................47
SECTION 8.01 Conditions to the Obligations of Each Party..........................................................47
-------------------------------------------
SECTION 8.02 Conditions to the Obligations of Merger Sub..........................................................48
-------------------------------------------
SECTION 8.03 Conditions to the Obligation of the Company..........................................................50
-------------------------------------------
SECTION 8.04 Conditions to the Obligations of the Investor Group..................................................50
---------------------------------------------------
SECTION 8.05 Conditions to the Obligations of the Stockholders....................................................50
-------------------------------------------------
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER..................................................................................51
SECTION 9.01 Termination..........................................................................................51
-----------
SECTION 9.02 Method of Termination; Effect of Termination.........................................................52
--------------------------------------------
SECTION 9.03 Fees and Expenses....................................................................................52
-----------------
SECTION 9.04 Amendment............................................................................................54
---------
SECTION 9.05 Waiver...............................................................................................54
------
ARTICLE X
GENERAL PROVISIONS.................................................................................................55
SECTION 10.01 Non-Survival of Representations, Warranties and Agreements..........................................55
----------------------------------------------------------
SECTION 10.02 Notices.............................................................................................55
-------
SECTION 10.03 Certain Definitions.................................................................................56
-------------------
SECTION 10.04 Accounting Terms....................................................................................58
----------------
SECTION 10.05 Severability........................................................................................59
------------
SECTION 10.06 Entire Agreement; Assignment........................................................................59
----------------------------
SECTION 10.07 Parties in Interest.................................................................................59
-------------------
SECTION 10.08 Specific Performance................................................................................59
--------------------
SECTION 10.09 Governing Law.......................................................................................59
-------------
SECTION 10.10 Headings............................................................................................60
--------
SECTION 10.11 Counterparts........................................................................................60
------------
SECTION 10.12 Construction........................................................................................60
------------
</TABLE>
Exhibit A Terms of New Preference Stock
Exhibit B Stockholders' Schedule
Exhibit C Surviving Corporation Preferred Stock Terms
Exhibit D Legal Opinion of Counsel to the Company
Exhibit E Legal Opinion of Counsel to Merger Sub and the Investor Group
iii
<PAGE> 5
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
This RECAPITALIZATION AGREEMENT AND PLAN OF MERGER dated
March 7, 2000 (this "Agreement") is by and among Westaff Acquisition Corp., a
Delaware corporation, ("Merger Sub"), Westaff, Inc., a Delaware corporation
(the "Company"), for purposes of Articles I, V, VII and VIII only, The Stover
Revocable Trust, The Stover 1999 Charitable Remainder Unitrust and The Stover
Foundation (collectively, the "Stockholders"), and for purposes of Article IV
and Sections 1.01(c), 7.02, 7.03 (a), (b), (c) and (d), 7.04, 7.08, 7.12(b) and
7.15 only, Cornerstone Equity Investors IV, L.P. (together with its affiliate
assignees, "Cornerstone") and Centre Capital Investors III, L.P. (together with
its affiliate assignees, "Centre", and together with Cornerstone, the "Investor
Group");
RECITALS
WHEREAS, Merger Sub is a new corporation formed by the
Investor Group for the purpose of entering into this Agreement and consummating
the transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company has deemed
it advisable in connection with the transactions contemplated by this Agreement
and subject to the terms and conditions hereof that the Company amend its
Certificate of Incorporation or adopt a Certificate of Designation (the
"Preference Amendment") to provide for the authorization to create and issue up
to 682,900.4 shares of Preferred Stock, $0.01 par value (the "New Preference
Stock"), of the Company having the terms set forth on Exhibit A;
WHEREAS, immediately prior to the Effective Time (as
defined below), at the request of the Investor Group, the Stockholders shall
convert an aggregate of 500,000 shares of their Common Stock, par value $0.01,
of the Company (the "Company Common Stock") into New Preference Stock in the
amounts set forth on Exhibit B;
WHEREAS, immediately prior to the Effective Time,
Cornerstone shall make a $31,645,020 equity contribution into the Company for
316,450.2 shares of New Preference Stock (the "Cornerstone Equity
Contribution") and Centre shall make a $31,645,020 equity contribution into the
Company for 316,450.2 shares of New Preference Stock (the "Centre Equity
Contribution", and together with the Cornerstone Equity Contribution, the
"Equity Contribution");
WHEREAS, the respective Boards of Directors of the Company
and Merger Sub have approved and declared advisable a merger (the "Merger") of
Merger Sub with and into the Company upon the terms and subject to the
conditions set forth in this Agreement, with the Company surviving the Merger
(the "Surviving Corporation"), and the Board of Directors of the Company has
recommended that the holders of shares of Company Common Stock approve the
Merger and the other transactions contemplated by this Agreement upon the terms
of this Agreement;
<PAGE> 6
WHEREAS, the Boards of Directors of Merger Sub and the
Company have determined that the Merger is in furtherance of and consistent
with their respective long-term business strategies and is fair to and in the
best interests of their respective stockholders;
WHEREAS, the Merger is subject to the approval of holders
of 66 2/3% of the outstanding shares of Company Common Stock and satisfaction of
certain other conditions described in this Agreement;
WHEREAS, the Surviving Corporation shall,
contemporaneously with the Merger, obtain the debt financing (the "Debt
Financing") described in the Commitment Letters (as defined below) to fund a
portion of the Merger Consideration (as defined below);
WHEREAS, contemporaneously with the execution of this
Agreement, the Stockholders are entering into a Support Agreement pursuant to
which, and subject to the terms thereof, they have agreed to vote their shares
of Company Common Stock in favor of the Merger and the Transactions; and
WHEREAS, it is intended that the transactions contemplated
by this Agreement be recorded as a recapitalization of the Company for
financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained and intending to be legally
bound hereby, the parties hereby agree as follows:
ARTICLE I
THE RECAPITALIZATION AND THE MERGER
SECTION 1.01 Issuance of Preference Shares.
(a) Authorization. Upon the terms and subject to the
conditions set forth in this Agreement, prior to the Effective Time,
the Company shall have amended its Certificate of Incorporation or
adopted a Certificate of Determination to authorize the creation,
issuance and sale of 682,900.4 shares of New Preference Stock having
the terms set forth on Exhibit A hereto.
(b) Conversion of Company Common Stock into Preference
Shares. Upon the terms and subject to the conditions set forth in
this Agreement, the Stockholders agree to convert immediately prior
to the Effective Time, an aggregate of 500,000 shares (or any lesser
number designated by the Investor Group at its sole discretion)
("Target Roll-Over Shares") of Company Common Stock into 50,000
shares of New Preference Stock (the "Preference Exchange").
Notwithstanding the foregoing, the parties to this Agreement
expressly agree that the number of shares to be converted pursuant to
the Preference Exchange shall be reduced on a share for share basis
to take into effect any Roll-Over Management Shares (as defined in
Section 2.01(f)). In the event of any Roll-Over Management Shares the
number of Target Roll-Over Shares shall be adjusted accordingly.
2
<PAGE> 7
(c) Equity Contribution. Upon the terms and subject to
the conditions set forth in this Agreement, immediately prior to the
Effective Time, Cornerstone shall make the Cornerstone Equity
Contribution and Centre shall make the Centre Equity Contribution in
exchange for the shares of New Preference Stock referred to in the
Recitals to this Agreement. Notwithstanding anything to the contrary
contained herein, each of Cornerstone and Centre may assign all or
any portion of its right to make its portion of the Equity
Contribution pursuant to this Section 1.01(c) to other persons
without the consent of any other parties hereto, provided that no
member of the Investor Group shall be released from its obligation to
make its portion of the Equity Contribution without the written
consent of the other parties hereto. Each of Cornerstone's and
Centre's obligation to make its portion of the Equity Contribution
shall be several and not joint.
SECTION 1.02 Debt Financing. Contemporaneously with the
Merger, the Surviving Corporation will consummate the Debt Financing.
SECTION 1.03 The Merger. Upon the terms and subject to
the conditions set forth in Article VIII, and in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL"), at
the Effective Time (as defined below), Merger Sub shall be merged
with and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease, and the Company shall
be the Surviving Corporation of the Merger.
SECTION 1.04 Effective Time; Closing. As promptly as
practicable, and in no event later than five business days after the
satisfaction or, if permissible, waiver of the conditions set forth
in Article VIII (other than those conditions that can only be
satisfied on the Closing Date (as defined below)), including, without
limitation, the approval of the Merger by an affirmative vote of the
Requisite Majority, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware, in
such form as is required by, and executed in accordance with, the
DGCL. The term "Effective Time" means the date and time of the filing
of the Certificate of Merger with the Secretary of State of the State
of Delaware (or such later time as may be agreed by the parties
hereto and specified in the Certificate of Merger). Immediately prior
to the filing of the Certificate of Merger, a closing (the "Closing")
will be held at the offices of Kirkland & Ellis, Citigroup Center,
153 East 53rd Street, New York, New York 10022 (or such other place
as the parties may agree). The date on which such Closing takes place
shall be referred to herein as the "Closing Date".
SECTION 1.05 Effect of the Merger. At the Effective
Time, the effect of the Merger shall be as provided in the applicable
provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the
property, rights, immunities, privileges, powers, franchises and
licenses of the Company and Merger Sub shall vest in the Surviving
Corporation, without further act or deed, and all debts, liabilities,
obligations, restrictions, disabilities and duties of each of the
Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions and duties of the Surviving Corporation.
3
<PAGE> 8
SECTION 1.06 Certificate of Incorporation; By-laws.
(a) Certificate of Incorporation. From and after the
Effective Time, the Certificate of Incorporation of Merger Sub in
effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with its terms and as provided by
the DGCL and this Agreement, except that, as of the Effective Time,
Article I of such Certificate of Incorporation shall be amended to
read as follows: "The name of the Corporation is Westaff, Inc."
(b) Bylaws. From and after the Effective Time, the
By-laws of the Company as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation
until thereafter amended in accordance with its terms and as provided
by the DGCL and the Certificate of Incorporation of the Surviving
Corporation.
SECTION 1.07 Directors and Officers.
(a) Directors. From and after the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation until the earlier of
their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be, in accordance with
the Certificate of Incorporation and By-laws of the Surviving
Corporation, the DGCL and this Agreement.
(b) Officers. From and after the Effective Time, the
officers of the Company immediately prior to the Effective Time shall
be the officers of the Surviving Corporation and shall hold office
until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may
be, in accordance with the Certificate of Incorporation and By-laws
of the Surviving Corporation, the DGCL and this Agreement.
SECTION 1.08 Additional Actions. If, at any time after
the Effective Time, the Surviving Corporation shall consider or be
advised that any further deeds, assignments or assurances in Law
(hereinafter defined) or any other acts are necessary or desirable to
(a) vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its rights, title or interest in, to or under
any of the rights, properties or assets of the Company or its
subsidiaries, or (b) otherwise carry out the provisions of this
Agreement, the Company and its officers and directors shall be deemed
to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments or
assurances in Law and to take all acts necessary, proper or desirable
to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to
carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of
the Company to take any and all such action.
4
<PAGE> 9
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DEPOSIT
SECTION 2.01 Effect on Capital Stock and Company Stock
Options. As of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any Company Common
Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and
outstanding share of capital stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be
converted into the right to receive $1,000.
(b) Cancellation of Company Owned Stock. All shares of
Company Common Stock and New Preference Stock (if any) that are held
in the treasury of the Company or by any wholly owned subsidiary of
the Company shall be canceled and retired and shall cease to exist
without any consideration payable therefor.
(c) Conversion of Company Common Stock. Each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of the Company Common Stock
referred to in Section 2.01(b)) shall be converted into (as provided
in and subject to the limitations set forth in this Article II) the
right to receive from the Surviving Corporation in cash, $10.00 (the
"Merger Consideration") without interest thereon upon surrender of
the certificate previously representing such share of Company Common
Stock as provided in Section 2.02(c). As of the Effective Time, all
such shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such share
of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive the cash into which their shares
of Company Common Stock have been converted by the Merger as provided
in this Section 2.01(c).
(d) Conversion of New Preference Stock. Each share of
New Preference Stock issued and outstanding immediately prior to the
Effective Time (other than shares of New Preference Stock to be
canceled pursuant to Section 2.01(b)) shall be converted into (as
provided in and subject to the limitations set forth in this Article
II) and become ten fully paid and nonassessable shares of Common
Stock, par value $0.01, of the Surviving Corporation (the "Surviving
Corporation Common Stock") and ten fully paid and nonassessable shares
of Preferred Stock, par value $0.01, of the Surviving Corporation
(the "Surviving Corporation Preferred Stock") having the terms set
forth on Exhibit C and otherwise being acceptable to the Investor
Group, upon the surrender of the certificate previously representing
such shares of New Preference Stock. As of the Effective Time, all
such shares of New Preference Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such share
of New Preference Stock shall cease to have any rights with respect
thereto, except the right to receive the surviving Corporation Common
Stock and Surviving Corporation's Preferred Stock into which their
shares of New Preference Stock have been converted by the Merger as
provided in this Section 2.01(d).
5
<PAGE> 10
(e) Conversion of Company Stock Options. Each Company
Stock Option (as defined in Section 2.03(a) hereof), issued and
outstanding immediately prior to the Effective Time shall be
converted into (as provided in and subject to the limitations set
forth in this Article II) the right to receive from the Surviving
Corporation the Option Consideration (as defined in Section 2.03(a)
hereof) without interest thereon. As of the Effective Time, all such
Company Stock Options shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of any such Company Stock Option shall cease to have any
rights with respect thereto, except the right to receive the Option
Consideration into which their Company Stock Options have been
converted by the Merger as provided in this Section 2.01(e) and
Section 2.03(a).
(f) Further Amendment. Notwithstanding any provision to
the contrary, to the extent requested by Merger Sub, the parties
agree to amend this Agreement prior to Closing to permit shares of
Company Common Stock and/or Company Stock Options (as defined below)
owned by certain employees of the Company as mutually agreed by the
Company and Merger Sub to be converted into shares of New Preference
Stock with corresponding adjustments to be made to Section 1.01(b)
and this Section 2.01 and the related definitions (any such shares of
Company Common Stock which are converted are referred to as
"Roll-Over Management Shares").
SECTION 2.02 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Merger
Sub shall, with the approval of the Company, designate a bank or
trust company to act as paying agent in the Merger (the "Paying
Agent").
(b) At the Closing, Merger Sub shall deliver:
(i) to each person (who has been identified on a
list to be provided to Merger Sub by the Company not later
than five business days before the Closing) who has
surrendered to the Company prior to the Closing one or
more certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (such
certificates, the "Certificates") by wire transfer of
immediately available funds, the amount of cash into which
the shares of Company Common Stock represented by the
Certificates so surrendered have been converted pursuant
to the provisions of this Article II;
(ii) to the Stockholders who shall have surrendered
to the Merger Sub at the Closing the certificates which,
immediately prior to the Effective Time, represented
shares of outstanding New Preference Stock, the securities
of the Surviving Corporation into which the shares of New
Preference Stock represented by such certificates have
been converted pursuant to the provisions of this Article
II; and
(iii) to the Paying Agent, for the benefit of the
holders of Company Common Stock not so listed as provided
in clause (i) above, funds in the aggregate
6
<PAGE> 11
amount into which such shares of Company Common Stock
shall have been converted pursuant to the provisions
of this Article II.
(c) Exchange Procedure. Promptly after the Effective Time,
the Surviving Corporation shall mail to each holder of record (other
than the members of the Investor Group) of Certificates not
surrendered pursuant to Section 2.02(b), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the address specified therein) and (ii)
instructions for use in effecting the surrender of the Certificates
in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive promptly in exchange
therefor from the Paying Agent the amount of cash into which the
shares of Company Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 2.01, and
the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of the shares of Company Common
Stock that is not registered in the transfer records of the Company,
payment may be made to a person other than the person in whose name
the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person
other than the registered holder of such Certificate or establish to
the satisfaction of the Surviving Corporation that such tax has been
paid or is not applicable. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares
of Company Common Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.01. No interest will
be paid or will accrue on the cash payable upon the surrender of any
Certificate. In the event any Certificate shall have been lost,
stolen or destroyed, upon making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed, the
Surviving Corporation will pay in exchange for such lost, stolen or
destroyed Certificate, the cash payable in respect of the shares
represented by such Certificate as determined in accordance with this
Article II, except that when authorizing such payment, the Board of
Directors of the Surviving Corporation, may, in its discretion and as
a condition precedent to such payment, require the owner of such lost,
stolen or destroyed Certificate to deliver a bond in such sum as it
may reasonably direct as indemnity against any claim that may be made
against the Surviving Corporation or the Paying Agent with respect to
such Certificate.
(d) Withholding. Merger Sub, Surviving Corporation
and Paying Agent shall be entitled to deduct and withhold from the
Merger Consideration otherwise payable or issuable pursuant to this
Agreement to any holder of Company Common Stock such amount as is
required to be deducted and withheld with respect to such payment or
issuance under any provision of federal, state, local or foreign tax
Law. To the extent that amounts are so withheld, such withheld amounts
shall promptly be paid to the appropriate governmental authority and
shall be treated for all purposes of this Agreement as having been
paid to the
7
<PAGE> 12
holder of Company Common Stock in respect of which such deduction and
withholding was made.
(e) Closing of Stock Transfer Books. All cash paid upon
the surrender of Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of
all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificates. At the Effective Time,
the stock transfer books of the Company shall be closed, and there
shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall
be canceled and exchanged as provided in this Article II.
(f) No Liability. At any time following the expiration
of twelve months after the Effective Time, the Surviving Corporation
shall be entitled to require the Paying Agent to deliver to it any
funds (including any interest received with respect thereto) which
had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to
any applicable abandoned property, escheat or similar Law) only as
general creditors thereof with respect to the Merger Consideration
payable upon due surrender of their Certificates, without any
interest thereon; provided, however, with respect to any Certificates
which shall not have been surrendered prior to five years after the
Closing Date, the unclaimed cash payable in exchange for such
Certificates shall, to the extent permitted by applicable abandoned
property, escheat or similar Law, become the property of the
Surviving Corporation, free and clear of all claims or interests of
any person previously entitled thereto. Notwithstanding the foregoing,
none of Merger Sub, the Stockholders, the Company, the Paying Agent
or any member of the Investor Group shall be liable to any person in
respect of any cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
SECTION 2.03 Company Stock Options; Plans.
(a) Option Consideration. Except as set forth in this
Section 2.03 and except to the extent that Merger Sub and the holder
of any option otherwise agree in writing prior to or
contemporaneously with the Effective Time, the Surviving Corporation
shall promptly after the Effective Time pay in cash to each holder of
an outstanding option to purchase Company Common Stock (a "Company
Stock Option") granted pursuant to the Company's 1996 Stock
Option/Stock Issuance Plan or the Company's Executive and Key
Employee Nonstatutory Incentive Stock Option Plan (collectively, the
"Company Stock Option Plans"), in settlement of each such Company
Stock Option, whether or not exercisable or vested, an amount in
respect thereof equal to the product of (x) the excess, if any, of
the Merger Consideration over the exercise price of each such Company
Stock Option, and (y) the number of shares of Company Common Stock
subject to the Company Stock Option immediately prior to its
settlement (the "Option Consideration") (such payment to be net of
applicable withholding taxes). Upon delivery of the related Option
Consideration, the Company Stock Option shall be canceled. The
surrender of a Company Stock Option to the
8
<PAGE> 13
Company in exchange for the Option Consideration shall be deemed,
upon receipt of such consideration, to be a release of all rights the
holder had or may have had in respect of that Company Stock Option.
(b) Consents of Option Holders. Prior to the Effective
Time, the Company shall use reasonable efforts to obtain any consents
from holders of the Company Stock Options and make any amendments to
the terms of the Company Stock Option Plans or arrangements that are
necessary to give effect to the transactions contemplated by Section
2.01(e) and this Section 2.03.
(c) Termination of Option Plans. Except as may otherwise
be agreed in writing by Merger Sub and the Company, the Company Stock
Option Plans shall terminate as of the Effective Time, and no holder
of Company Stock Options or any participant in the Company Stock
Option Plans shall have any rights thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any
subsidiary thereof.
(d) Termination of Other Plans and Programs. Except as
may otherwise be agreed in writing by Merger Sub and the Company, all
other plans, programs or arrangements providing for the issuance or
grant of any other interest in respect of the capital stock of the
Company or any of its subsidiaries shall terminate as of the
Effective Time, and no participant in any such plans, programs or
arrangements shall have any rights thereunder to acquire any equity
securities of the Company, the Surviving Corporation or any
subsidiary thereof.
SECTION 2.04 Shares of Dissenting Stockholders.
(a) Notwithstanding anything in this Agreement to the
contrary, any shares of Company Common Stock that are issued and
outstanding as of the Effective Time and that are held by a holder
who has not voted in favor of the Merger or consented thereto in
writing and who has properly exercised his or her appraisal rights
(the "Dissenting Shares") under the DGCL, shall not be converted into
the right to receive the Merger Consideration, unless and until such
holder shall have failed to perfect, or shall have effectively
withdrawn or lost, his or her right to dissent from the Merger under
the DGCL and to receive such consideration as may be determined to be
due with respect to such Dissenting Shares pursuant to and subject to
the requirements of the DGCL. If, after the Effective Time, any such
holder shall have failed to perfect or shall have effectively
withdrawn or lost such right, each share of such holder's Company
Common Stock shall thereupon be deemed to have been converted into
and to have become, as of the Effective Time, the right to receive,
without interest or dividends thereon, the consideration provided for
in this Article II.
(b) The Company shall give Merger Sub and the Investor
Group (i) prompt notice of any notices or demands for appraisal or
payment for shares of Company Common Stock received by the Company
and (ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to any such demands or
notices. The Company shall not, without prior written consent of
Merger Sub and the Investor Group, make any payments
9
<PAGE> 14
with respect to, or settle, offer to settle or otherwise negotiate,
with respect to any such demands.
(c) Dissenting Shares, if any, after payments of fair
value in respect thereto have been made to the holders thereof
pursuant to the DGCL, shall be canceled.
SECTION 2.05 Adjustment of Merger Consideration. In the
event that, subsequent to the date of this Agreement but prior to the Effective
Time, the outstanding shares of Company Common Stock shall have been changed
into a different number of shares of a different class as a result of a stock
split, reverse stock split, stock dividend, subdivision, reclassification,
split, combination, exchange, recapitalization or other similar transaction,
the Merger Consideration shall be appropriately adjusted. The Merger
Consideration and the Option Consideration, each payable pursuant to Article
II, have been calculated based upon the representations and warranties made by
the Company in Section 3.03. In the event that, at the Effective Time, the
actual number of shares of Company Common Stock outstanding and/or the actual
number of shares of Common Stock issuable upon the exercise of outstanding
options, warrants or similar agreements or upon conversion of securities
(including without limitation, as a result of any stock split, stock dividend,
including any dividend or distribution of securities convertible into shares of
Company Common Stock, or a recapitalization) is more than as described in
Section 3.03, the Merger Consideration and the Option Consideration shall be
appropriately adjusted downward.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in a separate disclosure schedule
referring to the Sections contained in this Agreement, which has been delivered
by the Company to Merger Sub prior to the execution of this Agreement (the
"Company Disclosure Schedule"), the Company hereby represents and warrants to
Merger Sub that:
SECTION 3.01 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its subsidiaries is a
corporation or other legal entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite organizational power and
authority and all necessary governmental approvals to own, lease and
operate the properties and assets it currently owns, operates or
holds under lease and to carry on its business as it is now being
conducted, except where the failure to be organized, existing or in
good standing or to have such organizational power and authority or
approvals would not, individually or in the aggregate, have a Company
Material Adverse Effect (as defined below). Each of the Company and
its subsidiaries is duly qualified or licensed as a foreign entity to
do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the
nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate,
have a Company Material Adverse Effect. The term "Company Material
Adverse Effect" means, when used in connection with the Company, any
change, effect, event, occurrence, condition or development that is or
is reasonably likely to be materially
10
<PAGE> 15
adverse to (i) the business, assets, liabilities, properties, results
of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries, taken as a whole or (ii) the ability of
the Company to perform its obligations under this Agreement.
(b) Except as set forth in Section 3.01 of the Company
Disclosure Statement, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into
or exchangeable or exercisable for any equity or similar interest in,
any corporation, partnership, limited liability company, joint
venture or other business association or entity. All outstanding
equity interests of each such subsidiary of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable, and are owned, directly or indirectly, by the Company
free and clear of any Liens, and there are no outstanding options,
warrants, convertible securities, calls, rights, commitments,
preemptive rights or agreements or instruments or understandings of
any character, obligating any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold,
contingently or otherwise, additional equity interests in such
subsidiary or any securities or obligations convertible or
exchangeable for such equity interests or to grant, extend or enter
into any such option, warrants, convertible security, call, right,
commitment, preemptive right or agreement, in each case except as
provided by applicable Law.
SECTION 3.02 Certificate of Incorporation and By-laws.
The Company has heretofore furnished to Merger Sub complete and correct copies
of its Certificate of Incorporation and By-laws, each as amended to the date
hereof. Such Certificate of Incorporation and By-laws are in full force and
effect. The Company is not in violation of any provision of its Certificate of
Incorporation or By-laws.
SECTION 3.03 Capitalization. The authorized capital
stock of the Company consists of (i) 25,000,000 shares of Company Common Stock,
(ii) 1,000,000 shares of Preferred Stock, and (iii) no shares of New Preference
Stock as of the date hereof. As of the end of business on the business day
immediately preceding the date hereof, there are 15,947,776 shares of Company
Common Stock issued and outstanding, no shares of Preferred Stock outstanding
and no shares of New Preference Stock outstanding. Section 3.03 of the Company
Disclosure Statement sets forth the number of shares of Company Common Stock to
be received upon exercise or conversion and the exercise or conversion price of
each outstanding Company Stock Option. Except for the Company Stock Options
granted under the Company Stock Option Plans or as contemplated by this
Agreement, purchase rights granted under the Employee Stock Purchase Plan and
the International Employee Stock Purchase Plan (collectively, the "Company
Employee Stock Purchase Plans"), and as otherwise described in the Company
Disclosure Statement, there are no existing options, warrants, convertible
securities, calls, subscriptions, or other rights or other agreements or
commitments obligating the Company to issue, transfer or sell, or caused to be
issued, transferred or sold, contingently or otherwise, any shares of capital
stock of the Company or any other securities convertible into or evidencing the
right to subscribe for purchase or any such shares. Except as identified and
described in Section 3.03 of the Company Disclosure Statement, there are no
outstanding stock appreciation rights or similar phantom equity securities with
respect to the capital stock of the Company. All issued and outstanding shares
of Company Common Stock are duly authorized and validly issued, fully paid,
non-assessable and free of preemptive rights with respect thereto. All shares of
New Preference Stock to be issued to (i) the Stockholders pursuant to the
11
<PAGE> 16
Preference Exchange and (ii) the members of the Investor Group in connection
with the Equity Contribution, shall, when issued in accordance with the terms of
this Agreement and other applicable agreements, be duly authorized and validly
issued, fully paid, non-assessable and free of preemptive rights with respect
thereto.
SECTION 3.04 Authority Relative to this Agreement. The
Company has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Merger and the other Transactions. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the Transactions (other than, with respect to
the Merger and the Preference Amendment, the adoption of this Agreement (and,
if required, the Preference Amendment, the Preference Exchange and the Equity
Contribution) by the Requisite Majority and the filing and recordation of
appropriate merger documents and the Preference Amendment as required by the
DGCL). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Merger
Sub, constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
SECTION 3.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the
Transactions will not (i) conflict with or violate the Certificate of
Incorporation or By-laws of the Company or any of its subsidiaries,
(ii) conflict with or violate any domestic (federal, state or local)
or foreign law, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to the Company, its subsidiaries or
by which any of its properties or assets is bound or affected, except
for such conflicts or violations that, individually or in the
aggregate, would not have a Company Material Adverse Effect, or (iii)
result in a violation or breach of or constitute a default (or an
event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien
on any property or asset of the Company or its subsidiaries pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
the Company or its subsidiaries is a party or by which the Company,
its subsidiaries or any of its properties or assets is bound or
affected, except as disclosed in Section 3.05(a) of the Company
Disclosure Statement and except for any such violations, breaches,
defaults or other occurrences that, individually or in the aggregate,
would not have a Company Material Adverse Effect and will not prevent
or materially delay the consummation of the Transactions.
(b) Except as disclosed in Section 3.05(b) of the
Company Disclosure Statement, the execution and delivery of this
Agreement by the Company does not, and the consummation by the
Company of the Transactions will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental entity or
12
<PAGE> 17
subdivision thereof, or any administrative, governmental or
regulatory authority, agency, commission, tribunal or body, domestic,
foreign or supranational, except (i) for applicable requirements, if
any, of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act of 1933, as amended (the "Securities Act"),
state securities or "blue sky" laws ("Blue Sky Laws"), the rules of
the National Association of Securities Dealers ("NASD"), state
takeover laws, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (the "HSR Act"), and filing and
recordation of appropriate merger and amendment documents as required
by the DGCL, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, would not have a
Company Material Adverse Effect.
SECTION 3.06 SEC Filings; Financial Statements;
Undisclosed Liabilities.
(a) The Company has filed all forms, reports and
documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") since November 16, 1994 and has made available
to the Merger Sub all registration statements filed by the Company
with the SEC, including all exhibits filed in connection therewith (on
all forms applicable to the registration of securities) since November
16, 1994 and prior to the date of this Agreement (collectively, the
"Company SEC Reports"). As of their respective dates, the Company SEC
Reports (and giving effect to any amendments thereof) (i) complied in
all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations
thereunder and (ii) 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 made therein, in the light
of the circumstances under which they were made, not misleading. The
Company will deliver to the Merger Sub promptly after they become
publicly available true and complete copies of any Company SEC Reports
filed subsequent to the date hereof and prior to the Effective Time.
(b) Each of the financial statements (including, in each
case, any notes and schedules thereto) contained in the Company SEC
Reports complied as to form with the applicable accounting
requirements and rules and regulations of the SEC and was prepared in
accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto), and each
fairly presented in all material respects the consolidated financial
position, results of operations and cash flows of the Company and the
consolidated subsidiaries as at the respective dates thereof and for
the respective periods indicated therein in accordance with GAAP,
subject, in the case of unaudited statements (the "Interim Financial
Statements"), to the absence of footnotes and to normal and recurring
year-end adjustments none of which would, individually or in the
aggregate, have a Company Material Adverse Effect.
(c) Except as disclosed in Section 3.06(c) to the
Company Disclosure Statement, since October 31, 1999 to the date
hereof, except as disclosed in the Company SEC Reports, there has not
been any event, condition or development which individually or in the
aggregate would constitute a Company Material Adverse Effect.
13
<PAGE> 18
(d) Neither the Company nor its subsidiaries have any
material liabilities or obligations (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated and
whether due or to become due, including any liability for taxes)
other than such liabilities or obligations (i) disclosed in Section
3.06(d) of the Company Disclosure Statement, (ii) disclosed or
reserved against in the most recent consolidated balance sheet of the
Company filed with the SEC, (iii) incurred in the ordinary course of
business consistent with past practice since the date of the most
recent audited consolidated balance sheet of the Company filed with
the SEC, or (iv) under Contracts listed in Section 3.17 of the
Company Disclosure Statement (none of which is a liability for breach
of contract) that are not required by GAAP to have been included in
the most recent consolidated balance sheet of the Company filed with
the SEC.
SECTION 3.07 Absence of Certain Changes or Events.
Except as specifically disclosed in Section 3.07 of the Company Disclosure
Statement or the Company SEC Reports or as contemplated by this Agreement,
since October 31, 1999 to the date hereof, neither the Company nor its
subsidiaries have, directly or indirectly:
(a) redeemed, purchased, otherwise acquired, or agreed
to redeem, purchase or otherwise acquire, any shares of capital stock
of the Company, or declared, set aside or paid any dividend or
otherwise made a distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock (other than
between the Company and a wholly-owned subsidiary thereof);
(b) authorized for issuance, issued, sold, delivered,
granted or issued any options, warrants, calls, subscriptions or
other rights for, or otherwise agreed or committed to issue, sell,
deliver or grant any shares of any class of capital stock of the
Company or any securities convertible into or exchangeable or
exercisable for shares of any class of capital stock of the Company
or its subsidiaries, other than pursuant to and in accordance with
(i) the Company Stock Option Plans, (ii) the Company Employee Stock
Purchase Plans, or (iii) the terms of the agreements listed in
Section 3.03 of the Company Disclosure Statement;
(c) except in the ordinary course of business and
consistent with past practice (i) created or incurred any
indebtedness for borrowed money, (ii) assumed, guaranteed, endorsed
or otherwise as an accommodation become responsible for the
obligations of any other individual, firm or corporation, made any
loans or advances to any other individual, firm or corporation, or
(iii) mortgaged, pledged or subjected to any lien or encumbrance, any
asset having a book or market value in excess of $100,000;
(d) instituted any material change in its accounting
methods, principles or practices;
(e) revalued any of its assets, including without
limitation, writing down the value of inventory or writing off notes
or accounts receivables except for amounts previously reserved as
reflected in the October 31, 1999 balance sheet;
14
<PAGE> 19
(f) suffered any damage, destruction or loss, whether
covered by insurance or not, except for such as would not,
individually and in the aggregate, have a Company Material Adverse
Effect;
(g) granted any material increase in the base
compensation of, or made any other material change in the employment
terms for, any of its directors, officers and employees, except for
increases or changes reflecting or based upon changed
responsibilities or duties and increases or changes made in the
ordinary course of business consistent with past practice;
(h) adopted, modified or terminated any bonus,
profit-sharing, incentive, severance or other plan or contract for
the benefit of any of its directors, officers and employees other
than such adoptions, modifications and terminations which do not
materially increase the aggregate cost of such plan or contract;
(i) except for provision of services or sales in the
ordinary course of business and consistent with past practice (i)
sold, leased, licensed, assigned, transferred or otherwise disposed
of any of its assets or property having a book or market value, in
excess of $100,000 or (ii) entered into, or consented to the entering
into of, any agreement granting a preferential right to sell, lease,
license, assign, transfer or otherwise dispose of any of such assets;
(j) entered into any new line of business, or incurred
or committed to incur any capital expenditures, obligations or
liabilities in connection therewith in excess of $100,000 in the
aggregate;
(k) acquired or agreed to acquire by merging or
consolidating with, or agreed to acquire by purchasing a substantial
portion of the assets of, or in any other manner, any business of any
other person;
(l) made any cancellation or waiver of (i) any right
having a value in excess of $100,000, or (ii) any material debts or
claims against any affiliate of the Company;
(m) made any disposition of, or failed to maintain or
keep in effect any patent, trademark, service mark, trade name,
copyright or trade secret of the Company or its subsidiaries or any
registration or application for registration thereof or right or
interest therein that is material to the operations of the Company;
(n) to the Company's Knowledge, entered into any
agreement, arrangement or transaction with any affiliate of the
Company;
(o) agreed to do any of the things described in the
preceding clauses (a) through (n) other than as expressly
contemplated or provided for in this Agreement; or
15
<PAGE> 20
(p) entered into any agreement, arrangement or
transaction to purchase any real property.
SECTION 3.08 Absence of Litigation. Except as disclosed
in Section 3.08 of the Company Disclosure Statement, there is no claim, action,
proceeding or investigation pending or, to the Company's Knowledge, threatened
against the Company, its subsidiaries, or any of its properties or assets,
before any court, arbitrator or Governmental Authority, which, individually or
when aggregated with other claims, actions, proceedings or investigations or
product liability claims (or claims, actions, proceedings or investigations
which are reasonably likely to result from facts and circumstances that have
given rise to such a claim, action, proceeding or investigation), would have a
Company Material Adverse Effect. As of the date hereof, neither the Company nor
its subsidiaries nor any of its properties or assets is subject to any order,
writ, judgment, injunction, decree, determination or award which could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.09 Stockholder Vote Required. The affirmative
vote of the holders of a 66 2/3% of the outstanding shares of Company Common
Stock is the only vote of the holders of any class or series of capital stock
of the Company necessary to approve the Merger, this Agreement, the Preference
Amendment and the transactions contemplated hereby under the DGCL and the
Company's Certificate of Incorporation.
SECTION 3.10 Opinion of Financial Advisor. The special
committee of the Company's Board of Directors has received the opinion, dated
as of the date of this Agreement, of CIBC World Markets Corp. (the "Financial
Advisor to the Special Committee"), to the effect that the Merger Consideration
is fair to the holders of Company Common Stock (other than the Stockholders)
from a financial point of view.
SECTION 3.11 Brokers. Except as disclosed in Section
3.11 of the Company Disclosure Statement, no broker, finder or investment
banker (other than the Financial Advisor to the Special Committee) is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger based upon arrangements made by or on behalf of the Company or which are
to be paid by the Company. The Company has heretofore furnished to Merger Sub a
complete and correct copy of all agreements between the Company and the
Financial Advisor to the Special Committee or any other firms pursuant to which
the Financial Advisor to the Special Committee or any such firms would be
entitled to any payment relating to the Merger, and there have been no
amendments to such agreements.
SECTION 3.12 Company Action; State Takeover Statutes.
The Company's Board of Directors has by requisite vote of directors (i)
approved and adopted this Agreement and the Transactions, and such approval is
sufficient to render inapplicable to this Agreement and the Transactions any
approval required under Section 203 of the DGCL to the extent, if any, such
approval is required in connection with this Agreement or the Transactions and
(ii) agreed to recommend that the stockholders of the Company approve and adopt
this Agreement and the Transactions.
16
<PAGE> 21
SECTION 3.13 Information Supplied. The Proxy Statement
(as defined below) and any other document to be filed by the Company with the
SEC or any Governmental Authority in connection with the Transactions (the
"Other Filings") will not, in the case of the Proxy Statement, at the time of
mailing thereof to the Company's stockholders, or, in the case of all other
such documents, at the respective times filed with the SEC or other
Governmental Authority, 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 made therein, in light of the circumstances in which
they were made, not misleading; provided, that the Company makes no
representation with respect to any information provided by Merger Sub, any
Stockholder or any member of the Investor Group. The Proxy Statement (except
for those portions relating to Merger Sub or the Investor Group) will comply as
to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder.
SECTION 3.14 Environmental and Safety Matters. Except
as set forth in Section 3.14 of the Company Disclosure Statement:
(a) With respect to the business, the Company and its
subsidiaries have materially complied and are in material compliance
with all Environmental and Safety Requirements.
(b) Without limiting the generality of the foregoing,
the Company and its subsidiaries have obtained and complied with, and
are in compliance with, all material permits, licenses and other
authorizations that may be required pursuant to Environmental and
Safety Requirements for the occupation of the Real Property and the
operation of the business and all such permits, licenses and
authorizations may be relied upon for the lawful operation of the
business and the Real Property on and after the Closing without
transfer, reissuance or other governmental action; a list of all such
material permits, licenses and other authorizations is set forth on
Section 3.14 of the Company Disclosure Statement.
(c) The Company and its subsidiaries have not received
any written notice regarding any actual or alleged material violation
of Environmental and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to the business or the Real Property
and arising under Environmental and Safety Requirements.
(d) With respect to the business, the Company and its
subsidiaries have not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or
owned or operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that has
given or would give rise to liabilities, including any liability for
response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees, or any
investigative, corrective or remedial obligations, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA") or the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental and Safety Requirements.
17
<PAGE> 22
(e) With respect to the business, the Company and its
subsidiaries have not, either expressly or by operation of Law,
assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other person
relating to Environmental and Safety Requirements.
SECTION 3.15 Real Property.
(a) Owned Real Property.
(i) Section 3.15 of the Company Disclosure Statement
sets forth the address and description of all land, together with
all buildings, structures, improvements and fixtures located thereon,
and all easements and other rights and interests appurtenant thereto,
owned by the Company or any Subsidiary used or intended to be used
in, or otherwise related to the Business ("Owned Real Property").
With respect to each Owned Real Property: (A) the Company has good
and marketable indefeasible fee simple title to such Owned Real
Property, free and clear of all liens and encumbrances, except
Permitted Encumbrances, (B) except as set forth in Section 3.15 of the
Company Disclosure Statement, the Company has not leased or otherwise
granted to any Person the right to use or occupy such Owned Real
Property or any portion thereof; (C) other than the right of Merger
Sub pursuant to this Agreement, there are no outstanding options,
rights of first offer or rights of first refusal to purchase such
Owned Real Property or any portion thereof or interest therein, (D)
the Company is not a party to any agreement or option to purchase or
sell any real property or interest therein relating to the Business,
and (E) all buildings, structures, improvements, fixtures, building
systems and equipment, and all components thereof, included in the
Owned Real Property (the "Improvements") are in good condition and
repair and sufficient for the operation of the Business. To the
Company's Knowledge, there are no structural deficiencies or latent
defects affecting any of the Improvements and there are no facts or
conditions affecting any of the Improvements which would, individually
or in the aggregate, interfere in any material respect with the use or
occupancy of the Improvements or any portion thereof in the operation
of the Business.
(ii) The term "Permitted Encumbrances" shall mean
with respect to each Owned Real Property and leasehold improvement
(as the case may be): (A) real estate taxes, assessments and other
governmental levies, fees or charges imposed with respect to such
Real Property which are not due and payable as of the Closing Date;
(B) mechanics liens and similar liens for labor, materials or
supplies provided with respect to such Real Property incurred in the
ordinary course of business for amounts which are not delinquent and
which would not, individually or in the aggregate, have a material
adverse effect on the Business; (C) zoning, building codes and other
land use Laws regulating the use or occupancy of such Real Property
or the activities conducted thereon which are imposed by any
governmental authority having jurisdiction over such Real Property
which are not violated by the current use or occupancy of such Real
Property or the operation of the Business thereon; (D) liens for any
financing secured by such Real Property which is an Assumed Liability
under this Agreement; and (E) easements, covenants, conditions,
restrictions and other similar matters of record affecting title to
such Real Property which do not or would not materially impair the
use or occupancy of such Real Property or the operation of the
Business.
18
<PAGE> 23
(b) Leased Real Property.
(i) Section 3.15 of the Company Disclosure
Statement identifies all leases and lists by street address all real
estate leased, subleased or otherwise occupied or used pursuant to
an agreement (the "Leases") by the Company or its subsidiaries
requiring payment by the Company or its subsidiaries of $100,000 or
more in annual rent (the "Leased Real Property", and together with
the Owned Real Property, the "Real Property"). The Leased Property is
leased to the Company or its subsidiaries pursuant to written leases,
copies of which have been delivered to Merger Sub. With respect to
each Lease: (A) the Company or its subsidiaries, as applicable, have
a good and valid leasehold interest in and to applicable Leased
Premises, and, to the Company's Knowledge, such leasehold interest is
subject to no Liens other than those disclosed on Section 3.15 of the
Company Disclosure Statement and those which would not have a
material adverse effect on the Company's leasehold interest; (B) each
Lease is legal, valid, binding and in full force and effect and is
enforceable in accordance with its terms and neither the Company nor
its subsidiaries have assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in such Lease; (C) there
exists no default by the Company or condition which, with the giving
of notice, the passage of time or both, would constitute a default by
the Company under any Lease; (D) except as set forth in Section 3.15
of the Company Disclosure Statement, the other party to such Lease is
not an affiliate of, or otherwise has any economic interest in, the
Company or any subsidiary; (E) except as set forth in Section 3.15 of
the Company Disclosure Statement, the Company or subsidiary has not
subleased, licensed or otherwise granted any person the right to use
or occupy such Leased Premises or any portion thereof; (F) except as
set forth in Section 3.15 of the Company Disclosure Statement, the
Company or subsidiary has not collaterally assigned or granted any
other security interest in such Lease or any interest therein; and (G)
except as disclosed on Section 3.15 of the Company Disclosure
Statement, no consent, waiver, approval or authorization is required
from the landlord under any Lease as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby.
(ii) Except as disclosed in Section 3.15 of the
Company Disclosure Statement, the Leased Property constitutes all of
the real property leased, occupied or otherwise utilized in
connection with the business of the Company or its subsidiaries as
currently conducted. The Leased Property is sufficient and
appropriate for the conduct of business by the Company and its
subsidiaries. To the Company's Knowledge, (A) all permits, licenses
and other approvals necessary to the current occupancy and use of the
Leased Property have been obtained, are in full force and effect and
have not been violated by the Company in any material respect and (B)
there exists no violation by the Company of any material covenant,
condition, restriction, easement, agreement or order affecting any
portion of the Leased Property that would individually or in the
aggregate have a Company Material Adverse Effect. To the Company's
Knowledge, all facilities located on the Leased Property are supplied
with adequate utilities and other services necessary for the conduct
of the Company's business as currently conducted. There is no pending
or, to the Company's Knowledge, threatened condemnation proceeding,
or material lawsuit or administrative
19
<PAGE> 24
action affecting any portion of the Leased Property to which the
Company or its subsidiaries is a named party.
SECTION 3.16 Personal Property.
(a) Each of the Company and its subsidiaries has good
title to all personalty of any kind or nature which the Company or
its subsidiaries purport to own, free and clear of all Liens, except
for (i) Liens disclosed on Section 3.16 of the Company Disclosure
Statement, (ii) Liens for non-delinquent taxes and non-delinquent
statutory liens arising other than by reason of default, (iii)
statutory Liens of landlords, liens of carriers, warehousemen,
mechanics and materialmen incurred in the ordinary course of
business for sums not yet due; (iv) Liens incurred or deposits made
in the ordinary course of business in connection with worker's
compensation, unemployment insurance and other types of social
security, (v) purchase money Liens, and (vi) Liens which do not
materially detract from the value or use of said personalty. The
Company and its subsidiaries, as lessees, have the right under valid
and subsisting leases to use and possess all personalty leased by and
material to the Company or its subsidiaries as now used or possessed
by the Company or its subsidiaries, as applicable.
(b) All machinery, equipment and other tangible
assets currently being used by the Company or its subsidiaries which
are owned or leased by the Company or its subsidiaries are usable in
the ordinary course of business and are reasonably adequate and
suitable for the uses to which they are being put, except where any
other condition of any machinery, equipment or other tangible asset
would not have a Company Material Adverse Effect.
SECTION 3.17 Contracts. Section 3.17 of the Company
Disclosure Statement is a complete list of all written agreements of the
Company or its subsidiaries (other than contracts or leases for the sale in the
ordinary course of business of the Company's services or products) that are
currently in effect and that are (i) license agreements or franchise agreements
with any person that provides services in the name of or on behalf of the
Company; (ii) leases, sales contracts and other agreements with respect to any
property, real or personal, of the Company or its subsidiaries which provide
for the receipt or expenditure by the Company or its subsidiaries after the
date of this Agreement, of more than $100,000; (iii) contracts or commitments
for capital expenditures or acquisitions in excess of $100,000 for one project
or set of related projects; (iv) guarantees of third party obligations; (v)
agreements (including non-competition agreements) which restrict the kinds of
businesses in which the Company or its subsidiaries may engage or the
geographical area in which any of them may conduct their business (other than
provisions in agreements with franchisees or licensees listed in Section 3.29
of the Company Disclosure Statement); (vi) indentures, mortgages, loan
agreements or other agreements relating to the borrowing of money by the
Company, the granting of Liens by the Company or lines of credit by the Company,
in each case, involving an amount in excess of $100,000; (vii) collective
bargaining agreements, if any; (viii) material licenses, agreements,
assignments or contracts (whether as licensor or licensee, assignor or
assignee) relating to any patent and trademark rights; (ix) brokerage or
finder's agreements; (x) joint venture agreements, partnership agreements or
similar agreements; (xi) stock purchase agreements, asset purchase agreements
or other acquisition or divestiture agreements executed within the last five
20
<PAGE> 25
years, in each case, involving an amount in excess of $100,000; (xii)
employment, consulting or management agreements; or (xiii) agreements or other
arrangements with any director or executive officer of the Company or its
affiliates (other than customary at will employment arrangements) (all items
required to be disclosed in Section 3.17 of the Company Disclosure Statement
being hereinafter referred to as "Contracts"). True and correct copies of all
the Contracts have been made available to Merger Sub. Except as disclosed in
Section 3.17 of the Company Disclosure Statement, (i) all Contracts are valid
and subsisting and in full force and effect in all material respects, and each
of the Company and its subsidiaries has duly performed its obligations
thereunder in all material respects to the extent such obligations have accrued,
and (ii) there has not occurred thereunder any breach or default by the Company,
its subsidiaries, or, to the Company's Knowledge, by any other party thereto
that continues to exist, or any event which with the passage of time or the
giving of notice, or both, would result in a breach or default or event of
non-compliance thereunder by the Company, its subsidiaries, or, to the
Company's Knowledge, by any other party thereto.
SECTION 3.18 Insurance Policies. Section 3.18 of the
Company Disclosure Statement contains a list of all material insurance policies
of the Company and its subsidiaries, and each such policy is in full force and
effect. No written notice of cancellation or termination has been received by
the Company or its subsidiaries with respect to any such policy. Except as
disclosed in Section 3.18 of the Company Disclosure Statement, to the Company's
Knowledge, there are no pending claims against such insurance by the Company or
its subsidiaries as to which the insurers have denied coverage or otherwise
reserved rights.
SECTION 3.19 Compliance with Laws.
(a) Except as disclosed in Section 3.19 of the Company
Disclosure Statement, neither the Company nor its subsidiaries are in
violation of or have violated or failed to comply with any Law or
judgment applicable to its business or operations, except for
violations and failures to comply that would not, individually or in
the aggregate, be reasonably likely to result in a Company Material
Adverse Effect.
(b) (i) The Company has not received any written
notices, regarding any disputes related to any of the Company or any
of its subsidiaries' cost reports, from any Governmental Authorities
responsible for administering the Medicare program for the Company's
three (3) most recent fiscal years; and (ii) to the Company's
Knowledge, there is no actual or threatened proceeding or
investigation to which the Company is a party related to the United
States Federal Medicare or Medicaid programs, other than routine
audits by the Health Care Financing Administration of the U.S.
Department of Health and Human Services ("HCFA").
(c) To the Company's Knowledge, none of the Company or
any of its subsidiaries have knowingly filed a false claim, or filed
a claim without a reasonable basis therefor, with HCFA, its fiscal
intermediaries or any state agency, or any other third party payor,
or knowingly violated the so-called "Medicare fraud and abuse" laws
contained in the Social Security Act or any similar Laws addressing
fraud and abuse in government funded health care programs.
21
<PAGE> 26
(d) To the Company's Knowledge, all cost reports and
other filings filed by the Company or any of its subsidiaries are
complete and in compliance in all material respects with applicable
Laws.
SECTION 3.20 Tax Matters.
(a) Except as disclosed in Section 3.20(a) of the
Company Disclosure Statement: the Company and each subsidiary of the
Company have filed all federal and state income Tax Returns and all
other material Tax Returns that were required to be filed prior to
the date hereof by any of them; all such Tax Returns were correct and
complete in all material respects; all Taxes owed by any of the
Company and each subsidiary of the Company (whether or not shown on
any Tax Return) have been paid or accrued for and reflected on the
most recent consolidated balance sheet of the Company filed with the
SEC; none of the Company or any subsidiary of the Company currently
is the beneficiary of any extension of time within which to file any
Tax Return; no claim has ever been made by an authority in a
jurisdiction where any of the Company or any subsidiary of the
Company does not file Tax Returns that the entity so not filing is or
may be subject to taxation by that jurisdiction; and to the Company's
Knowledge, there are no Liens on any of the assets of any of the
Company or any subsidiary of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(b) Except as disclosed in Section 3.20(b) of the
Company Disclosure Statement, the Company and each subsidiary of the
Company have withheld and paid all Taxes required to have been
withheld and paid by applicable Law.
(c) Except as disclosed in Section 3.20(c) of the
Company Disclosure Statement, to the Company's Knowledge, there is no
dispute or claim concerning any Tax liability of any of the Company
or any subsidiary of the Company. Section 3.20 of the Company
Disclosure Statement lists all federal, state, local, and foreign
income Tax Returns filed with respect to any of the Company and any
subsidiary of the Company for taxable periods ended on or after
October 31, 1995 that have been audited or currently are the subject
of audit. The Company has delivered to the Merger Sub correct and
complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by any of the Company or any subsidiary of the Company since October
31, 1995.
(d) Except as disclosed in Section 3.20(d) of the
Company Disclosure Statement, neither the Company nor any subsidiary
of the Company has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(c) Except as disclosed in Section 3.20(e) of the
Company Disclosure Statement, neither the Company nor any subsidiary
of the Company has filed a consent under Code Section 341(f)
concerning collapsible corporations. Neither the Company nor any
subsidiary of the Company has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G or Code Section 162(m). Neither
the Company nor any
22
<PAGE> 27
subsidiary of the Company has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company and each of its subsidiaries has
disclosed on its federal, state, local and foreign Tax Returns all
positions taken therein that could give rise to a substantial
understatement of, federal, state, local and foreign Tax within the
meaning of Code Section 6662 or similar provisions under any state,
local or foreign Law. Neither the Company nor any subsidiary of the
Company is a party to any Tax allocation or sharing agreement.
Neither the Company nor any of its subsidiaries has been a member of
an affiliated group filing a consolidated federal income Tax Return
other than a group the common parent of which is the Company.
(f) Except as disclosed in Section 3.20(f) of the
Company Disclosure Statement, neither the Company nor any subsidiary
of the Company has any liability for the Taxes of any person other
than the Company and the subsidiaries of the Company (i) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign Law), (ii) as a transferee or successor, (iii) by contract,
or (iv) otherwise.
(g) Neither the Company nor any subsidiary of the
Company will be required to make any material adjustment to taxable
income under Code Section 481 (or any similar provision of state,
local, or foreign Law) for any period ending on or after the Closing
Date by reason of a voluntary change in accounting method initiated
by the Company or any of its subsidiaries on or prior to the Closing
Date and neither the Internal Revenue Service nor any other
governmental authority has initiated or proposed any such change in
accounting method.
(h) Except as disclosed on Section 3.20(h) of the
Company Disclosure Statement, no subsidiary of the Company is a
"controlled foreign corporation" within the meaning of Code Section
957.
(i) Except as disclosed in Section 3.20(i) of the
Company Disclosure Statement, neither the Company nor any subsidiary
of the Company owns an interest in an entity either treated as a
partnership or whose separate existence is ignored for federal income
tax purposes.
(j) The Company shall not be required (i) as a result of
any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local or foreign income Tax
Law), to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date, (ii) as a result of any sale
reported on the installment method where such sale occurred on or
prior to the Closing Date, to include any material item of income in,
or exclude any material item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date,
or (iii) as a result of any prepaid amount received on or prior to
the Closing Date (other than amounts prepaid in the ordinary course
of business consistent with past custom and practice), to include any
material item of income in, or exclude any material item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date.
23
<PAGE> 28
SECTION 3.21 Employment Agreements. Except as
disclosed on Section 3.21 of the Company Disclosure Statement, there are no
employment, consulting, severance or indemnification arrangements, agreements
or understandings between the Company and any directors, officers, or other
employees of the Company or any of its subsidiaries providing for (i) a term
more than 90 days past the date hereof, (ii) payments in excess of $100,000 per
year, (iii) any severance payments, or (iv) any bonus or special payment
obligation of the Company or any of its subsidiaries payable in connection with
the sale, acquisition, or change of control of the Company or any of its
subsidiaries.
SECTION 3.22 Change of Control Provisions. Except as
disclosed on Section 3.22 of the Company Disclosure Statement, none of the
arrangements, agreements or understandings set forth in Article III hereof and
none of the Company's employee benefit plans, programs or arrangements contain
any provision that would become operative as the result of a change of control
of the Company or that will become operative as a result of the Transactions.
SECTION 3.23 Employees. Except as disclosed in Section
3.23 of the Company Disclosure Statement, to the Company's Knowledge, as of the
date of this Agreement, no key employee, or group of key employees, of the
Company or its subsidiaries has any plans to terminate employment with the
Company. Except as disclosed in Section 3.23 of the Company Disclosure
Statement, each of the Company and its subsidiaries has complied in all
material respects with all Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity and collective
bargaining, and does not have any other material labor relations problems.
SECTION 3.24 Permits. Each of the Company and its
subsidiaries has all Permits, except for those Permits the failure to have
would not, individually or in the aggregate, have a Company Material Adverse
Effect. Section 3.24 of the Company Disclosure Statement contains a complete
list of the material Permits, exclusive of any Permits with respect to state or
local sales, use or other Taxes or business or occupational licenses. To the
Company's Knowledge, all of such material Permits are in full force and effect
except where the failure to be so in effect would not have a Company Material
Adverse Effect. No outstanding notice of cancellation or termination has been
delivered to the Company or its subsidiaries in connection with any such
material Permit nor, to the Company's Knowledge, has any such cancellation or
termination been threatened. To the Company's Knowledge, no application, action
or proceeding for the modification of any such material Permits is pending or
threatened that may result in the revocation, modification, nonrenewal or
suspension of any material Permits. Each of the Company and its subsidiaries has
filed when due all documents required to be filed with any Governmental
Authority in connection with such material Permits and, at the time of the
filing thereof, all such filings were accurate and complete in all material
respects.
24
<PAGE> 29
SECTION 3.25 Employee Benefit Plans.
(a) Section 3.25 of the Company Disclosure Statement
contains a list of each employee benefit plan (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), and each other plan, program, policy, practice,
arrangement or contract (whether group or individual) providing for
payments, deferred compensation or benefits or reimbursements to
employees or former employees (or their beneficiaries or dependents)
of the Company or with respect to which the Company has any material
liability or potential liability. For purposes of Section 3.25 of the
Company Disclosure Statement, "Company" shall be deemed to include
any entity required to be aggregated with the "Company" under Section
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA, at any
relevant time. Each item listed in Section 3.25 of the Company
Disclosure Statement is a "Benefit Plan."
(b) Each Benefit Plan that is intended to be qualified
within the meaning of Section 401(a) of the Code has received a
determination from the Internal Revenue Service (the "IRS") that such
Benefit Plan is qualified under Section 401(a) of the Code, and
nothing has occurred since the date of such determination that could
adversely affect the qualification of such Benefit Plan. Each such
Benefit Plan has been maintained in compliance with the requirements
of Sections 401(a)(4) and 410(b) of the Code.
(c) The Company does not have any liability or potential
liability (including, but not limited to, withdrawal liability) with
respect to (i) any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA) that is subject to Section 302 of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or
(ii) any "multiemployer plan" (as such term is defined in Section
3(37) of ERISA).
(d) Except as disclosed on Section 3.25 of the Company
Disclosure Statement, none of the Benefit Plans obligates the Company
to pay any separation, severance, termination or similar benefit
solely as a result of any transaction contemplated by this Agreement
or solely as a result of a change in control or ownership within the
meaning of Section 280G of the Code.
(e) Each Benefit Plan and any related trust, insurance
contract or fund has been maintained, funded and administered in
compliance in all material respects with its respective terms and in
compliance in all material respects with all applicable Laws and
regulations, including, but not limited to, ERISA and the Code.
(f) The Company has complied with the health care
continuation requirements of Part 6 of Subtitle B of Title I of ERISA
and Section 4980B of the Code ("COBRA"); and the Company has no
obligation under any Benefit Plan or otherwise to provide health or
life insurance benefits to former employees of the Company or any
other person, except as disclosed in Section 3.25 of the Company
Disclosure Statement or as specifically required by COBRA or
applicable state Law.
25
<PAGE> 30
(g) With respect to each Benefit Plan, the Company has
made available to Merger Sub true, complete and correct copies of (to
the extent applicable) (i) all documents pursuant to which the
Benefit Plan is maintained, funded and administered, (ii) the most
recent annual report (Form 5500 series) filed with the IRS (with
applicable attachments), (iii) the most recent financial statement,
(iv) the most recent summary plan description provided to
participants, and (v) the most recent determination letter received
from the IRS.
(h) With respect to each Benefit Plan, all required or
recommended (in accordance with historical practices) payments,
premiums, contributions, reimbursements or accruals for all periods
(or partial periods) ending prior to or as of the Closing shall have
been made or properly accrued on the Company's October 31, 1999
balance sheet. None of the Benefit Plans has any material unfunded
liabilities.
(i) Except as set forth on Section 3.25 of the
Company Disclosure Statement, the Company does not maintain,
contribute to or sponsor any employee benefit plan, agreement or
arrangement applicable to employees outside the United States (the
"Foreign Plans"). Each Foreign Plan is in compliance in all material
respects with all Laws applicable thereto and the respective
requirements of such Foreign Plan's governing documents, and no
Foreign Plan has any unfunded liabilities.
SECTION 3.26 Intellectual Property Rights.
(a) Section 3.26 of the Company Disclosure Statement
sets forth a complete and correct list of all: (i) patented or
registered Intellectual Property Rights and pending patent
applications and other applications for registrations of Intellectual
Property Rights owned or filed by or on behalf of the Company or its
subsidiaries; (ii) all registered trade names and unregistered trade
names, trademarks and service marks owned or used by the Company or
its subsidiaries and material to the conduct of its business; (iii)
all computer software owned and/or used by the Company or its
subsidiaries (other than mass-marketed software with a license fee of
less than $1,000); and (iv) all material licenses or similar
agreements or arrangements for Intellectual Property Rights to which
the Company or its subsidiaries is a party (either as a licensor or
licensee).
(b) Except as disclosed in Section 3.26 of the Company
Disclosure Statement: (i) each of the Company and its subsidiaries
owns and possesses all right, title and interest in and to, or has a
valid and enforceable license to use, all of the Intellectual
Property Rights necessary or desirable for the operation of the
business of the Company and its subsidiaries as currently conducted
free and clear of all encumbrances, licenses or other restrictions;
(ii) no claim by any third party contesting the validity,
enforceability, use or ownership of any of the Intellectual Property
Rights owned or used by the Company or its subsidiaries has been made
and is currently outstanding or, to the Company's Knowledge is
threatened, and to the Company's Knowledge, there are no grounds for
the same; (iii) the loss or expiration of any Intellectual Property
Right owned or used by the Company or its subsidiaries would not have
a Company Material Adverse Effect, and no such loss or expiration is
threatened, pending or reasonably foreseeable; (iv) neither the
Company nor its subsidiaries have received any notices of, and, to
the Company's Knowledge, there is no infringement or misappropriation
26
<PAGE> 31
by, or conflict with, any third party with respect to the
Intellectual Property Rights owned or used by the Company or its
subsidiaries (including, without limitation, any demand or request
that the Company or its subsidiaries license any rights from a third
party); (v) neither the Company nor its subsidiaries, to the
Company's Knowledge, have infringed, misappropriated or otherwise
violated any Intellectual Property Rights or other rights of any
third parties and, to the Company's Knowledge, there is no
infringement, misappropriation or conflict which will occur as a
result of the continued operation of the business of the Company and
its subsidiaries as currently conducted; and (vi) each of the Company
and its subsidiaries has taken commercially reasonable steps to
protect, maintain and safeguard the material Intellectual Property
Rights owned or used by the Company or its subsidiaries.
SECTION 3.27 Year 2000. To the Company's Knowledge,
the hardware, software and embedded microcontrollers in noncomputer equipment
(the "Computer Systems") owned, or used in the conduct of the business and
operation of the Company and its subsidiaries are Year 2000 Compliant. The
Company and its subsidiaries have taken reasonable steps to investigate whether
the Computer Systems of their material suppliers and customers are Year 2000
Compliant and such investigation has not revealed any Year 2000 related
dysfunction or interruption. For purposes of this Agreement, "Year 2000
Compliant" means that all of the Computer Systems correctly recognize,
manipulate and process (including calculating, comparing and sequencing) date
information relating to dates on or after January 1, 2000 (including leap year
calculations) and shall continue to do so, and that the operation and
functionality of such Computer Systems were not, and will not be, adversely
affected by the advent of the Year 2000 or any manipulation of data featuring
date information relating to dates before, on or after January 1, 2000. Neither
the Company nor any of its Subsidiaries have received any document which would
indicate the likelihood of a third party claim related to any of the foregoing.
SECTION 3.28 Unions. Except as set forth on Section
3.28 of the Company Disclosure Statement, since January 1, 1995, no executive
of the Company or any of its subsidiaries and no group of employees of the
Company or any of its subsidiaries, has terminated, or to the Company's
Knowledge, plans to terminate, employment with the Company or any of its
subsidiaries. There are no collective bargaining or other labor union
agreements applicable to any employees or by which the Company or any of its
subsidiaries is bound. Except as set forth on Section 3.28 of the Company
Disclosure Statement, as of the date hereof, no work stoppage, material
grievance, material claim of unfair labor practice, or dispute against the
Company or any of its subsidiaries has occurred within the past five (5) years,
is pending or, to the Company's Knowledge, threatened, and to the Company's
Knowledge there is no basis for any of the foregoing. To the Company's
Knowledge, there is no organizational activity being made or threatened by or
on behalf of any labor union with respect to any employees of Company or any of
its subsidiaries. Section 3.28 of the Company Disclosure Statement sets forth
the current rate of base compensation, title, and years of service of each of
the executive officers of the Company listed thereon.
SECTION 3.29 Franchise Matters.
(a) The Company has previously delivered, or made
available, to the Investor Group true and correct copies of the
Uniform Franchise Offering Circular ("Circular") of the Company or
any of its subsidiaries in use in the offer and sale by the Company
or any of its
27
<PAGE> 32
subsidiaries of franchise and area development rights pursuant to
any Franchise Agreements (as defined below), which are required to be
delivered by the Company or any of its subsidiaries to prospective
franchisees in the United States pursuant to the Rules and
Regulations of the Federal Trade Commission (the "Rules") or state
Law including, without limitation, franchise investment Laws,
franchise registration and disclosure Laws, business opportunity Laws,
and seller assisted marketing plan Laws (the "Franchise Laws"). The
Circular complies in all material respects with the requirements of
the Rules and applicable Franchise Laws and does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.
(b) The Company has previously made available to the
Investor Group true and correct copies of all 1999 renewal
applications containing the Circular required to be filed with the
appropriate state authorities in those states where (i) such filings
are required for the sale by the Company or any of its subsidiaries
of franchises or franchise area development rights or (ii) franchise
area development rights or franchise rights have been offered for
sale by the Company or any of its subsidiaries at any time after
January 1, 1995. Except as set forth on Section 3.29 of the Company
Disclosure Statement, each current renewal application has been
declared effective in all jurisdictions where the Company or any of
its subsidiaries is required to file such applications, and there are
no stop orders or other proceedings in effect or, to the Company's
Knowledge, threatened, which would prohibit or impede the ability of
the Company or any of its subsidiaries to sell franchise area
development rights or franchises in such jurisdictions.
(c) The Company and its subsidiaries have sold or
solicited the sale of franchises and franchise area development
rights only in compliance with all applicable Laws governing such
activity. Except as set forth on Section 3.29(c) of the Company
Disclosure Statement, there are no claims or actions pending or, to
the Company's Knowledge, threatened which allege any failure to
comply by the Company or any of its subsidiaries with the Rules or
the Franchise Laws.
(d) The Company has made available to the Investor Group
with true and correct copies of all franchise agreements now in
effect and to which either the Company or any of its subsidiaries is
a party (the "Franchise Agreements"), and except as set forth in
Section 3.29(d) of the Company Disclosure Statement, neither the
Company nor any of its subsidiaries is in violation in any material
respect of any Franchise Agreement to which it is a party or by which
it is bound. Set forth on Section 3.29(d) of the Company Disclosure
Statement is a true and correct list of all Franchise Agreements.
(e) Except as set forth on Section 3.29(e) of the
Company Disclosure Statement, to the Company's Knowledge, no
franchisee is in material violation of any term of any Franchise
Agreement and no notice of default or termination has been delivered
to any franchisee pursuant to the terms of any Franchise Agreement.
(f) The Company and its subsidiaries are in compliance
with and have complied at all times with all applicable Laws
regulating the relationship of the Company and its
28
<PAGE> 33
subsidiaries with its franchisees, except where such non-compliance
would not have a Company Material Adverse Effect.
SECTION 3.30 Notes and Accounts Receivable. Except as
disclosed in Section 3.30 of the Company Disclosure Statement, all notes and
accounts receivable of the Company and its subsidiaries are reflected properly
on their books and records, and are valid receivables arising in the ordinary
course of business.
SECTION 3.31 Affiliated Transactions. Set forth in
Section 3.31 of the Company Disclosure Statement is a list of all arrangements,
agreements and contracts entered into by the Company or any of its subsidiaries
with any person who is an officer, director or affiliate of the Company or any
of its subsidiaries, or, to the Company's Knowledge, any immediate family
member, any relative of any of the foregoing or any entity of which any of the
foregoing is an affiliate. Correct and complete copies of such documents have
previously been made available to the Investor Group.
SECTION 3.32 Contributions. Neither the Company or any
of its subsidiaries, nor any director or officer of the Company or any of its
subsidiaries, has, in the course of his or her actions for or on behalf of the
Company or any of its subsidiaries, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity or made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds.
Neither the Company or any of its subsidiaries, nor any director or officer of
the Company or any of its subsidiaries, has, in the course of his or her
actions for or on behalf of the Company or any of its subsidiaries violated or
is in violation of any provision of the Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, or unlawful rebate, payoff, influence payment,
kickback or other unlawful payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
AND THE INVESTOR GROUP
Except as disclosed in a separate disclosure schedule
referring to the Sections contained in this Agreement, which has been delivered
by Merger Sub to the Company prior to the execution of this Agreement (the
"Merger Sub Disclosure Schedule"), Merger Sub and each member of the Investor
Group hereby severally, but not jointly, represents and warrants to the Company
that:
SECTION 4.01 Organization and Qualification; Subsidiaries
Merger Sub or such member of the Investor Group is a corporation, partnership
or limited liability company duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation or
organization and has the requisite corporate, partnership or limited liability
company power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now
being conducted. Merger Sub or such member of the Investor Group is duly
qualified or licensed as a foreign corporation, partnership or limited
liability company to do business, and is in good standing, in each jurisdiction
where the character of the properties owned, leased or operated by it or the
nature of its business makes such qualification or licensing necessary, except
for such failures to be so qualified or licensed and in
29
<PAGE> 34
good standing that, individually or in the aggregate, would not have a Merger
Sub Material Adverse Effect. The term "Merger Sub Material Adverse Effect"
means, when used in connection with the Merger Sub, any change, effect, event,
occurrence, condition or development that is or is reasonably likely to be
materially adverse to the business, assets, liabilities, properties, results of
operations, prospects or condition (financial or otherwise) of Merger Sub or
any member of the Investor Group or (ii) the ability of Merger Sub or any
member of the Investor Group to perform its obligations under this Agreement or
the Commitment Letters.
SECTION 4.02 Charter Documents and By-laws. Merger Sub
has heretofore furnished to the Company a complete and correct copy of the
Certificate of Incorporation and By-laws, each as amended to date, of Merger
Sub. Such charter documents are in full force and effect. Merger Sub is not in
violation of any provision of its charter documents.
SECTION 4.03 Authority Relative to this Agreement. Merger
Sub or such member of the Investor Group has all necessary corporate,
partnership or limited liability company power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by Merger Sub or
such member of the Investor Group and the consummation by Merger Sub or such
member of the Investor Group of the Transactions have been duly and validly
authorized by all necessary corporate, partnership or limited liability company
action and no other corporate, partnership or limited liability company
proceedings on the part of Merger Sub or such member of the Investor Group are
necessary to authorize this Agreement or to consummate the Transactions (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by the DGCL). This Agreement has been duly and
validly executed and delivered by Merger Sub or such member of the Investor
Group and, assuming the due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of Merger Sub or
such member of the Investor Group enforceable against Merger Sub or such member
of the Investor Group in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
SECTION 4.04 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by
Merger Sub or such member of the Investor Group does not, and the
consummation of the Transactions by Merger Sub or such member of the
Investor Group will not (i) conflict with or violate the charter
documents, By-laws or other organizational documents of Merger Sub
or such member of the Investor Group, (ii) conflict with or violate
any Law applicable to Merger Sub or such member of the Investor Group
or by which any property or asset of Merger Sub or such member of the
Investor Group is bound or affected, except for such conflicts or
violations which would not, individually or in the aggregate, have a
Merger Sub Material Adverse Effect, or (iii) result in a violation or
any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Merger Sub or
such member of the Investor Group is a party or by which Merger Sub
or such member of the Investor Group or any property or asset of
Merger Sub
30
<PAGE> 35
or such member of the Investor Group is bound or affected, except
for any such breaches or defaults which, individually or in the
aggregate, would not have a Merger Sub Material Adverse Effect.
(b) The execution and delivery of this Agreement by
Merger Sub or such member of the Investor Group does not, and the
consummation of this Agreement by Merger Sub or such member of the
Investor Group will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any government or
subdivision thereof, or any administration, governmental or
regulatory authority, agency, commission, tribunal or body, domestic,
foreign or supranational, except (i) for applicable requirements, if
any, of the Exchange Act, the Securities Act, Blue Sky Laws, the
rules of any applicable stock exchange, state takeover Laws, the
pre-merger notification requirements of the HSR Act, and filing and
recordation of appropriate merger documents as required by the DGCL
or any other applicable state Law, and (ii) where the failure to
obtain such other consents, approvals, authorizations, or permits, or
to make such filings or notifications, individually or in the
aggregate is not reasonably likely to have a Merger Sub Adverse
Effect.
SECTION 4.05 Interim Operations of Merger Sub. Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities (other than
those incident to its organization and the execution of this Agreement) and has
conducted its operations only as contemplated hereby.
SECTION 4.06 Information Supplied. None of the
information supplied or to be supplied by Merger Sub or any member of the
Investor Group specifically for inclusion or incorporation by reference in the
Proxy Statement or the Other Filings, at the respective time filed with the SEC
or such other Governmental Authority, and, in addition, in the case of the
Proxy Statement, at the date it is first mailed to the Company's stockholders
or at the time of the Stockholders Meeting (as defined below), contains or will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
SECTION 4.07 Brokers. Except as disclosed in Section
4.07 of the Merger Sub Disclosure Schedule, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger based upon arrangements made by or on behalf of
Merger Sub.
SECTION 4.08 Financing.
(a) Merger Sub has received written commitments from (i)
Bank of America, N.A. and Bank of America Securities LLC
(collectively, "BOA"), dated March 7, 2000 (the "BOA Commitment
Letter"), pursuant to which BOA has committed, subject to the terms
and conditions contained therein, to provide up to $155 million in
financing for the Transactions and (ii) Albion Alliance L.L.C.
("Albion") dated March 7, 2000 (the "Albion Commitment Letter", and
together with the BOA Commitment Letter, the "Commitment Letters"),
pursuant to which Albion has committed, subject to the terms and
conditions contained therein, to provide up to $35 million in
financing for the Transactions. Assuming
31
<PAGE> 36
that the condition in 8.02(l) has been met, the proceeds from the
Debt Financing, to the extent funded pursuant to the Commitment
Letters, together with the Equity Contribution, shall provide
sufficient funds to pay, pursuant to the Merger, the Merger
Consideration and the Option Consideration and to pay all fees and
expenses related to the Transactions. Merger Sub has delivered true,
correct and complete copies of the Commitment Letters to the Company.
(b) Merger Sub and the Investor Group have delivered to
each person providing the Debt Financing true and complete copies of
the Company Disclosure Statement and have advised each such person of
any information of which Merger Sub or the Investor Group is aware
which could reasonably be expected to constitute a Company Material
Adverse Effect. As of the date of this Agreement, neither Merger Sub
nor the Investor Group have any reason to believe that (i) BOA or
Albion will fail to perform their respective material obligations
under the Commitment Letters, or (ii) any condition precedent to the
respective obligations of BOA or Albion to fund the Debt Financing
will not be satisfied prior to the Closing.
SECTION 4.09 Litigation. There is no (i) claim, action,
suit or proceeding pending or, to the best knowledge of the Merger Sub and the
members of the Investor Group, threatened against Merger Sub, before any court,
arbitrator or Governmental Authority, or (ii) outstanding judgment, order, writ,
injunction or decree of any court, arbitrator or Governmental Authority in a
proceeding to which Merger Sub or any of its assets is subject except, in the
case of clauses (i) and (ii) above, such as would not, individually or in the
aggregate, have a Merger Sub Material Adverse Effect.
SECTION 4.10 Capitalization. Immediately prior to the
Effective Time, the authorized capital stock of Merger Sub will consist of
shares of Common Stock, par value $0.01 per share and shares of preferred stock,
par value $0.01 per share. There are 1,000 shares of capital stock of Merger
Sub issued and outstanding, and no other shares of capital stock of Merger Sub
are issued or outstanding. Each outstanding shares of capital stock of Merger
Sub is owned by a member of the Investor Group. Except as provided in, or
contemplated by, this Agreement, there are no authorized or outstanding options,
warrants, convertible securities, calls, rights, commitments, preemptive rights
or agreements or instruments or understandings of any character, to which
Merger Sub is a party or by which Merger Sub is bound, obligating Merger Sub to
issue, deliver or sell, or cause to be issued, delivered or sold, contingently
or otherwise, additional shares of capital stock of Merger Sub or any
securities or obligations convertible into or exchangeable for such shares or
to grant, extend or enter into any such option, warrant, convertible security,
call, right commitment, preemptive right or agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby severally, but not jointly,
represents and warrants to the Company that:
SECTION 5.01 No Conflict; Required Filings and Consents.
32
<PAGE> 37
(a) The execution and delivery of this Agreement by such
Stockholder does not, and the consummation of the Transactions by
such Stockholder will not, (i) violate any Law applicable to such
Stockholder, (ii) prevent or materially delay the consummation of the
Merger or (iii) result in a violation or any breach of or constitute
a default (or an event which with notice or lapse of time or both
would become a default) under any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which any Stockholder is a party.
(b) The execution and delivery of this Agreement by such
Stockholder does not, and the consummation of the Transactions by
such Stockholder will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
government or subdivision thereof, or any administrative,
governmental or regulatory authority, agency, commission, tribunal or
body, domestic, foreign or supranational, except for applicable
requirements, if any, of the Exchange Act, the Securities Act, Blue
Sky Laws, the rules of any applicable exchange, state takeover Laws,
the pre-merger notification requirements of the HSR Act, and filings
and recordation of appropriate merger documents as required by the
DGCL or any other applicable state Law.
SECTION 5.02 Ownership of Shares. Such Stockholder is the
sole record and beneficial owner of the Owned Shares listed on the Stockholder
Owned Share Schedule hereto, free and clear of any liens or encumbrances and
free of any other limitation or restriction (including, without limitation, any
restriction on the right to vote, sell or otherwise dispose of the Owned Shares
or any interest therein) except pursuant to this Agreement, the Support
Agreement (as defined below) or applicable securities Laws. The Owned Shares
indicated on such Schedule constitute all of the capital stock of the Company
owned of record or beneficially owned by such Stockholder.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01 Conduct of Business by the Company Pending
the Merger. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, except as set forth in Section 6.01 of the
Company Disclosure Statement or as otherwise expressly provided for in this
Agreement, unless Merger Sub shall otherwise agree in writing, the Company
shall, and shall cause its subsidiaries to, conduct its business in the
ordinary course and in a manner consistent in all material respects with past
practice. The Company shall, and shall cause its subsidiaries to, use
commercially reasonable efforts to (i) preserve intact its business
organization, (ii) keep available the services of the current officers, key
employees and consultants of the Company and its subsidiaries, (iii) preserve
the current relationships of the Company and its subsidiaries with customers,
franchisees, distributors, suppliers, licensors, licensees, contractors and
other persons with which the Company or its subsidiaries has significant
business relations, (iv) maintain all assets in good repair and condition
(except for ordinary wear and tear) other than those disposed of in the ordinary
course of business, (v) maintain all insurance necessary to the conduct of the
Company's business as currently conducted, (vi) maintain its books of account
and records in the usual, regular and ordinary manner, and (vii) maintain,
enforce and protect all of the material Intellectual Property Rights owned or
used by the Company or its subsidiaries in a manner consistent in all material
respects with past practice. By way of amplification and not limitation,
33
<PAGE> 38
except as contemplated by this Agreement, or as set forth in Section 6.01 of
the Company Disclosure Statement, the Company shall not, and shall cause its
subsidiaries not to, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Merger Sub (which shall not be unreasonably withheld).
(a) amend or otherwise change its Certificate of
Incorporation or By-laws, except to the extent contemplated by the
Preference Amendment;
(b) issue, sell, pledge, dispose of, grant or encumber,
or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (i) any shares of capital stock of any class of the
Company (other than pursuant to and in accordance with the Company
Stock Option Plans and the Company Employee Stock Purchase Plans and
the agreements listed in Section 3.03 of the Company Disclosure
Statement or in connection with the Preference Exchange or the Equity
Contribution) or its subsidiaries, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interests), of the
Company or its subsidiaries or (ii) any assets of the Company or its
subsidiaries, except for sales in the ordinary course of business
consistent with past practice and other asset sales for consideration
or having a fair market value aggregating not more than $100,000;
(c) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock (other than between any
wholly-owned subsidiary of the Company and the Company);
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, or propose to redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock,
other than in connection with the Preference Exchange;
(e) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) or agree to acquire
any corporation, partnership, limited liability company, or other
business organization or division thereof;
(f) (i) incur or agree to incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans, advances, or capital
contributions to or investments in, any other person, except in the
ordinary course of business consistent with past practice and in an
amount not in excess of $100,000; or (ii) authorize capital
expenditures which are, in the aggregate, in excess of $100,000;
(g) acquire, or agree to acquire, sell, lease or dispose
of any Real Property or other material assets, other than sales or
leases or other dispositions of fixed assets (other than Real
Property) or sales or other dispositions of inventory and the
purchase of supplies and equipment, in each case, in the ordinary
course of business consistent with past practice;
(h) enter into, establish, adopt, amend or renew any
material employment, consulting, severance or similar agreement or
arrangements with any director, executive
34
<PAGE> 39
officer, or employee, or grant any salary or wage increase (other
than in the ordinary course consistent with past practice);
(i) establish, adopt, amend or increase benefits under
any pension, retirement, stock option, stock purchase, savings,
profit sharing, deferred compensation, consulting, welfare benefit
contract, plan or arrangement (other than as may be required by
applicable Law);
(j) enter into any labor or collective bargaining
agreement, memorandum of understanding, grievance settlement or any
other agreement or commitment to or relating to any labor union;
(k) discharge or satisfy any material Lien or pay or
satisfy any material obligation or liability (fixed or contingent)
except in the ordinary course of business consistent with past
practice, or commence any voluntary petition, proceeding or action
under any bankruptcy, insolvency or other similar Law;
(l) make or institute any change in accounting
procedures or practices in its accounting procedures and practices
unless mandated by GAAP;
(m) take any action that, if taken after October 31,
1999 but prior to the date hereof, would have been required to be
disclosed in Section 3.07 of the Company Disclosure Statement;
(n) enter into any agreement or other arrangement with
any director, executive officer, employee or stockholder of the
Company or its subsidiaries or, to the Company's Knowledge, any
affiliate of the foregoing, except in the ordinary course of business
consistent with past practice;
(o) enter into any agreement or other arrangement that
is reasonably likely to be material to the business of the Company or
its subsidiaries, except in the ordinary course of business
consistent with past practice;
(p) make or change any election, change an annual
accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax
claim or assessment relating to the Company or its subsidiaries,
surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax
claim or assessment relating to the Company or its subsidiaries, fail
to timely file any Tax Return, take a position on a Tax Return not in
keeping with prior practice or take any other similar action, or omit
to take any action relating to the filing of any Tax Return or the
payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission
could have the effect of increasing the present or future Tax
liability or decreasing any present or future Tax asset of the
Company or its subsidiaries;
35
<PAGE> 40
(q) license, assign or otherwise transfer to any person
or entity any rights to any material Intellectual Property Rights
owned or used by the Company or its subsidiaries, except in the
ordinary course of business consistent with past practice;
(r) amend, extend, renew or terminate any Lease, and
shall not enter into any new lease, sublease, license or other
agreement for the use or occupancy of any real property, except in
the ordinary course of business consistent with past practice, and
for which annual rental payments do not exceed $20,000;
(s) fail to maintain, enforce or protect any material
Intellectual Property Rights owned or used by the Company or its
subsidiaries, except in the ordinary course of business consistent
with past practice;
(t) settle any action, claim or suit with any
Governmental Authority or third party relating to this Agreement, the
Merger or any of the other transactions contemplated hereby; or
(u) authorize or propose, or agree to take, any of the
foregoing actions prohibited under Section 6.01.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Stockholders' Meeting.
(a) Subject to the provisions of Section 7.05 and
Section 9.01, the Company shall, consistent with applicable Law, call
and hold a meeting of the holders of shares of Company Common Stock
(the "Stockholders' Meeting") as promptly as practicable for the
purpose of voting upon the approval and adoption of this Agreement
and the Transactions. The Company, through its Board of Directors or
a committee thereof, shall recommend to its stockholders approval and
adoption of this Agreement and the Transactions, which recommendation
shall be contained in the Proxy Statement (as defined below);
provided, however, that the Board of Directors of the Company or a
committee thereof may fail to make its recommendation to the
stockholders of the Company or may withdraw, modify or change its
recommendation to the stockholders of the Company, in accordance with
Section 7.05. The Company shall solicit from the holders of shares of
Company Common Stock proxies in favor of the approval and adoption of
the Merger, and shall take all other action reasonably necessary or
advisable to secure the vote or consent of such holders required by
the DGCL.
(b) Merger Sub shall vote (or consent with respect to)
any shares of Company Common Stock beneficially owned by it, or with
respect to which it has the power (by agreement, proxy or otherwise)
or cause to be voted (or to provide a consent), in favor of the
approval and adoption of this Agreement at any meeting of the
stockholders of the Company at which this Agreement shall be submitted
for approval and adoption and at all
36
<PAGE> 41
adjournments or postponements thereof (or, if applicable, by any
action of the stockholders of the Company by consent in lieu of a
meeting).
SECTION 7.02 Preparation of Proxy Statement.
(a) The Company shall, as soon as practicable, but in
any event (assuming prompt compliance by the other parties with their
obligations under this Section 7.02) within thirty (30) days after
the date hereof, prepare and file (after providing Merger Sub with a
reasonable opportunity to review and comment thereon) preliminary
proxy materials (including, without limitation, a Schedule 13e-3
filing, if required to be filed under the Exchange Act) relating to
the meeting of the holders of shares of Company Common Stock to be
held in connection with the Transactions (together with any
amendments thereof or supplements thereto, the "Proxy Statement") (or,
if requested by Merger Sub and applicable, an information statement
in lieu of a proxy statement pursuant to Rule 14C under the Exchange
Act, with all references herein to the Proxy Statement being deemed
to refer to such information statement, to the extent applicable)
with the SEC (provided, that if the Proxy Statement is not filed
within 30 days after the date of this Agreement, but the Company is
using its best efforts to cause the Proxy Statement to be promptly
filed, it shall not be deemed a material breach of this Agreement by
the Company). The Company shall thereafter use its commercially
reasonable efforts to respond to any comments of the SEC (after
providing Merger Sub with a reasonable opportunity to review and
comment thereon) and to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after responding to
all such comments to the satisfaction of the SEC staff. The Company
shall notify Merger Sub promptly of the receipt of any comments from
the SEC and of any request by the SEC for amendments or supplements
to the Proxy Statement or for additional information and shall supply
Merger Sub with copies of all correspondence between the Company or
any of its representatives, on the one hand, and the SEC, on the
other hand, with respect to the Proxy Statement or the Transactions.
The Company will cause the Proxy Statement (other than portions
relating to the Merger Sub or the Investor Group) to comply in all
material respects with the applicable provisions of the Exchange Act
and the rules and regulations thereunder applicable to the Proxy
Statement and the solicitation of proxies for the Stockholders'
Meeting (including any requirement to amend or supplement the Proxy
Statement). Merger Sub and the members of the Investor Group shall
cooperate with the Company in the preparation of the Proxy Statement,
and without limiting the generality of the foregoing, each party
shall promptly furnish to the other such information relating to it
and its affiliates and the Transactions and such further and
supplemental information as may be reasonably requested by the other
party and shall promptly notify the other party of any change in such
information. If at any time prior to the Stockholders Meeting there
shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company shall promptly prepare
and mail to its stockholders such an amendment or supplement;
provided, that no such amendment or supplement to the Proxy Statement
will be made by the Company without providing the Merger Sub a
reasonable opportunity to review and comment thereon.
(b) The Company agrees to include in the Proxy Statement
the unanimous recommendation of the voting members of the Company's
Board of Directors, subject to any
37
<PAGE> 42
modification, amendment or withdrawal thereof, and represents that the
Company's Financial Advisor has, subject to the terms of its
engagement letter with the Company, consented to the inclusion of
references to its opinion in the Proxy Statement.
SECTION 7.03 Appropriate Action; Consents; Filings;
Further Assurances.
(a) The Company, each member of the Investor Group
and Merger Sub shall use commercially reasonable efforts to (i) take,
or cause to be taken, all appropriate action and do, or cause to be
done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate the Transactions and make effective the
Merger as promptly as practicable, (ii) take all reasonable actions
required for the consummation of the financing of the transactions
contemplated hereby by Merger Sub; provided, however, that the
effectiveness of any such action by the Company shall be conditioned
upon consummation of the Merger, (iii) obtain expeditiously from any
Governmental Authorities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made
by any member of the Investor Group, Merger Sub, or the Company or
any of its subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Transactions, and (iv) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Transactions required under (A)
the Securities Act and the Exchange Act, and any other applicable
federal or state securities Laws, (B) the HSR Act and any related
governmental request thereunder and (C) any other applicable Law;
provided, that Merger Sub, each member of the Investor Group and the
Company shall cooperate with each other in connection with the making
of all such filings, including providing copies of all such documents
to the non-filing party and its advisors prior to filing. From the
date of this Agreement until the Effective Time, each party shall
promptly notify the other party in writing of any pending or, to the
knowledge of the first party, threatened action, proceeding or
investigation by any Governmental Authority or any other person (i)
challenging or seeking material damages in connection with the Merger
or the conversion of the Company Common Stock into cash pursuant to
the Merger or (ii) seeking to restrain or prohibit the consummation
of the Transactions or otherwise limit the right of Surviving
Corporation to own or operate all or any portion of the businesses or
assets of the Company or its subsidiaries, which in either case would
have a Company Material Adverse Effect prior to or after the
Effective Time, or a Surviving Corporation Material Adverse Effect
after the Effective Time. The term "Surviving Corporation Material
Adverse Effect" means, when used in connection with the Surviving
Corporation, any change, effect, event, occurrence, condition or
development that is or is reasonably likely to be materially adverse
to the business, assets, liabilities, properties, results of
operations, prospects or condition (financial or otherwise) of the
Surviving Corporation or its subsidiaries, taken as a whole.
(b) The Company, the Stockholders, each member of the
Investor Group and Merger Sub shall promptly furnish to each other
all information required for any application or other filing to be
made pursuant to the rules and regulations of any applicable Law
(including all information required to be included in the Proxy
Statement) in connection with the transactions contemplated by this
Agreement.
38
<PAGE> 43
(c) (i) Merger Sub, each member of the Investor Group
and, except as expressly described in Section 3.05 of the Company
Disclosure Statement, the Company shall give (or shall cause its
respective subsidiaries to give) any notices to third parties and
use, and cause its respective subsidiaries to use, their reasonable
efforts to obtain any third party consents, (A) necessary, proper or
advisable to consummate the Transactions, (B) disclosed or required
to be disclosed in the Company Disclosure Statement or Merger Sub
Disclosure Statement or (C) required to prevent a Company Material
Adverse Effect from occurring prior to or after the Effective Time
or a Surviving Corporation Material Adverse Effect from occurring
after the Effective Time.
(ii) In the event that any of the parties hereto
shall fail to obtain any third party consent described in subsection
(c)(i) above, such party shall use its commercially reasonable
efforts, and shall take any such actions reasonably requested by the
other parties hereto, to minimize any adverse effect resulting, or
which could reasonably be expected to result, after the Effective
Time, from the failure to obtain such consent.
(d) If any state takeover statute or similar statute or
regulation becomes applicable to this Agreement or any of the
Transactions, the Company, the Investor Group and Merger Sub will
take all action necessary to ensure that the Merger and the other
Transactions 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.
(e) If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this
Agreement, including the execution of additional documents, the
proper officers and directors of each party to this Agreement
(including the Stockholders) shall take all such necessary action. 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, any other actions 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 7.04 Access to Information; Confidentiality.
(a) The parties shall comply with, and shall cause their
respective Representatives (as defined below) to comply with, to the
extent permitted by applicable Law, all of their respective
obligations under the Confidentiality Agreement dated September 8 and
September 9, 1999 (the "Confidentiality Agreement") between the
Company and members of the Investor Group. Notwithstanding the
Confidentiality Agreement, the Company acknowledges that Merger Sub
may cause an information memorandum to be prepared and used in
connection with the consummation of the financing of the Transactions;
provided, that any recipient of such information memorandum shall be
subject to customary confidentiality requirements.
39
<PAGE> 44
(b) Subject to the Confidentiality Agreement, from the
date hereof to the Effective Time, the Company shall (and shall cause
each of its subsidiaries to) provide to Merger Sub (and its officers,
directors, employees, accountants, consultants, legal counsel, agents
and other representatives, collectively, "Representatives") access to
all information and documents which Merger Sub may reasonably request
regarding the business, assets, liabilities, employees and other
aspects of the Company or its subsidiaries, except for
attorney-client privilege information and information that is
attorney work product.
(c) From the date hereof to the Effective Time, the
Company shall (and shall cause each of its subsidiaries to): (i)
provide to Merger Sub and its Representatives access at reasonable
times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and its
subsidiaries and to the books and records thereof and (ii) furnish
promptly such information concerning the business, properties,
contracts, assets, liabilities, personnel and other aspects of the
Company and its subsidiaries as Merger Sub or its Representatives may
reasonably request, except for attorney-client privilege information
and information that is attorney work product.
(d) No investigation by Merger Sub, whether prior to the
execution of this Agreement or pursuant to this Section 7.04, shall
affect any representation or warranty in this Agreement of any party
hereto or any condition to the obligations of the parties hereto.
SECTION 7.05 No Solicitation.
(a) The Company and the Stockholders shall not, and
the Company shall cause its subsidiaries not to, and the Company
agrees that it shall not authorize any of its directors, officers,
employees, agents or representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing or
disclosing non-public information) any inquiries, discussions or the
making of any proposal with respect to any merger, consolidation or
other business combination involving the Company or the acquisition
of any material portion of the assets or capital stock of the
Company or its subsidiaries (a "Competing Transaction") or negotiate,
explore or otherwise communicate in any way with any person (other
than Merger Sub and the Investor Group and their directors, officers,
employees and representatives) with respect to any Competing
Transaction; provided, however, that the Company and its directors,
officers, employees, agents or representatives may, to the extent
required by the fiduciary obligations of the Board of Directors of
the Company, as determined in good faith by a majority vote of the
Board of Directors of the Company or the Special Committee thereof,
following consultation with its outside counsel as to legal matters,
in response to any proposal for or request to discuss a Competing
Transaction from any person that was not solicited by the Company and
that did not otherwise result from the breach of this Section 7.05,
(w) furnish information with respect to the Company to such person
pursuant to a customary confidentiality agreement; (x) participate in
discussions or negotiations with such person regarding any Competing
Transaction; (y) conduct "due diligence" inquiries and (z) take all
such other actions as the Company's Board of Directors or the Special
Committee thereof determine are reasonable necessary in order to
review or respond to the proposed Competing Transaction.
40
<PAGE> 45
(b) Neither the Company (or any of its subsidiaries)
nor the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Merger Sub, the approval, adoption or
recommendation by the Board of Directors of the Company or any such
committee of this Agreement, the Merger or the other Transactions,
(ii) approve or recommend, or propose to approve or recommend, any
Competing Transaction, (iii) approve or recommend, or propose to
approve or recommend, or execute or enter into, any letter of intent,
agreement in principle, merger agreement, acquisition agreement,
option agreement or other relating to any Competing Transaction or
propose or agree to do any of the foregoing, or (iv) submit any
Competing Transaction at the Stockholder's Meeting for purposes of
voting upon approval and adoption of the Competing Transaction;
provided, however, that the Company may, to the extent required by
the fiduciary obligations of the Board of Directors of the Company,
as determined in good faith by a majority vote of the Board of
Directors of the Company or the Special Committee thereof following
consultation with its outside counsel as to legal matters, (A)
terminate this Agreement pursuant to Section 9.01(g), (B) approve or
recommend a Competing Transaction, (C) withdraw or modify its
recommendation of the Merger, the Preference Amendment or the
execution of this Agreement, (D) submit a Competing Transaction to
the stockholders of the Company or (E) take any other action
consistent with its fiduciary duties. Notwithstanding the foregoing
or Section 7.05(a), the Company and its Board of Directors at all
times may take all such actions as are reasonably necessary pursuant
to Rule 14d-9 or Rule 14e-2 under the Securities Exchange Act.
(c) Subject to the fiduciary obligations of the Board
of Directors of the Company or a committee thereof, as determined in
good faith by a majority vote of the Board of Directors of the
Company or the Special Committee thereof following consultation with
its outside counsel as to legal matters, the provisions of Sections
7.05(a) and (b) above and compliance with applicable securities Laws,
(a) the Company promptly (and in any event within 48 hours of the
relevant event) shall advise Merger Sub orally and in writing of any
Competing Transaction and the identity of the person making any such
Competing Transaction, and, in each case, the material terms and
conditions thereof, including any material amendment or other
modifications to the terms of any such Competing Transaction or
inquiry and (b) the Company shall keep Merger Sub reasonably
apprised of the status of any proposal relating to a Competing
Transaction on a current basis.
(d) Contemporaneously with taking any action
described in clauses (B), (C) or (D) of Section 7.05(b), the Company
shall terminate this Agreement pursuant to Section 9.01(g).
(e) Notwithstanding anything contained herein to the
contrary, the initial press release issued by the Company announcing
the execution of this Agreement, which press release shall be issued
in the manner that is customary for issuing a press release for a
transaction such as the Merger or consistent with the past practices
of the Company, may include the following language and the inclusion
of such language shall not be a breach of any provision of this
Section 7.05 and Merger Sub and the Investor Group hereby consent to
the inclusion of the following language in any such press release:
41
<PAGE> 46
"Notwithstanding its recommendation and consistent with the
terms of the Merger Agreement, the Special Committee of the
Company's Board of Directors requested that the Special
Committee's financial advisor, CIBC World Markets Corp. be
available to receive unsolicited inquiries from any other
parties interested in the possible acquisition of the
Company. If the Special Committee of the Company's Board of
Directors concludes that the failure to provide information
to, or engage in discussions or negotiations with, such
parties would be inconsistent with its fiduciary duties to
the Company's stockholders, CIBC World Markets Corp., in
conjunction with the Special Committee of the Company's
Board of Directors, may provide information to and engage
in discussions and negotiations with such parties in
connection with any such indicated interest."
(f) Nothing in this Agreement shall require or be
deemed to require the Special Committee or the Company's Board of
Directors to take or refrain from taking any action which would
violate any obligation (including any fiduciary duty) under
applicable Law. In taking or refraining from taking such action, the
Special Committee or the Company's Board of Directors shall act in
good faith following consultation with outside counsel as to legal
matters; provided, that, in the event that the Special Committee or
the Company's Board of Directors, as the case may be, shall exercise
any of its rights under this Section 7.05(f) with respect to any
action taken or any inaction, the Special Committee or the Company's
Board of Directors, as the case may be, shall give prompt written
notice to Merger Sub and the Investor Group, of such action or
inaction (along with a reasonable description thereof) and the basis
for the exercise of such right(s).
SECTION 7.06 Indemnification and Insurance.
(a) Merger Sub and the Company agree that, except to
the extent prohibited by applicable Laws, for six years from and
after the Effective Time, the indemnification obligations set forth
in the Company's or any subsidiary's Certificate of Incorporation
and the Company's By-Laws, as amended, or other organizational
documents, in each case as of the date of this Agreement, shall
survive the Merger as continuing obligations of the Surviving
Corporation and shall not be amended, repealed or otherwise modified
after the Effective Time in any manner that would adversely affect
the rights thereunder of the individuals who on or at any time prior
to the Effective Time were entitled to indemnification thereunder
with respect to matters occurring prior to the Effective Time. In
addition, Merger Sub and the Company agree that, except to the extent
prohibited by applicable Laws, the indemnification obligations of the
Company or any Subsidiary as set forth in other indemnification
agreements to which it is a party shall be continuing obligations of
the Surviving Corporation and shall not be amended, repealed or
otherwise modified after the Effective Time, except as permitted by
the terms and provisions of those agreements.
(b) The Surviving Corporation and the Company shall
maintain in effect, for three years or until the applicable statute
of limitations expires, from and after the Effective
42
<PAGE> 47
Time, directors' and officers' liability insurance policies covering
the persons who are currently covered in their capacities as
directors and officers (the "Covered Parties") by the Company's
current directors' and officers' policies and on terms not materially
less favorable than the existing insurance coverage with respect to
matters occurring prior to the Effective Time; provided, however, in
the event the annual premium for such coverage exceeds an amount
equal to 200% of the last annual premium paid immediately prior to
the date hereof by the Company for such coverage, the Surviving
Corporation shall notify the Covered Parties who shall then elect as
a group either (i) to allow the Surviving Corporation to obtain as
much comparable insurance as possible for an annual premium equal to
200% of the last annual premium paid immediately prior to the date
hereof by the Company, or (ii) to seek coverage from another carrier,
in which event the Surviving Corporation shall reimburse the Covered
Parties the cost of such alternate coverage up to an amount equal to
200% of the last annual premium paid immediately prior to the date
hereof by the Company for such coverage.
(c) In addition to, and not in lieu of the foregoing,
the Merger Sub agrees that Surviving Corporation shall indemnify,
defend (with mutually acceptable counsel) and hold harmless all
current and former officers and directors of the Company and its
subsidiaries in their capacities as such (the "Indemnified Parties")
to the fullest extent permitted by the DGCL and in the Certificate
of Incorporation and By-laws of the Company, as in effect as of the
date hereof, from and against all liabilities, costs, expenses and
claims (including without limitation reasonable legal fees and
disbursements, which shall be paid, reimbursed or advanced by the
Surviving Corporation in a manner consistent with applicable
provisions of the Company's By-laws as in effect on the date hereof)
arising out of actions taken prior to the Effective Time in
performance of their duties as directors or officers of the Company
or any subsidiary, in connection with the Merger and the other
Transactions contemplated hereby, which may be asserted against the
Indemnified Parties from and after the date of this Agreement;
provided, however, that the Surviving Corporation's obligations to the
Indemnified Parties under this Section 7.06(c) shall not be effective
until consummation of the Merger; provided, further, that the
Surviving Corporation shall not have any obligation hereunder to any
Indemnified Party if the indemnification of such Indemnified Party in
the manner contemplated hereby is determined pursuant to a final
non-appealable judgment rendered by a court of competent jurisdiction
to be prohibited by applicable Law or if the indemnification of the
Indemnified Party is not within the power of the Surviving
Corporation under the DGCL.
(d) In the event that any action, suit, proceeding or
investigation relating thereto or to the transactions contemplated
by this Agreement is commenced, whether before or after the Effective
Time, the parties hereto agree to cooperate and use their respective
reasonable efforts to vigorously defend against and respond thereto.
SECTION 7.07 Notification of Certain Matters. From and
after the date of this Agreement until the Effective Time, each party hereto
shall promptly notify the other parties hereto of:
43
<PAGE> 48
(a) the occurrence, or non-occurrence, of any event the
occurrence or non-occurrence of which would be reasonably likely to
cause any (i) representation or warranty contained in this Agreement
to be untrue or inaccurate in any respect or (ii) any covenant or any
condition to the obligations of any party to effect the Merger not to
be complied with or satisfied;
(b) the failure of any party hereto to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it pursuant to this Agreement;
(c) the receipt 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;
(d) the receipt of any notice or other communication
from any Governmental Authority in connection with the Transactions;
and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to the knowledge of the party, threatened
against, relating to or involving or otherwise affecting the Company
or Merger Sub, which relates to the consummation of the Transactions;
in each case, to the extent such event or circumstance is or becomes known to
the party required to give such notice; provided, however, that the delivery of
any notice pursuant to this Section 7.07 shall not be deemed to be an amendment
of this Agreement or any Section in the Company Disclosure Statement or the
Merger Sub Disclosure Statement, as the case may be, and shall not cure any
breach of any representation or warranty requiring disclosure of such matter
prior to the date of this Agreement.
SECTION 7.08 Public Announcements. Except as otherwise
provided in Section 7.05, Merger Sub, the Company and the Stockholders shall
use reasonable efforts to consult with each other before issuing any press
release or otherwise making any public statements with respect to this
Agreement or any of the Transactions. Prior to the Closing, Merger Sub, members
of the Investor Group, the Company and the Stockholders shall not issue any
such press release or make any such public statement without the prior consent
of the other (which consent shall not be unreasonably withheld), except as may
be required by Law or any listing agreement with the NASD or any national
securities exchange to which Merger Sub or the Company is a party and, in such
case, shall use reasonable effects to consult with all the parties hereto prior
to such release or statement being issued. The parties shall agree on the text
of a joint press release by which Merger Sub and the Company will announce the
execution of this Agreement.
SECTION 7.09 Assistance with Financing. So long as
Merger Sub and the Investor Group are in compliance with their obligations
under this Agreement, in order to assist with the financing of the Transactions,
at or prior to Closing, the Company shall, and shall cause its subsidiaries to,
take such commercially reasonable steps as may be requested by Merger Sub in
connection with the following:
(a) At Merger Sub's request, with respect to each of the
Leased Property, the Company shall use reasonable efforts to deliver
to Merger Sub a nondisturbance agreement,
44
<PAGE> 49
a consent and waiver and/or an estoppel letter executed by the
landlord, lessor, and/or licensor of such Leased Premise, in each
case, in form and substance reasonably acceptable to Merger Sub;
(b) At Merger Sub's request, the Company shall furnish
such financial statements as may be reasonably requested by Merger
Sub in connection with the financing of the Transactions;
(c) The Company shall take or cause to be taken any
other actions (not requiring an amendment to this Agreement)
reasonably necessary to consummate the financing of the Transactions;
and
(d) No actions taken at the direction of Merger Sub by
or on behalf of the Company in connection with its obligations under
this Section 7.09 or arising as a result of the taking of such action
shall constitute a breach of any representation or warranty of the
Company contained in this Agreement for any purpose hereunder.
Notwithstanding anything to the contrary set forth herein, the
effectiveness of any such actions by the Company shall be conditioned
upon the consummation of the Merger.
SECTION 7.10 Stockholder Approval. The Company shall
take all action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to obtain the requisite approval and adoption of this
Agreement and the Transactions by the stockholders of the Company.
SECTION 7.11 Exchange Act and NASDAQ Filings. Unless
an exemption shall be expressly applicable, or unless Merger Sub or the Company,
as the case may be, agrees otherwise in writing, the Company and Merger Sub and
their respective affiliates will timely file with the SEC and the National
Association of Security Dealers ("NASD") all reports required to be filed by it
pursuant to the rules and regulations of the SEC and NASD (including, without
limitation, all required financial statements). Such reports and other
information shall comply in all material respects with all of the requirements
of the SEC and NASD rules and regulations, and when filed, will not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 7.12 Alternative Financing; Disclosure.
(a) So long as the Company is in compliance with its
obligations under this Agreement, Merger Sub shall use
commercially reasonable efforts to satisfy the requirements of
the Commitment Letters and to obtain the funding contemplated by
and on the terms contained in the Commitment Letters, or if any
of the Commitment Letters is terminated or such funds shall not
otherwise be available, use commercially reasonable efforts to
obtain an alternative source of financing, in each case, on
financial and other terms no less favorable than those set forth
in the respective Commitment Letters or to the extent not set
forth therein, on terms reasonably acceptable to Merger Sub.
45
<PAGE> 50
(b) Following the date hereof, any amendment,
termination, cancellation or modification of any Commitment
Letter or any information which becomes known to Merger Sub or
the Investor Group which makes it unlikely to obtain the
financing on the terms set forth in the Commitment Letters,
shall be promptly disclosed to the Company and the Special
Committee of the Board of Directors; and Merger Sub shall
consult with the Company and the Special Committee of the Board
of Directors with respect to any such amendment or modification.
Merger Sub and the Investor Group shall make available to each
person providing Debt Financing or such alternative financing
true and complete copies of the Company Disclosure Statement and
any supplement thereto delivered by the Company pursuant to
Section 7.07, and shall promptly advise each such person of any
information of which it becomes aware which could reasonably be
expected to constitute a Company Material Adverse Effect.
SECTION 7.13 Representations. Each of the Company and
the Merger Sub (a) will use reasonable efforts to take all action necessary to
render true and correct as of the Closing its respective representations and
warranties contained in this Agreement, (b) will refrain from taking any action
that would render any such representation or warranty untrue or incorrect as of
such time and (c) will perform or cause to be satisfied each agreement,
covenant or condition to be performed or satisfied by it.
SECTION 7.14 Support Agreement. Each of the
Stockholders and Merger Sub shall comply with all of their respective
obligations under the Support Agreement.
SECTION 7.15 Guarantee; Limitation on Liability.
Cornerstone and Centre will be substantial equity investors in the Surviving
Corporation. In that regard, Cornerstone and Centre each have a substantial
interest in and a desire to assure that the Company enters into this Agreement
and that the Transactions are consummated. Therefore, as a material inducement
to the Company to enter into this Agreement and to consummate the Transactions,
Cornerstone and Centre each hereby guarantees (the "Guarantee"), as a primary
obligor, to the Company, the performance by Merger Sub of its covenants, duties
and obligations hereunder ("Merger Sub Obligations"); provided, that
Cornerstone's aggregate liability to the Company due to the Merger Sub
Obligations shall not exceed, in the aggregate an amount equal to 1.25% of the
aggregate Merger Consideration to be paid by Merger Sub in the Merger, and that
Centre's aggregate liability to the Company due to the Merger Sub Obligations
shall not exceed, in the aggregate an amount equal to 1.25% of the aggregate
Merger Consideration to be paid by Merger Sub in the Merger. The Guarantee
shall be a continuing guaranty and shall remain in effect until the earliest of
(i) the Effective Time, (ii) except for any obligation of Merger Sub pursuant
to Sections 9.03 (c) and (e) hereof, the termination of this Agreement and
(iii) the time that the Merger Sub, and the Investor Group and its assignees
have, paid to the Company (whether pursuant to this Section 7.15 or otherwise)
an aggregate amount equal to 2.5% of the aggregate Merger Consideration.
Additionally, but notwithstanding anything in this Agreement to the contrary,
Cornerstone's liability to the Company for the breach of any of its
representations, warranties, covenants, duties and obligations hereunder shall
not exceed in the aggregate an amount equal to 1.25% of the aggregate Merger
Consideration to be paid by Merger Sub in the Merger, and Centre's liability to
the Company for the breach of any of its representations, warranties, covenants,
duties and obligations hereunder shall not exceed in the aggregate an amount
equal to 1.25% of the aggregate Merger Consideration to be paid by Merger Sub
in the Merger;
46
<PAGE> 51
provided that this limitation on the liability of Cornerstone and Centre shall
not apply (i) to any breach of their respective obligations under Section
1.01(c) in the event all conditions to their obligations to fund the Equity
Contribution have been satisfied or (ii) to the extent any such breach has been
finally judicially determined to be the result of fraud or any intentional
breach of their respective obligations under this
SECTION 7.16 Purchase of Promissory Note by Stover.
In the event that as of the Effective Time (i) the Indebtedness of the Company
exceeds the Maximum Indebtedness Amount by not more than $5 million and (ii)
the days sales outstanding (i.e., DSO's) exceeds 46 days, then
contemporaneously with the Closing Stover shall purchase an unsecured
promissory note of the Company (the "Receivables Note") on the terms described
in this Section 7.16. The initial principal amount and purchase price of the
Receivables Note shall be equal to the lesser of (x) the amount by which the
Indebtedness of the Company as of the Effective Time exceeds the Maximum
Indebtedness Amount and (y) the amount by which the net book value of the
accounts receivable of the Company as of the Effective Time exceeds the net
book value of the accounts receivable of the Company which would be outstanding
if the days sales outstanding was 46. The Receivables Note shall bear interest
at the applicable federal rate at the time of its issuance and shall be due and
payable on the 75th day following the Effective Time. The principal amount of
the Receivables Note shall be reduced by an amount equal to the product of (a)
(1) the amount of any receivables of the Company which existed as of the
Effective Time but have not been collected as of the 75th day after the
Effective Time minus (2) the reserve for doubtful accounts as of the Effective
Time multiplied by (b) a fraction, the numerator of which is the initial
principal amount of the Receivables Note, and the denominator of which is the
net book value of the accounts receivable of the Company as of the Effective
Time. The Receivables Note shall be subordinated to the Debt Financing in a
manner which is not inconsistant with the payment terms set forth above and
shall be evidenced by a note in a form reasonably acceptable to the providers of
the Debt Financing. The proceeds to the Company from the issuance of the
Receivables Note shall be used to repay Indebtedness of the Company outstanding
as of the Effective Time.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each
Party. The obligations of the Company, Merger Sub and the Stockholders to
consummate the Merger are subject to the satisfaction (or, if permitted by
applicable Law, waiver by the party for whose benefit such condition exist) of
the following conditions:
(a) this Agreement and the Transactions shall have been
approved and adopted by the affirmative vote of the Requisite
Majority in accordance with the DGCL and the Company's Certificate of
Incorporation;
(b) any applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated;
(c) no order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been enacted,
entered, issued, promulgated or enforced by any Governmental
Authority or a court of competent jurisdiction which has the effect
of making
47
<PAGE> 52
the Merger illegal or otherwise prohibiting consummation of the Merger
or of limiting or restricting the Surviving Corporation's or Merger
Sub's conduct or operation of the business of the Company after the
Merger; and
(d) all other necessary and material governmental and
regulatory clearances, consents, or approvals shall have been
received.
SECTION 8.02 Conditions to the Obligations of Merger
Sub. The obligations of Merger Sub to consummate the Merger are subject to the
satisfaction or, if permitted by applicable Law, waiver by Merger Sub of the
following further conditions:
(a) (i) 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; (ii) each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects, except
to the extent any representation and warranty is qualified by
materiality, in which case such representation and warranty shall be
true and correct in all respects, in each case as of the date of this
Agreement; and (iii) Merger Sub shall have received a certificate
signed by an executive officer of the Company as to compliance with
the conditions set forth in this paragraph 8.02(a);
(b) Merger Sub shall have received an opinion, dated on
or about the Closing Date, of counsel to the Company (which may
include in-house counsel) containing the opinions set forth in
Exhibit D hereto;
(c) Surviving Corporation shall have obtained the Debt
Financing on the terms and conditions set forth in the Commitment
Letters or otherwise obtained debt financing sufficient to consummate
the Transactions and to pay all fees and expenses in connection
therewith and to provide working capital for the Surviving
Corporation, all on terms reasonably satisfactory to the Investor
Group, the Surviving Corporation and Merger Sub, it being
acknowledged that if the parties to the Commitment Letters or the
Debt Financing other than the Surviving Corporation, Merger Sub or
the Investor Group are prepared to perform thereon, or if a breach by
the Investor Group or Merger Sub has been the cause of or resulted in
the failure to obtain Debt Financing, the condition contained in this
Section 8.02(c) shall be deemed to have been satisfied;
(d) Since the date of this Agreement, no event shall
have occurred (whether or not described in any notice delivered by
the Company pursuant to Section 7.07 of this Agreement) which has or
which would reasonably be expected to have a Company Material Adverse
Effect;
(e) The Company shall have amended its Certificate of
Incorporation to provide for the Preference Amendment or filed an
appropriate Certificate of Designation to provide for the Preference
Stock;
(f) The Preference Exchange shall have been completed on
the terms set forth in this Agreement;
48
<PAGE> 53
(g) The Company shall have issued 632,900.4 shares of
New Preference Stock to the Investor Group in exchange for the Equity
Contribution;
(h) All Company Stock Options and rights under the
Company's Employee Stock Purchase Plan shall be extinguished as of
immediately prior to the Closing, or shall by their own terms be
extinguished at the Effective Time, and the Company thereafter shall
have no liability or obligation with respect to any such Company
Stock Options or under the Company's Employee Stock Purchase Plan,
except as provided in Section 2.03;
(i) The Company shall have obtained all consents,
authorizations, approvals and waivers from third parties, in form
reasonably acceptable to Merger Sub, which are necessary in order to
enable (i) the consummation of the Transactions by the Company, and
(ii) the Surviving Corporation to conduct its business in all
material respects after the Closing Date on the same basis as
conducted prior to the date hereof, in each case, except for those
the failure of which to obtain would not have a Company Material
Adverse Effect;
(j) Merger Sub shall have obtained no later than thirty
(30) days prior to the Closing, a commitment for an ALTA Owner's
Title Insurance Policy 1970 Form B, or other form acceptable to
Merger Sub, for each Owned Real Property identified by Merger Sub,
issued by a title insurance company satisfactory to Merger Sub (the
"Title Company"), together with a copy of all documents referenced
therein (the "Title Commitments"). At Closing, the Company shall have
caused the Title Company to issue title insurance policies in
accordance with the Title Commitments, insuring Merger Sub's legal,
binding and enforceable interest in the Owned Real Property as of the
Closing Date with gap coverage from the Stockholders through the date
of recording, subject to those encumbrances that do not have a
materially adverse affect on the Owned Real Property, in such amount
as Merger Sub reasonably determines to be the value of the Owned Real
Property. Each of the Title Policies shall have the creditor's rights
exception deleted, and shall include extended coverage endorsement
and all other endorsements reasonably requested by Merger Sub. The
Company shall use its reasonable efforts to assist Merger Sub in
obtaining the Title Commitments, Title Policies and surveys in form
and substance as set forth above, within the time periods set forth
therein, including, without limitation, removing from title any liens
or encumbrances which are not Permitted Encumbrances. The Company
shall provide the Title Company with any affidavit, indemnity or
other assurances requested by the Title Company to issue the Title
Policies;
(k) Not more than seven percent (7.0%) of the shares of
Company Common Stock outstanding immediately prior to the Effective
Time shall be Dissenting Shares; and
(l) The Company's Indebtedness shall not exceed the
Maximum Indebtedness Amount; provided that if (i) the Company's
Indebtedness does not exceed the Maximum Indebtedness Amount by more
than $5 million, (ii) Stover purchases the Receivables Note as
contemplated by Section 7.16, and (iii) after giving effect to the
repayment of Indebtedness as provided in Section 7.16 the Indebtedness
of the Company does not exceed
49
<PAGE> 54
the Maximum Indebtedness Amount, then the condition contained in this
Section 8.02(l) shall be deemed to be satisfied.
SECTION 8.03 Conditions to the Obligation of the
Company. The obligation of the Company to consummate the Merger is subject to
the satisfaction or, if permitted by applicable Law, waiver by the Company of
the following further conditions:
(a) (i) Merger Sub and the Investor Group shall have
performed in all material respects all of their respective obligations
hereunder required to be performed by them at or prior to the
Effective Time; (ii) each of the representations and warranties of
Merger Sub and the Investor Group contained in this Agreement shall
be true and correct in all material respects, in each case as of the
date of this Agreement; and (iii) the Company shall have received a
certificate signed by an executive officer of Merger Sub and by
representatives of each member of the Investor Group as to compliance
with the conditions set forth in this paragraph 8.03(a):
(b) The Company shall have received an opinion, dated on
or about the Closing Date, of Kirkland & Ellis, containing the
opinions set forth in Exhibit E hereto;
(c) The Investor Group shall have made the Equity
Contribution in exchange for New Preference Stock; and
(d) The Surviving Corporation shall have obtained the
Debt Financing on the terms and conditions set forth in the
Commitment Letter or otherwise obtained financing sufficient to
consummate the Transactions and to pay all the fees and expenses in
connection therewith, and representatives of the Investor Group shall
have delivered a certificate to the Company to that effect.
SECTION 8.04 Conditions to the Obligations of the
Investor Group. The obligations of the Investor Group to make the Equity
Contribution are subject to the satisfaction or, if permitted by applicable Law,
waiver by the Investor Group of each of the conditions set forth in Section
8.01 and Section 8.02 of this Agreement.
SECTION 8.05 Conditions to the Obligations of the
Stockholders. The obligations of the Stockholders to consummate the Preference
Exchange are subject to the satisfaction, or if, permitted by applicable Law,
waiver by the Stockholders of the following conditions:
(a) the conditions set forth in Section 8.01 of this
Agreement;
(b) the conditions set forth in paragraphs (e) and (f)
of Section 8.02; and
(c) the conditions set forth in paragraphs (a) (other
than clause (iii)), (c) and (d) of Section 8.03.
50
<PAGE> 55
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company:
(a) by written consent of the Company and Merger Sub;
(b) by Merger Sub or the Company if (i) the waiting
period applicable to the consummation of the Merger under the HSR Act
shall not have expired or been terminated prior to July 31, 2000, (ii)
any court of competent jurisdiction in the United States or other
United States Governmental Authority shall have issued an order
(other than a temporary restraining order), decree or ruling, or
taken any other action, restraining, enjoining or otherwise
prohibiting the Merger (provided, however, that neither party may
terminate this Agreement pursuant to this Section 9.01(b)(ii) prior
to July 31, 2000 if the party subject to such order, decree or ruling
is using its reasonable efforts to have such order, decree or ruling
removed, unless such order, decree or ruling shall have become final
and non-appealable), or (iii) the Effective Time shall not have
occurred on or before July 31, 2000; provided, that the right to
terminate this Agreement under this Section 9.01(b) shall not be
available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of or resulted in
the failure of the Effective Time to occur on or before such date;
(c) by Merger Sub or the Company, if the Stockholders'
Meeting shall have been held and the holders of outstanding shares of
Company Common Stock shall have failed to approve and adopt this
Agreement at such meeting (including any adjournment or postponement
thereof); provided, that subject to Section 7.05, the right to
terminate this Agreement under this Section 9.01(c) shall not be
available to the Company if its failure to fulfill any material
obligation under this Agreement has been the cause of or resulted in
the failure to obtain such stockholder approval; provided further,
that the right to terminate this Agreement under this Section 9.01(c)
shall not be available to Merger Sub if the Stockholder's failure to
approve and adopt this Agreement as provided in the Support Agreement
at such meeting has been the cause of or resulted in the failure to
obtain such stockholder approval;
(d) by Merger Sub if the Board of Directors of the
Company or any committee thereof (i) shall withdraw, modify in a
manner adverse to Merger Sub, or refrain from giving its approval or
recommendation of the Merger, Preference Amendment or the execution
of this Agreement or (ii) recommends a Competing Transaction with
respect to the Company to the Company's stockholders pursuant to
Section 7.05;
(e) by the Company, upon a material breach of any
representation, warranty, or agreement set forth in this Agreement
such that the condition set forth in Section 8.03(a) would not be
satisfied; provided, however, that, if such breach is curable by
Merger Sub through the exercise of its best efforts and Merger Sub
continues to exercise such best
51
<PAGE> 56
efforts, the Company may not terminate this Agreement under this
Section 9.01(e) unless such breach continues following a period of 30
days from the date on which the Company delivers to Merger Sub written
notice setting forth in reasonable detail the circumstances giving
rise to such breach;
(f) by Merger Sub, upon a material breach of any
representation, warranty, or agreement set forth in this Agreement or
the occurrence of an event or occurrence such that the condition set
forth in Section 8.02(a) or Section 8.02(d) would not be satisfied;
provided, however, that, if such breach is curable by the Company
through the exercise of its best efforts and the Company continues to
exercise such best efforts, Merger Sub may not terminate this
Agreement under this Section 9.01(f) unless such breach continues
following a period of 30 days from the date on which Merger Sub
delivers to the Company written notice setting forth in reasonable
detail the circumstances giving rise to such breach; or
(g) by the Company in accordance with Section 7.05.
SECTION 9.02 Method of Termination; Effect of Termination.
(a) Any such right of termination hereunder shall be
exercised by advance written notice of termination given by the
terminating party to the other parties hereto in the manner
hereinafter provided in Section 10.02. Any such right of termination
shall not be an exclusive remedy hereunder but shall be in addition
to any other legal or equitable remedies that may be available to any
non-defaulting party hereto arising out of any default hereunder by
any other party hereto.
(b) Except as provided in Section 10.01, in the event of
the termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability
under this Agreement on the part of any of the parties hereto or any
of their respective officers or directors and all rights and
obligations of any party hereto shall cease, except as set forth in
Section 9.03; provided, however, that nothing herein shall relieve
any party from liability for, or be deemed to waive any rights of
specific performance of this Agreement available to any other party,
to the extent the matter giving rise to such termination has been
finally judicially determined to be fraud or an intentional breach of
this Agreement.
SECTION 9.03 Fees and Expenses.
(a) In the event that it is judicially determined that
termination of this Agreement was caused by an intentional breach of
this Agreement, then, in addition to the remedies at Law or equity
for breach of this Agreement, the party so found to have
intentionally breached this Agreement shall indemnify and hold
harmless the other parties for their respective reasonable costs,
fees and expenses of their counsel, accountants, financial advisors
and other experts and advisors as well as reasonable fees and
expenses incident to the negotiation, preparation and execution of
this Agreement and the attempted financing and consummation of the
Transactions, the related documentation and the stockholders'
meetings and consents ("Costs").
52
<PAGE> 57
(b) In the event that this Agreement is terminated
pursuant to Section 7.05(d) or paragraphs (c) (except if the
Stockholders' failure to approve and adopt this Agreement at the
Stockholders' meeting has been the cause of or resulted in the
failure to obtain such stockholder approval), (d), (f) or (g) of
Section 9.01, the Company shall, within five business days of such
termination, pay Merger Sub by wire transfer of immediately available
funds to an account specified by Merger Sub in reimbursement for
Merger Sub's expenses an amount in cash equal to the aggregate amount
of Merger Sub's reasonable out-of-pocket Costs incurred in connection
with pursuing the transactions contemplated by this Agreement
(including, without limitation, legal, accounting, investment banking
and commitment fees) and other reasonable out-of-pocket expenses of
Merger Sub and the Investor Group up to a maximum of $1,500,000
(except that if this Agreement is terminated pursuant to Section
9.01(f) due to a failure to satisfy the condition set forth in
Section 8.02(d), up to a maximum of $1,000,000) (collectively, the
"Reimbursable Expenses") (as such Reimbursable Expenses may be
estimated by Merger Sub in good faith prior to the date of such
payment, subject to an adjustment payment between the parties upon
Merger Sub's definitive determination of such Reimbursable Expenses);
provided, however, that Merger Sub shall have no right to receive
Reimbursable Expenses pursuant to this Section 9.03(b) if Merger Sub's
failure to fulfill any obligation or material breach of any
representation, warranty or covenant under this Agreement caused or
resulted in the termination of this Agreement. For purposes of this
Agreement, Merger Sub's Costs shall include the Costs of the Investor
Group incurred in connection with this Agreement or on behalf of
Merger Sub.
(c) In the event that this Agreement is terminated by
the Company pursuant to Section 9.01(e), Merger Sub shall, within
five business days of such termination, pay the Company by wire
transfer of immediately available funds to an account specified by
the Company in reimbursement for the Company's expenses an amount in
cash equal to the aggregate amount of the Company's reasonable
out-of-pocket Costs incurred in connection with pursuing the
transactions contemplated by this Agreement (including, without
limitation, legal, accounting and investment banking fees) and other
reasonable out-of-pocket expenses of the Company up to a maximum of
$1,500,000 (collectively, the "Company Reimbursable Expenses") (as
such Company Reimbursable Expenses may be estimated by the Company in
good faith prior to the date of such payment, subject to an
adjustment payment between the parties upon the Company's definitive
determination of such Company Reimbursable Expenses); provided,
however, that the Company shall have no right to receive Company
Reimbursable Expenses pursuant to this Section 9.03(c) if the
Company's failure to fulfill any obligation or material breach of any
representation, warranty or covenant under this Agreement caused or
resulted in the termination of this Agreement.
(d) In the event that this Agreement is terminated by
Merger Sub or the Company pursuant to Section 7.05, Section 9.01(d)
or Section 9.01(g), the Company shall pay the Merger Sub by wire
transfer of immediately available funds to an account specified by
the Merger Sub an aggregate amount equal to 2.5% of the aggregate
Merger Consideration hereunder (including amounts payable to the
Stockholders) (the "Termination Fee"). The Termination Fee shall be
payable as follows:
53
<PAGE> 58
(i) 50% of the Termination Fee shall be paid
within five (5) business days after such termination, and
(ii) if the Company enters into or consummates a
Competing Transaction within one (1) year after such
termination, the remaining 50% of the Termination Fee
shall be paid within five (5) business days after the
date of consummation of such Competing Transaction;
provided, however, that the Merger Sub shall have no right to receive
the Termination Fee pursuant to this Section 9.03(d) if Merger Sub's
or the Investor Group's material failure to fulfill any obligation or
breach of any representation, warranty or covenant under this
Agreement caused or resulted in the termination of this Agreement.
(c) Except as provided in this Section 9.03, all
expenses incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred the same; provided, however,
that (i) the Company shall bear all expenses related to printing,
filing and mailing the Proxy Statement and all SEC and other
regulatory filing fees incurred in connection with the Proxy
Statement, and (ii) Merger Sub and the Company shall bear equally all
expenses incurred by the parties hereto and their respective
affiliates, if applicable, in connection with any filing under the
HSR Act due to the transactions contemplated herein.
SECTION 9.04 Amendment. This Agreement may be amended by
the parties hereto at any time prior to the Effective Time; provided, that
after the approval and adoption of this Agreement by the stockholders of the
Company as contemplated in Section 8.01(a), no amendment may be made which
would (a) change the amount or the type of Merger Consideration to be received
by the stockholders of the Company pursuant to the Merger, (b) change any other
term or condition of the Agreement if such change would materially and
adversely affect the Company or the holders of shares of Company Common Stock
or New Preference Stock or (c) without the vote of the stockholders entitled to
vote on the matter, change any term of the Certificate of Incorporation of the
Company. This Agreement may not be amended except by an instrument in writing
signed by all of the parties hereto.
SECTION 9.05 Waiver. At any time prior to the Effective
Time, any party hereto may (a) extend the time for the performance of any
obligation or other act of any other party hereto, (b) waive any inaccuracy in
the representations and warranties of the other party contained herein or in
any document, certificate or writing delivered by the other party pursuant
hereto and (c) waive compliance with any agreement or condition to its
obligations (other than the conditions set forth in paragraphs (a) and (b) of
Section 8.01) contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby.
54
<PAGE> 59
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Non-Survival of Representations, Warranties
and Agreements. The representations, warranties and agreements in this
Agreement and any certificate delivered pursuant hereto by any person shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 9.01, as the case may be, except that the agreements set
forth in Articles I and II and Sections 7.03(e), 7.06, 7.08 and 7.15 shall
survive the Effective Time indefinitely, and those set forth in Sections 7.05,
7.08, 9.02 and 9.03 and this Article X shall survive termination indefinitely.
SECTION 10.02 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by facsimile or by registered or certified mail (postage prepaid,
return receipt requested) or by a nationally recognized overnight courier
service to the respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in accordance with
this Section 10.02):
if to Merger Sub:
c/o Cornerstone Equity Investors L.L.C.
717 Fifth Avenue
New York, New York 10022
Telecopy: (212) 826-6798
Attention: Dana O'Brien and Michael Najjar
c/o Centre Capital Investors III, L.P.
30 Rockefeller Plaza
Suite 5050
New York, New York 10020
Telecopy: (212) 332-5800
Attention: Robert A. Bergmann and Steven M. Shapiro
with copies to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Frederick Tanne, Esq.
55
<PAGE> 60
if to the Company:
Westaff, Inc.
301 Lennon Lane
Walnut Creek, California 94598
Telecopy: (925) 934-5489
Attention: President
with a copy to:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Telecopy: (415) 268-7522
Attention: John W. Campbell, Esq.
SECTION 10.03 Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls,
is controlled by, or is under common control with, such specified
person;
(b) "beneficial owner" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such
shares which such person beneficially owns, as defined in Rule
12d-3 under the Securities Exchange Act;
(c) "business day" means any day on which the principal offices
of the SEC in Washington, D.C. are open to accept filings, or, in
the case of determining a date when any payment is due, any day on
which banks are not required or authorized to close in the New York,
New York or San Francisco, California;
(d) "Code" means the Internal Revenue Code of 1986, as amended;
(c) "Control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, as trustee or executor,
by contract or credit arrangement or otherwise;
(f) "Environmental and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances
and similar provisions having the force or effect of Law, all
judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health
and safety, worker health and safety, and pollution or protection
of the environment, including without limitation all those relating
to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened
release,
56
<PAGE> 61
control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, as such of
the foregoing are enacted or in effect, prior to, on, or after the
Closing Date.
(g) "Governmental Authority" means any United States (federal,
state or local), foreign or supra-national Government, or
governmental, regulatory or administrative authority, agency or
commission;
(h) "Indebtedness" means the sum of (i) any liability or
obligation of the Company or any of its subsidiaries, whether
primary or secondary, absolute or contingent for (x) borrowed money,
(y) evidenced by notes, bonds, debentures or similar instruments (but
not including the Receivables Note), or (z) secured by Liens on any
assets of the Company or any of its subsidiaries plus (ii) the
aggregate reduction after the date hereof in the value of any
non-cash assets and any liabilities asserted, imposed or incurred
after the date hereof, primarily related to the Company's home
healthcare business in connection with any adjustment, write-down,
reserve or liability asserted, impossed or incurred arising out of
Medicare's audit of the Company's and its subsidiaries' or any of
their respective franchisees' or licensees' 1998 or 1999 Medicare
cost reports.
(i) "Intellectual Property Rights" means all patents, patent
applications and patent disclosures; all inventions (whether or
not patentable and whether or not reduced to practice); all
trademarks, service marks, trade dress, trade names and corporate
names and all the goodwill associated therewith; all mask works; all
registered and unregistered statutory and common law copyrights; all
registrations, applications and renewals for any of the foregoing;
and all trade secrets, confidential information, ideas, formulae,
compositions, know-how, manufacturing and production processes and
techniques, research information, drawings, specifications, designs,
plans, improvements, proposals, technical and computer data,
documentation and software, financial business and marketing plans,
customer and supplier lists and related information, marketing
materials and all other proprietary rights;
(j) "Knowledge" with respect to the Company, means the actual
knowledge, after reasonable investigation, of any executive officer
of the Company;
(k) "Lien" shall mean, with respect to any property or asset,
any mortgage, pledge, security interest, lien (statutory or
other), charge, encumbrance or other similar restrictions or
limitations of any kind or nature whatsoever on or with respect to
such property or asset;
(l) "Maximum Indebtedness Amount" means $50 million minus the
amount of proceeds to the Company from the sale of Real
Property as contemplated by Section 3.15 of the Company Disclosure
Statement.
(m) "Owned Shares" means the aggregate shares of Company Common
Stock owned beneficially and of record by the Stockholders as
of the date hereof (as such number may be reduced as a result of the
conversion of shares into New Preference Stock as contemplated by
this Agreement);
57
<PAGE> 62
(n) "Permits" shall mean all franchises, licenses,
authorizations, approvals, permits, consents or other rights
granted by any Governmental Authority and all certificates of
convenience or necessity, immunities, privileges, licenses,
concessions, consents, grants, ordinances and other rights, of every
character whatsoever required for the conduct of business and the
use of properties by the Company as currently conducted or used.
(o) "person" means an individual, corporation, limited
liability company, partnership, limited partnership, syndicate,
person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a
government;
(p) "Real Property" means, with respect to the Company or any
subsidiary, as applicable, all of the Owned Real Property and
Leased Real Property which is used by any such person in connection
with the operation of its business;
(q) "Requisite Majority" means holders of 66 2/3% of the
outstanding shares of Company Common Stock.
(r) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity
of which such person (either above or through or together with any
other subsidiary), owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity;
(s) "Support Agreement" means that certain Support Agreement,
dated as of the date hereof, by and among Merger Sub and the
Stockholders.
(t) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment,
social security (or similar), severance, stamp, unemployment,
disability, occupation, alternative or add-on minimum, estimated and
other taxes of any kind whatsoever (including deficiencies,
penalties, additions to tax, and interest attributable thereto)
whether disputed or not;
(u) "Tax Return" means any declaration, report, claim for
refund, return, information report or filing with respect to
Taxes, including any schedules or attachments thereto and including
any amendments thereof; and
(v) "Transactions" means the Merger, the Preference Amendment,
the Debt Financing and the other transactions contemplated hereby this
Agreement.
SECTION 10.04 Accounting Terms. All accounting terms
used herein which are not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with GAAP.
58
<PAGE> 63
SECTION 10.05 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule of Law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Merger be consummated as originally
contemplated to the fullest extent possible.
SECTION 10.06 Entire Agreement; Assignment. This
Agreement (including the Exhibits, the Merger Sub Disclosure Schedule and the
Company Disclosure Statement, which are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein), the Support
Agreement and the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof. This Agreement shall
not be assigned by operation of Law or otherwise without the prior written
consent of the other parties, which shall not be unreasonably withheld, except
that Merger Sub may assign all or any of its rights and obligations hereunder
to any affiliate of Merger Sub, and Merger Sub and the Company may assign their
respective rights and obligations hereunder as collateral security to any
person providing financing to Merger Sub and/or the Company; provided, that no
such assignment shall change the amount or nature of the Merger Consideration
or relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations.
SECTION 10.07 Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement, other than Section 7.06 (which is
intended to be for the benefit of the persons covered thereby and may be
enforced by such persons).
SECTION 10.08 Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to specific performance of the terms hereof, in addition
to any other remedy at Law or in equity.
SECTION 10.09 Governing Law. The provisions of this
agreement and the documents delivered pursuant hereto shall be governed by and
construed in accordance with the Laws of the State of Delaware (excluding any
conflict of Law, rule or principle that would refer to the Laws of another
jurisdiction). EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN
ANY SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.
59
<PAGE> 64
SECTION 10.10 Headings. The descriptive headings
contained in this Agreement are included for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 10.11 Counterparts. This Agreement may be
executed and delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 10.12 Construction. This Agreement and any
documents or instruments delivered pursuant hereto or in connection herewith
shall be construed without regard to the identity of the person who drafted the
various provisions of the same. Each and every provision of this Agreement and
such other documents and instruments shall be construed as though all of the
parties participated equally in the drafting of the same. Consequently, the
parties acknowledge and agree that any rule of construction that a document is
to be construed against the drafting party shall not be applicable either to
this Agreement or such other documents and instruments.
60
<PAGE> 65
IN WITNESS WHEREOF, Merger Sub, the Stockholders, the
members of the Investor Group and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
WESTAFF ACQUISITION CORP.
By: /s/ Michael E. Najjar
-------------------------------
Name: Michael E. Najjar
Title: President and Secretary
WESTAFF, INC.
By: /s/ Michael K. Phippen
-------------------------------
Name: Michael K. Phippen
Title: Ceo and President
<PAGE> 66
FOR PURPOSES OF ARTICLES I, V, VII AND VIII ONLY
THE STOVER REVOCABLE TRUST
By: /s/ W. Robert Stover
----------------------------------------------
Name: W. Robert Stover
Title: Trustee
By:
----------------------------------------------
Name: Joan C. Stover
Title: Trustee
THE STOVER 1999 CHARITABLE REMAINDER UNITRUST
By: /s/ W. Robert Stover
--------------------------------------------
Name: W. Robert Stover
Title: Trustee
By: /s/ Parker Williamson
-----------------------------------------
Name: Parker Williamson
Title: Trustee
THE STOVER FOUNDATION
By: /s/ W. Robert Stover
----------------------------------------
Name: W. Robert Stover
Title: Trustee
<PAGE> 67
FOR PURPOSES OF
ARTICLE IV and SECTIONS 1.01(c), 7.02, 7.03 (a),
(b), (c) and (d), 7.04, 7.08, 7.12(b) and 7.15
ONLY
CORNERSTONE EQUITY INVESTORS IV, L.P.
By: CORNERSTONE IV, L.L.C.
Its: General Partner
By: /s/ Michael E. Najjar
---------------------------------------------
Name: Michael E. Najjar
Title: Managing Director
CENTRE CAPITAL INVESTORS III, L.P.
By: Centre Partners III, L.P.,
As general partner of such partnership
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Robert Bergmann
-----------------------------------
Name: Robert Bergmann
Title: Managing Director
<PAGE> 1
EXHIBIT 2
SUPPORT AGREEMENT
This SUPPORT AGREEMENT is entered into as of March 7th, 2000, among
Westaff Acquisition Corp., a Delaware corporation ("WAC"), and the persons
listed on Schedule A hereto (each a "Stockholder", and, collectively, the
"Stockholders"). Capitalized terms not otherwise defined herein have the
meanings set forth in the Merger Agreement (defined below).
WHEREAS, Westaff, Inc., a Delaware corporation (the "Company") and WAC
have, simultaneously with the execution and delivery of this Agreement, entered
into a Recapitalization Agreement and Plan of Merger (as the same may be amended
or supplemented, the "Merger Agreement") providing for the merger of WAC with
and into the Company (the "Merger"), which Merger has been recommended by the
Special Committee of the Company's Board of Directors;
WHEREAS, each Stockholder is the record and beneficial owner of the
number of shares of Common Stock, par value $.01 per share, of the Company (the
"Company Common Stock") set forth opposite such Stockholder's name on Schedule A
hereto and under the heading "Total Shares" (such shares of the Company Common
Stock, as such shares may be adjusted by stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by the Company, together
with shares of the Company Common Stock that may be acquired after the date
hereof by such Stockholder, including shares of the Company Common Stock
issuable upon the exercise of options to purchase the Company Common Stock (as
the same may be adjusted as aforesaid), being collectively referred to herein as
the "Shares"); and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, WAC has requested that the Stockholders enter into this Agreement.
NOW, THEREFORE, to induce WAC to enter into, and in consideration of it
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder
acting solely in its capacity as a holder of the shares and not as a director of
the Company or in any other capacity, hereby, severally and not jointly,
represents and warrants to WAC as follows:
(a) AUTHORITY. The Stockholder has all requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Stockholder. This Agreement has been duly executed
and delivered by the Stockholder and, assuming this Agreement constitutes a
valid and binding obligation of WAC, constitutes a valid and binding obligation
of the Stockholder
<PAGE> 2
enforceable against the Stockholder in accordance with its terms. Except for the
expiration or termination of the waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
informational filings with the Securities and Exchange Commission, neither the
execution, delivery or performance of this Agreement by the Stockholder nor the
consummation by the Stockholder of the transactions contemplated hereby will (i)
require any filing with, or permit, authorization, consent or approval of, any
federal, state, local, municipal or foreign or other government or subdivision,
branch, department or agency thereof or any governmental or quasi-governmental
authority of any nature, including any court or other tribunal, (a "Governmental
Entity"), (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default under, or give rise to
any right of termination, amendment, cancellation or acceleration under, or
result in the creation of any lien, charge, security interest or other
encumbrance of any nature (a "Lien") upon any of the properties or assets of the
Stockholder under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, permit, concession, franchise, contract,
agreement or other instrument or obligation (a "Contract") to which the
Stockholder is a party or by which the Stockholder or any of the Stockholder's
properties or assets, including the Stockholder's Shares, may be bound or (iii)
violate any judgment, order, writ, preliminary or permanent injunction or decree
(an "Order") or any statute, law, ordinance, rule or regulation of any
Governmental Entity (a "Law") applicable to the Stockholder or any of the
Stockholder's properties or assets, including the Stockholder's Shares.
(b) THE SHARES. The Stockholder's Shares and the certificates
representing such Shares are now, and at all times during the term hereof will
be, held by such Stockholder, or by a nominee or custodian for the benefit of
such Stockholder, and the Stockholder has good and marketable title to such
Shares, free and clear of any Liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such Liens or proxies arising
hereunder. The Stockholder owns of record or beneficially no shares of the
Company Common Stock other than such Stockholder's Shares and shares of the
Company Common Stock issuable upon the exercise of Company stock options, as set
forth on Schedule A hereto.
(c) MERGER AGREEMENT. The Stockholder understands and
acknowledges that WAC is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement. The Stockholder
covenants and agrees that it will timely perform all of its obligations under
the Merger Agreement and under this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF WAC. WAC hereby represents and
warrants to the Stockholders as follows:
(a) AUTHORITY. WAC has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by WAC and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of WAC. This Agreement has been duly executed and delivered by WAC and, assuming
this
-2-
<PAGE> 3
Agreement constitutes a valid and binding obligation of the Stockholders,
constitutes a valid and binding obligation of WAC enforceable in accordance with
its terms.
(b) SECURITIES ACT. The Shares will be acquired in compliance
with, and WAC will not offer to sell or otherwise dispose of any Shares so
acquired by it in violation of the registration requirements of the Securities
Act of 1933, as amended.
(c) INVESTMENT IN WAC BY THE STOVER REVOCABLE TRUST. The Stover
Revocable Trust will acquire shares of capital stock of the Surviving
Corporation (as defined in the Merger Agreement) as provided in the Merger
Agreement. The Stover Revocable Trust will purchase such shares (i) at the same
price per share and (ii) in the same ratio as between different classes of
shares of capital stock as members of the Investor Group in connection with the
Equity Contribution (as such terms are defined in the Merger Agreement). No
member of the Investor Group, and no affiliate of any such member, will have any
equity interest, or right to acquire any equity interest, in the Surviving
Corporation, other than rights which the Stover Revocable Trust shares on a pro
rata basis.
3. COVENANTS OF THE STOCKHOLDERS. Each Stockholder, severally and not
jointly, to the extent he has the capacity to vote, solely in his capacity as
holder of the Shares and not as a director of the Company or in any other
capacity, agrees as follows:
(a) Such Stockholder shall not, except as contemplated by the
terms of this Agreement or the Merger Agreement, (i) sell, transfer, pledge,
assign or otherwise dispose of, or enter into any Contract, option or other
arrangement (including any profit sharing arrangement) or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of his
Shares to any person other than WAC or WAC's designee, (ii) enter into any
voting arrangement, whether by proxy, voting agreement, voting trust,
power-of-attorney or otherwise, with respect to his Shares or (iii) take any
other action that would in any way restrict, limit or interfere with the
performance of his obligations hereunder or the transactions contemplated
hereby.
(b) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) with respect to the Merger and the Merger Agreement is sought,
each Stockholder shall as requested by WAC (including, without limitation, by
cooperating with WAC with respect to the proxy granted to WAC pursuant to
Section 5 below), vote (or cause to be voted) such Stockholder's Shares in favor
of the Merger, the adoption by the Company of the Merger Agreement and the
approval of the other transactions contemplated by the Merger Agreement. At any
meeting of Stockholders of the Company or at any adjournment thereof or in any
other circumstances upon which the Stockholder's vote, consent or other approval
is sought, such Stockholder shall as requested by WAC as provided above vote (or
cause to be voted) such Stockholder's Shares against (i) any Competing
Transaction (as defined in the Merger Agreement) or (ii) any amendment of the
Company's Certificate of Incorporation or by-
-3-
<PAGE> 4
laws or other proposal or transaction involving the Company or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify, the Merger, the Merger Agreement
or any of the other transactions contemplated by the Merger Agreement
(collectively, "Frustrating Transactions").
4. NOTICE OF ACQUISITION OF ADDITIONAL SHARES. Each Stockholder hereby
agrees, while this Agreement is in effect, to promptly notify WAC of the number
of any new shares of Company Common Stock acquired by such Stockholder, if any,
after the date hereof.
5. GRANT OF PROXY COUPLED WITH AN INTEREST; APPOINTMENT OF PROXY.
(a) Solely for the purpose of allowing enforcement of each
Stockholder's obligations under Section 3(b), each Stockholder hereby
irrevocably grants to, and appoints, Michael Najjar, Dana O'Brian, Robert
Bergmann, and any other individual who shall hereafter be designated by WAC,
such Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of such Stockholder, to vote such
Stockholder's Shares, or grant a consent or approval in respect of such Shares,
at any meeting of stockholders of the Company or at any adjournment thereof or
in any other circumstances upon which their vote, consent or other approval is
sought, (i) in favor of the Merger, the adoption by the Company of the Merger
Agreement and the approval of the other transactions contemplated by the Merger
Agreement and (ii) against any Alternative Transaction or Frustrating
Transaction.
(b) Each Stockholder represents that any proxies heretofore given
in respect of such Stockholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) Each Stockholder hereby affirms that the proxy set forth in
this Section 5 is coupled with an interest and is irrevocable until the earlier
of (i) such time as this Agreement terminates in accordance with its terms, (ii)
consummation of the Merger in accordance with the terms of the Merger Agreement,
(iii) termination of the Merger Agreement by WAC in accordance with its terms or
(iv) termination of the Merger Agreement by the Company in accordance with its
terms. Such Stockholder hereby further affirms that the proxy is given in
connection with the execution of the Merger Agreement, and that such proxy is
given to secure the performance of the duties of such Stockholder under this
Agreement.
6. STOCKHOLDERS AGREEMENT. Simultaneously with the closing of the
Merger, each Stockholder will execute and deliver to WAC or its designee a
Stockholders Agreement in form and substance reasonably satisfactory to WAC
containing the terms set forth in the term sheet annexed hereto as Exhibit A.
7. TERMINATION OF EMPLOYMENT AGREEMENT. Effective upon the closing of
the Merger, all obligations of the Company and its subsidiaries to W. Robert
Stover under that certain
-4-
<PAGE> 5
Employment Agreement effective as of January 1, 1999 by and between W. Robert
Stover and the Company (the "Employment Agreement") shall terminate, and the
Employment Agreement shall be of no further force or effect.
8. FURTHER ASSURANCES. Solely for the purpose of allowing enforcement of
each Stockholder's obligations under Section 3(b), each Stockholder will, from
time to time, execute and deliver, or cause to be executed and delivered, such
additional or further transfers, assignments, endorsements, consents and other
instruments as WAC may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement and to vest the
power to vote such Stockholder's Shares as contemplated by Section 3. WAC agrees
to use reasonable efforts to take, or cause to be taken, all actions necessary
to comply promptly with all legal requirements that may be imposed with respect
to the transactions contemplated by this Agreement (including legal requirements
of the HSR Act).
9. COMPETING TRANSACTION FEE. The Stockholders agree that in the event
(i) a Competing Transaction (as defined in the Merger Agreement) is consummated
within twelve months of the date of this Agreement, or (ii) the Company or any
Stockholder enters into definitive agreements related to a Competing Transaction
at any time during the twelve months after the termination of the Merger
Agreement (x) by the Company or the Stockholders for any reason other than a
termination under Sections 9.01(a) and 9.01(e) of the Merger Agreement or (y) by
WAC for any reason permitted under the Merger Agreement other than a termination
under Section 9.01(a) of the Merger Agreement, and if such Competing Transaction
is eventually consummated, then in either case the Stockholders jointly and
severally agree to pay to WAC an amount in cash equal to the Competing
Transaction Fee simultaneously with the closing of such Competing Transaction.
For purposes hereof, the "Competing Transaction Fee" shall mean the product of
(i) 50%, multiplied by (ii) the total number of Shares sold by the Stockholders
in the Competing Transaction, multiplied by (iii) the excess, if any, of (a) the
price per Share to be received plus the amount per Share of the fair market
value of any other consideration to be received in any form (including without
limitation earn-out payments, bonus payments, excess compensation payments,
etc.) by the Stockholders in the Competing Transaction over (b) $10.00.
10. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and assigns. Notwithstanding
the foregoing, WAC shall have the right to assign its rights, interests and
obligations hereunder to any person controlling, controlled by or under common
control with Cornerstone Equity Investors, LLC and/or Centre Partners Management
LLC at its sole option and without the prior written consent of the other
parties hereto; provided that no such assignment shall relieve WAC of its
obligations hereunder and the rights of the tranferee will be subject to all
defenses, excuses, claims and counterclaims assertable against WAC.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this
-5-
<PAGE> 6
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
11. GENERAL PROVISIONS.
(a) PAYMENTS. All payments required to be made to any party to
this Agreement shall be made by Wire Transfer to an account designated by the
recipient at least one business day prior to such payment.
(b) EXPENSES. Subject to the terms of the Merger Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
(c) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(d) NOTICE. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to WAC, to
Cornerstone Equity Investors L.L.C.
717 Fifth Avenue
New York, New York 10022
Telecopy: (212) 826-6798
Attention: Dana O'Brien and Michael Najjar
Centre Capital Investors III, L.P.
30 Rockefeller Plaza
Suite 5050
New York, New York 10020
Telecopy: (212) 332-5800
Attention: Robert A. Bergmann and Steven M. Shapiro
-6-
<PAGE> 7
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Telecopy: (212) 446-4900
Attention: Frederick Tanne, Esq.
and
(ii) if to a Stockholder, to the address set forth under
the name of such Stockholder on Schedule A hereto
with a copy to:
McCutchen, Doyle, Brown & Enerson, LLP
3150 Porter Drive
Palo Alto, California 94304
Telecopy: (650) 849-4800
Attention: Bart Deamer, Esq.
(e) INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(g) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein) (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 hereof including, without limitation, the letter agreement dated
December 28, 1999 between W. Robert Stover, Cornerstone Equity Investors IV,
L.P., and Centre Partners Management LLC and (ii) is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
-7-
<PAGE> 8
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
any applicable conflicts of law principles.
(i) PUBLICITY. WAC and the Stockholders shall consult with each
other and the Company before issuing any press release or otherwise making any
public statements with respect to this Agreement or any of the transactions
contemplated by the Merger Agreement. Prior to the closing of the Merger, WAC
and the Stockholders shall not issue any such press release or make any such
public statement without the prior consent of the other (which consent shall not
be unreasonably withheld), except as may be required by Law or any listing
agreement with the NASD or any national securities exchange to which WAC or the
Company is a party and, in such case, shall use reasonable effects to consult
with all the parties hereto prior to such release or statement being issued. The
parties shall agree on the text of a joint press release by which WAC and the
Company will announce the execution of this Agreement.
12. STOCKHOLDER CAPACITY. No person executing this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his or her capacity as a director or
officer of the Company. Each Stockholder signs solely in his capacity as the
record holder and beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, such Stockholder's Shares and
nothing herein shall limit or affect any actions taken by a Stockholder in his
capacity as an officer or director of the Company to the extent specifically
permitted by the Merger Agreement.
13. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in a court of the United States in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any of the transactions contemplated hereby.
14. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
15. TERMINATION. The provisions of Sections 3, 4, 5, 6, 7 and 8 shall
terminate automatically and be of no further force and effect upon the
termination of the Merger Agreement. In addition, notwithstanding anything to
the contrary herein, the obligations of the Stockholders
-8-
<PAGE> 9
pursuant to Sections 3 and 5 of this Agreement shall terminate and be of no
further force and effect at such time as the Company shall have terminated the
Merger Agreement pursuant to Section 9.01(g) thereof; provided that it is
expressly agreed that the obligations of the Stockholders under Section 9 of
this Agreement shall survive any such termination.
* * * * *
-9-
<PAGE> 10
IN WITNESS WHEREOF, WAC and each Stockholder has caused this
Agreement to be duly executed and delivered as of the date first written above.
WAC
By: /s/ Michael E. Najjar
----------------------------------
Name: Michael E. Najjar
Title: President and Secretary
-10-
<PAGE> 11
STOCKHOLDERS:
THE STOVER REVOCABLE TRUST
By: /s/ W. Robert Stover
---------------------------------
Name: W. Robert Stover
Title: Trustee
By:
---------------------------------
Name: Joan C. Stover
Title: Trustee
THE STOVER 1999 CHARITABLE
REMAINDER UNITRUST
By: /s/ W. Robert Stover
----------------------------------
Name: W. Robert Stover
Title: Trustee
By: /s/ Parker Williamson
----------------------------------
Name: Parker Williamson
Title: Trustee
THE STOVER FOUNDATION
By: /s/ W. Robert Stover
----------------------------------
Name: W. Robert Stover
Title: Trustee
-11-
<PAGE> 12
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF OPTIONS TO
PURCHASE THE COMPANY
STOCKHOLDER AND ADDRESS TOTAL SHARES COMMON STOCK
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
The Stover Revocable Trust 2,060,705 None
1656 N.California Boulevard
Suite 250
Walnut Creek, CA 94596
The Stover 1999 Charitable 4,402,263 None
Remainder Unitrust
1656 N. California Boulevard
Suite 250
Walnut Creek, CA 94596
The Stover Foundation 2,000,000 None
1656 N. California Boulevard
Suite 250
Walnut Creek, CA 94596
</TABLE>
<PAGE> 1
EXHIBIT 3
BANK OF AMERICA, N.A.
BANK OF AMERICA CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
BANC OF AMERICA SECURITIES LLC
9 W. 57TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10019
March 7, 2000
Cornerstone Equity Investors IV, L.P.
717 Fifth Avenue, 11th Floor
New York, New York 10022
Attention: Mr. Michael Najjar
Centre Capital Investors III, L.P.
30 Rockefeller Plaza, 50th Floor
New York, New York 10020
Attention: Mr. Robert Bergmann
Re: $155,000,000 Senior Secured Credit Facilities
Commitment Letter
Gentlemen:
Each of (i) Cornerstone Equity Investors IV, L.P. and (ii) Centre Capital
Investors III, L.P. and related entities ((i) and (ii) collectively, the
"BUYERS") have advised Bank of America, N.A. ("BANK OF AMERICA") and Banc of
America Securities LLC ("BAS") that they intend, through a newly-organized
special purpose corporation ("NEWCO"), to invest in a leveraged recapitalization
(the "TRANSACTION") of Westaff, Inc. (the "BORROWER") which will merge with
Newco, with the Borrower being the surviving entity of such merger. The
respective amounts anticipated to be expended in connection with the Transaction
are set forth in the Sources and Uses Table attached hereto as Schedule I.
References herein to the "Transaction" shall include the financing described
herein, and all other transactions related to the Transaction.
You have also advised us that you propose to finance the Transaction, the
related premiums, fees and expenses and the ongoing general corporate needs of
the Borrower and its subsidiaries after completion of the Transaction from the
following sources: (a) $68.3 million in common and preferred equity on terms to
be agreed upon by you and us (the "EQUITY FINANCING"), consisting of $63.9
million in new equity ($16.0 million of which shall be common equity and $47.9
million of which shall be redeemable preferred equity) and $4.4 million of
rollover equity held by certain existing stockholders of the Borrower ($1.1
million of which shall be common equity and $3.3 million of which shall be
redeemable preferred equity), (b) approximately $155.0 million from senior
credit facilities (the "SENIOR CREDIT FACILITIES") of the Borrower comprised of
a $100.0 million term loan facility (the "TERM LOAN FACILITY") and a $55.0
million revolving credit facility (the "REVOLVING CREDIT FACILITY") and (c)
$35.0 million in subordinated mezzanine financing (the "SUBORDINATED NOTES").
The
<PAGE> 2
Cornerstone Equity Investors IV, L.P.
Centre Capital Investors III, L.P.
March 7, 2000
Page 2
Revolving Credit Facility will also be available to finance the continuing
operations of the Borrower and its subsidiaries after consummation of the
Transaction.
In connection with the foregoing, Bank of America is pleased to advise you of
its commitment (this letter being the "COMMITMENT LETTER") to act as exclusive
administrative agent for (in such capacity, the "ADMINISTRATIVE AGENT"), and to
provide the full principal amount of, the Senior Credit Facilities, in each case
upon and subject to the terms and conditions of this letter and the Summary of
Terms and Conditions attached hereto as Exhibit A (the "TERM SHEET"). BAS is
pleased to advise you of its willingness, as sole and exclusive Lead Arranger,
Book Manager and Syndication Agent for the Senior Credit Facilities, to form a
syndicate of financial institutions (the "LENDERS") reasonably acceptable to you
for the Senior Credit Facilities.
Bank of America will act as sole and exclusive Administrative Agent for the
Senior Credit Facilities and BAS will act as sole and exclusive Lead Arranger,
Book Manager and Syndication Agent for the Senior Credit Facilities. No
additional agents, co-agents, arrangers or book managers will be appointed and
no other titles will be awarded without our prior written approval.
BAS intends to commence syndication efforts promptly following the execution of
the Transaction Documents (as defined below), and you agree to actively assist,
and to cause the Borrower to assist, BAS in achieving a syndication of the
Senior Credit Facilities that is reasonably satisfactory to it. Such assistance
by you and the Borrower shall include (a) your providing and using your
commercially reasonable efforts to cause the Borrower and your advisors to
provide us, and the other Lenders upon reasonable request, with all information
reasonably deemed necessary by us to complete syndication, including, but not
limited to, information and evaluations prepared by the Buyers and the Borrower
and their advisors, or on their behalf, relating to the Transaction; (b)
assistance in the preparation of an Offering Memorandum to be used in connection
with the syndication; (c) your using commercially reasonable efforts to ensure
that the syndication efforts benefit materially from existing lending
relationships of the Buyers and the Borrower; and (d) otherwise assisting us in
our syndication efforts, including using your commercially reasonable efforts to
make senior management and advisors of the Buyers and the Borrower and their
subsidiaries available from time to time to attend and make presentations
regarding the business and prospects of the Borrower and its subsidiaries, as
appropriate, at one or more meetings of prospective Lenders.
It is understood and agreed that Bank of America and BAS, after consultation
with you, will manage and control, in consultation with you, all aspects of the
syndication, including decisions as to the selection of proposed Lenders and any
titles offered to proposed Lenders, when commitments will be accepted and the
final allocations of the commitments among the Lenders. BAS shall use reasonable
efforts to include lenders with which you have lending relationships or which
you otherwise identify to us among the group of lenders invited to participate
in the Senior Credit Facilities pursuant to the syndication contemplated under
this Commitment Letter. It is understood that no Lender participating in the
Senior Credit Facilities will receive compensation from you in order to obtain
its commitment, except on the terms contained herein and in the Term Sheet. It
is also understood and agreed that the amount and distribution of the fees among
the Lenders will be at our sole discretion and that any syndication prior to
execution of the definitive documentation for the Senior Credit Facilities will
reduce the commitment of Bank of America.
The commitment of Bank of America hereunder and the agreement of BAS to provide
the services described herein are subject to the agreement in the preceding
paragraph and the satisfaction of each of the following conditions precedent in
a manner acceptable to us in our sole discretion: (a) each of the terms and
conditions set forth herein and in the Term Sheet and the Fee Letter; (b)
sources and uses of funds approximately equal to those set forth in the table
attached hereto as Schedule I (including with respect to the total amount of
equity funding); (c) the absence of a material breach of any representation,
warranty or agreement of the Buyer or the Borrower set forth herein; (d) the
execution by the Borrower and the Buyer and/or other appropriate parties of a
definite purchase agreement and other related documentation for the Transaction
(collectively, the "TRANSACTION DOCUMENTS"), which Transaction Documents shall
be in form and substance reasonably satisfactory to us; (e) our satisfaction
that prior to and during the syndication of the Senior Credit Facilities there
shall be no competing offering, placement or arrangement of any debt securities
or bank
<PAGE> 3
Cornerstone Equity Investors IV, L.P.
Centre Capital Investors III, L.P.
March 7, 2000
Page 3
financing by or on behalf of the Borrower (other than the Subordinated Notes
described herein); (f) the negotiation, execution and delivery of definitive
documentation for the Senior Credit Facilities consistent with the Term Sheet
and otherwise satisfactory to us (the "CREDIT AGREEMENT DOCUMENTS"); (g) no
material adverse change in or material disruption of conditions in the
financial, banking or capital markets which we, in our reasonable discretion,
deem material in connection with the syndication of the Senior Credit Facilities
shall have occurred and be continuing; (h) no change, effect, event, occurrence,
condition or development that is or is reasonably likely to be materially
adverse to (A) the business, assets, liabilities, properties, results of
operations, prospects or condition (financial or otherwise) of the Borrower and
its subsidiaries, taken as a whole, or (B) the ability of the Borrower to
perform its obligations under the Transaction Documents or the Credit Agreement
Documents, shall have occurred; and (i) our not becoming aware after the date
hereof of any information or other matter which in our judgment is inconsistent
in a material and adverse manner with any information or other matter disclosed
to us prior to the date hereof (in which case we may, in our sole discretion,
suggest alternative financing amounts or structures that ensure adequate
protection for the Lenders or terminate this letter and any commitment or
undertaking hereunder).
You hereby represent, warrant and covenant that, to your knowledge, (a) all
information, other than the Projections (defined below), which has been or will
be made available to us or the Lenders by you or any of your representatives in
connection with the transactions contemplated hereby (the "INFORMATION") is, or
will be when furnished, when taken as a whole, complete and correct in all
material respects and does not, or will not when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not materially misleading in light of the
circumstances when made, and (b) all projections concerning the Borrower and its
subsidiaries that have been or will be made available to us or the Lenders by
you or any of your representatives (the "PROJECTIONS") have been or will be
prepared in good faith based upon assumptions you believe to be reasonable. You
agree to furnish us with such Information and Projections as we may reasonably
request (including due diligence investigations of the Borrower prepared by
accountants and advisors of the Buyers to the extent permitted by such
accountants and advisors) and to supplement the Information and the Projections
from time to time until the closing date for the Senior Credit Facilities to the
extent necessary. You understand that, in arranging and syndicating the Senior
Credit Facilities, Bank of America and BAS will be using and relying on the
Information and the Projections without independent verification thereof.
By acceptance of this offer, you agree to pay all reasonable third-party
out-of-pocket fees and expenses incurred before or after the date hereof by us
in connection with the Senior Credit Facilities, the syndication thereof and the
other transactions contemplated hereby.
You agree to indemnify and hold harmless Bank of America, BAS and each of their
affiliates and their directors, officers, employees, advisors and agents (each,
an "INDEMNIFIED PARTY") from and against (and will reimburse each Indemnified
Party as the same are incurred) any and all losses, claims, damages,
liabilities, and reasonable expenses (including, without limitation, the
reasonable fees and expenses of counsel and, without duplication, the allocated
cost of internal counsel) that may be incurred by or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
(a) the Transaction and any of the other transactions contemplated thereby, or
(b) the Senior Credit Facilities or any use made or proposed to be made with the
proceeds thereof, unless and only to the extent that, as to any Indemnified
Party, it shall be determined in a final, nonappealable judgment by a court of
competent jurisdiction that such losses, claims, damages, liabilities or
expenses resulted primarily from the gross negligence, bad faith or willful
misconduct of such Indemnified Party. In the case of any investigation,
litigation or proceeding to which the indemnity in this paragraph applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by you, your shareholders or creditors or an Indemnified
Party and whether or not the Transaction is consummated. Without limiting the
first sentence of this paragraph, no Indemnified Party or other party hereto
shall be liable to any other party hereto or its subsidiaries or affiliates or
to its or their respective security holders or creditors for any special,
indirect, consequential or punitive damages arising out of, related to or in
connection with the Transaction or any of the financings.
<PAGE> 4
Cornerstone Equity Investors IV, L.P.
Centre Capital Investors III, L.P.
March 7, 2000
Page 4
The terms of this Commitment Letter, the Term Sheet and the fee letter among you
and us of even date herewith (the "FEE LETTER") are confidential and, except for
disclosure on a confidential basis to your accountants, attorneys, board, equity
holders and other professional advisors retained by you in connection with the
Senior Credit Facilities or as may be required by law, may not be disclosed in
whole or in part to any other person or entity (including the Borrower) without
our prior written consent; provided, however, it is understood and agreed that
you may disclose the terms of this Commitment Letter and the Term Sheet (but not
the Fee Letter) (i) on a confidential basis to the officers, equity holders,
board of directors and advisors of the Borrower in connection with their
consideration of the Transaction, and (ii) after your acceptance of this
Commitment Letter and the Fee Letter, in filings with the SEC and other
applicable regulatory authorities and stock exchanges, and in proxy and other
materials disseminated to stockholders and other purchasers of securities of the
Borrower.
The provisions of the immediately preceding three paragraphs shall remain in
full force and effect regardless of whether any definitive documentation for the
Senior Credit Facilities shall be executed and notwithstanding the termination
of this Commitment Letter or any commitment or undertaking hereunder; provided,
however, that the Buyers shall be deemed released of their reimbursement and
indemnification obligations hereunder upon the execution of all the Credit
Agreement Documents. The liability of the Buyers for all representations,
warranties, covenants and other agreements of the Buyers contained in the
immediately preceding three paragraphs and elsewhere in this Commitment Letter
and the Fee Letter shall be joint and several.
In connection with the services and transactions contemplated hereby, the Buyers
agree that Bank of America and BAS are permitted to access, use and share with
any of their bank or non-bank affiliates, agents, advisors (legal or otherwise)
or representatives, any information concerning the Buyers, Newco, the Borrower
or any of their respective affiliates that is or may come into the possession of
Bank of America, BAS or any of such affiliates. Bank of America, BAS and their
affiliates will treat confidential information relating to the Buyers, Newco,
the Borrower and their respective affiliates with the same degree of care as
they treat their own confidential information.
This Commitment Letter and the Fee Letter shall be governed by laws of the State
of New York. Each of us hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Commitment Letter, the Term Sheet,
the Fee Letter, the transactions contemplated hereby and thereby or the actions
of Bank of America and BAS in the negotiation, performance or enforcement
hereof.
This Commitment Letter, together with the Term Sheet and the Fee Letter, are the
only agreements that have been entered into among us with respect to the Senior
Credit Facilities and set forth the entire understanding of the parties with
respect thereto. This letter may be modified or amended only by the written
agreement of all of us. This letter is not assignable by you without our prior
written consent and is intended to be solely for the benefit of the parties
hereto and the Indemnified Parties.
This offer will expire at 5:00 p.m. eastern standard time on March 8, 2000
unless you execute this Commitment Letter and the Fee Letter and return them to
us prior to that time (which may be by facsimile transmission), whereupon this
Commitment Letter and the Fee Letter (each of which may be signed in one or more
counterparts) shall become binding agreements. Thereafter, this undertaking and
commitment will expire on the earliest to occur of (a) the closing of the
Transaction without the use of the Senior Credit Facilities, (b) the acceptance
by the Borrower or any of its affiliates of an offer for all or any substantial
part of the capital stock or assets of the Borrower other than the offer
contemplated hereby, and (c) July 31, 2000 unless definitive documentation for
the Senior Credit Facilities is executed and delivered prior to such date.
<PAGE> 5
Cornerstone Equity Investors IV, L.P.
Centre Capital Investors III, L.P.
March 7, 2000
Page 5
We are pleased to have the opportunity to work with you in connection with this
important financing.
Very truly yours,
BANK OF AMERICA, N.A.
By: [SIG]
---------------------------
Title: Principal
BANC OF AMERICA SECURITIES LLC
By: [SIG]
---------------------------
Title: Principal
Accepted and Agreed to
as of
-----------------,
CORNERSTONE EQUITY INVESTORS IV, L.P.
By: /s/ Michael E. Najjar
---------------------------
Title: Managing Director
CENTRE PARTNERS MANAGEMENT LLC
By: /s/ Robert Bergmann
---------------------------
Title: Managing Director
<PAGE> 6
SCHEDULE I
SOURCES AND USES TABLE
<TABLE>
<CAPTION>
SOURCES OF FUNDS ($MMS) USES OF FUNDS ($MMS)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Credit Facility: Purchase of Equity $160.2
Revolver(1) $12.5
Term Loan 100.0 Refinance Outstanding Debt(2) $42.8
-------
Total Senior Debt $112.5
Transaction Fees and Expenses(3) $12.0
Senior Subordinated Loan $35.0
Cash on Hand $0.8
Equity:
Rollover Redeemable $3.3
Preferred
New Redeemable Preferred 47.9
Rollover Common Equity 1.1
New Common Equity 16.0
-------
Total Equity $68.3
------- -------
Total Sources of Funds $215.8 Total Uses of Funds $215.8
======= =======
</TABLE>
(1) Includes up to $5 million of Revolver to be funded within 5 days
after Closing for Transaction Fees and Expenses.
(2) Debt to be refinanced represents the amount scheduled to be
outstanding as of April 15, 2000.
(3) Includes up to $5 million of Transaction Fees and Expenses to be
paid within 5 days after Closing.
<PAGE> 7
EXHIBIT A
WESTAFF, INC.
SUMMARY OF TERMS AND CONDITIONS
MARCH 7, 2000
Unless otherwise defined herein, capitalized terms shall have the definitions
assigned to them in the Senior Secured Credit Facilities Commitment Letter (the
"COMMITMENT LETTER"), dated of even date herewith, to which this Summary of
Terms and Conditions is attached.
================================================================================
BORROWER: Westaff, Inc., a Delaware corporation (the "BORROWER" or
"WESTAFF").
TRANSACTION: The Borrower will be acquired by (i) Cornerstone Equity
Investors IV, L.P. and (ii) Centre Capital Investors
III, L.P. and related entities ((i) and (ii)
collectively, the "SPONSORS") and certain other persons.
The Transaction (as defined below) will be structured as
a merger of a special purpose corporation ("NEWCO") with
and into the Borrower, in which the Borrower will be the
surviving corporation (the "TRANSACTION").
GUARANTORS: The Senior Credit Facilities (defined below) shall be
guaranteed by each existing and future direct and
indirect domestic subsidiary of the Borrower
(collectively, the "GUARANTORS") upon consummation of
the Transaction. All guarantees shall be guarantees of
payment and not of collection.
ADMINISTRATIVE AGENT: Bank of America, N.A. (the "ADMINISTRATIVE AGENT" or
"BANK OF AMERICA") will act as sole and exclusive
administrative and collateral agent.
LEAD ARRANGER,
BOOKMANAGER AND
SYNDICATION AGENT: Banc of America Securities LLC ("BAS").
LENDERS: A syndicate of financial institutions (including Bank of
America) arranged by BAS (collectively, the "LENDERS").
SENIOR CREDIT
FACILITIES: An aggregate principal amount of $155.0 million will be
available upon the terms and conditions hereinafter set
forth:
Revolving Credit Facility: $55.0 million revolving
credit facility (the "REVOLVING CREDIT FACILITY"), which
will include a $30 million sublimit for the issuance of
letters of credit (primarily for the purpose of backing
workers compensation liabilities) (each a "LETTER OF
CREDIT") and a $5.0 million sublimit for swing line
loans ("SWING LINE LOANS"). Letters of Credit will be
issued by Bank of America (in such capacity, the
"FRONTING BANK"), and each Lender under the Revolving
Credit Facility will purchase an irrevocable and
unconditional participation in each Letter of Credit.
Swing Line Loans will be made by Bank of America (in
such capacity, the "SWING LINE LENDER"), and each Lender
under the Revolving Credit Facility will purchase an
unconditional participation in each Swing Line Loan.
Term Loan Facility: $100.0 million term loan facility
(the "TERM LOAN FACILITY"), all of which will be drawn
on the Closing Date, provided that BAS
- -------------------------------------------------------------------------
A-1
<PAGE> 8
may, based upon market demand, reallocate a portion of
(as separately agreed between the Borrower and BAS) the
Term Loan Facility to a seven year "B" term loan with
minimal amortization during the first six years.
The Revolving Credit Facility and the Term Loan Facility
are collectively referred to herein as the "SENIOR
CREDIT FACILITIES".
PURPOSE: The proceeds of the Senior Credit Facilities shall be
used: (i) to refinance the outstanding principal amount
of existing indebtedness of the Borrower; (ii) to pay
the cash portion of the purchase price for the Borrower
pursuant to the Transaction Documents (as defined
below); (iii) to pay fees and expenses incurred in
connection with the Transaction; and (iv) to provide for
working capital and other general corporate purposes of
the Borrower and its subsidiaries.
CLOSING: The execution of definitive loan documentation, to occur
on or before July 31, 2000 (the "CLOSING").
INTEREST RATES: As set forth in Addendum I.
MATURITY: The Revolving Credit Facility shall terminate and all
amounts outstanding thereunder shall be due and payable
in full 6 years from the date of Closing (the "CLOSING
DATE").
The Term Loan Facility shall be subject to repayment
according to the Scheduled Amortization, with the final
payment of all amounts outstanding thereunder being due
and payable in full 6 years from the Closing Date.
AVAILABILITY/
SCHEDULED
AMORTIZATION: Revolving Credit Facility: Loans under the Revolving
Credit Facility ("REVOLVING CREDIT LOANS") may be made,
and Letters of Credit may be issued, on a revolving
basis up to the full amount of the Revolving Credit
Facility.
Term Loan Facility: Loans made under the Term Loan
Facility ("TERM LOANS") will be available in a single
borrowing at Closing. The Term Loan Facility will be
subject to quarterly amortization of principal (except
with respect to the first year after the Closing Date,
during which principal will amortize in two
installments, one due nine months after Closing and the
second due on the first anniversary of the Closing
Date), based upon the annual amounts set forth below and
the installments in each year shall be equal in amount
(the "SCHEDULED AMORTIZATION").
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Loan year 1 $5,000,000
Loan year 2 10,000,000
Loan year 3 12,500,000
Loan year 4 15,000,000
Loan year 5 20,000,000
Loan year 6 37,500,000
------------
Total $100,000,000
</TABLE>
SECURITY: Concurrently with the Transaction, the Administrative
Agent (on behalf of the Lenders) shall receive a first
priority perfected security interest (i) in all of the
capital stock of each of the domestic subsidiaries
(direct or indirect) of the Borrower owned by the
Borrower or a domestic company and 65% of the
- -------------------------------------------------------------------------
A-2
<PAGE> 9
capital stock of each foreign subsidiary (direct or
indirect) of the Borrower owned by the Borrower or a
domestic company, which capital stock shall not be
subject to any other lien or encumbrance; and (ii)
substantially all other present and future domestic
assets and properties of the Borrower and its
subsidiaries (including, without limitation, accounts
receivable, inventory, owned real property, machinery,
equipment, contracts, trademarks, copyrights, patents,
license rights and general intangibles) (subject to
certain permitted liens to be agreed); provided that the
above list shall not include those assets as to which
the Administrative Agent shall determine in its sole
discretion that the costs and legal difficulties of
obtaining such a security are excessive in relation to
the value of the security to be afforded thereby.
The foregoing security shall ratably secure the Senior
Credit Facilities and any interest rate swap/foreign
currency swap or similar agreements with a Lender or its
affiliates under the Senior Credit Facilities.
MANDATORY PREPAYMENTS
AND COMMITMENT
REDUCTIONS: In addition to the Scheduled Amortization, the Senior
Credit Facilities will be prepaid by an amount equal to
(i) 100% of the net cash proceeds of all asset sales by
the Borrower or any subsidiary of the Borrower
(including sales of stock of subsidiaries), subject to
de minimis baskets and reinvestment provisions to be
agreed upon and net of selling expenses and taxes and
other amounts to be agreed; (ii) 75% of Excess Cash Flow
(to be defined in the loan documentation) in fiscal year
2001 and thereafter, reducing to 50% of Excess Cash Flow
upon achieving a to-be-determined Maximum Leverage
Ratio, pursuant to an annual cash sweep arrangement;
(iii) 100% of the net cash proceeds from the issuance of
any debt (excluding the Subordinated Notes to be issued
in connection with this Transaction) by the Borrower or
any subsidiary of the Borrower (other than certain debt
to be agreed); and (iv) 50% of the net cash proceeds
from the issuance of equity by the Borrower or any
subsidiary of the Borrower (subject to exceptions and
qualifications to be agreed). Prepayments shall be
applied to reduce the Term Loan Facility pro rata with
respect to each remaining installment of principal.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Senior Credit Facilities in
whole or in part at any time without penalty, subject to
reimbursement of the Lenders' breakage and redeployment
costs in the case of prepayment of LIBOR borrowings.
Prepayments shall be applied to reduce the Term Loans
pro rata with respect to each remaining installment of
principal. The unutilized portion of any commitment
under the Revolving Credit Facility may be irrevocably
canceled in whole or in part.
CONDITIONS
PRECEDENT TO
CLOSING: The Closing (and the initial funding) of the Senior
Credit Facilities will be subject to satisfaction on or
prior to July 31, 2000 of customary conditions precedent
deemed appropriate by the Administrative Agent and the
Lenders for leveraged financings generally and for this
transaction in particular, including, but not limited
to, the following:
- -------------------------------------------------------------------------
A-3
<PAGE> 10
(i) Concurrent Transactions; Documentation. The
Equity Financing and the Subordinated Notes
shall have been issued on terms reasonably
satisfactory to the Administrative Agent
pursuant to definitive documentation in form and
substance reasonably satisfactory to the
Administrative Agent. The Transaction shall have
been consummated on terms reasonably
satisfactory to the Administrative Agent
pursuant to the Transaction Documents, and all
material conditions precedent to the
consummation of the Transaction Documents shall
have been satisfied or, with the prior approval
of the Administrative Agent, waived. The
Transaction Documents shall not have been
amended or waived in any material respect
without the prior approval of the Administrative
Agent. The Borrower and the Guarantors shall
have entered into the Credit Agreement Documents
in form and substance satisfactory to the
Administrative Agent, the Lenders and BAS, and
all conditions precedent to the initial
borrowings shall have been satisfied.
(ii) Refinancing of Indebtedness; Liens.
Substantially all of the indebtedness of the
Borrower shall be repaid concurrently with the
consummation of the Transaction and all liens
securing such indebtedness shall have been
released on terms satisfactory to the
Administrative Agent. In the event that the
total indebtedness of the Borrower to be
refinanced in connection with the Transaction is
greater than $50 million and the day sales
outstanding is greater than 46 days, the
Borrower shall be permitted to sell at face
value a strip of accounts receivable to W.
Robert Stover until the day sales outstanding is
reduced to 46 days, provided that the accounts
receivable to be sold shall be in an amount no
greater than $5 million.
(iii) Capitalization; Etc. After giving effect to the
Transaction, the Administrative Agent shall be
reasonably satisfied with the corporate, capital
and ownership structure (including articles of
incorporation and by-laws), stockholders'
agreements and management of the Borrower and
its subsidiaries. Notwithstanding the foregoing
(a) at Closing, the Borrower shall have not less
than $17.0 million of availability under the
Revolving Credit Facility, and (b) the
Borrower's pro forma ratio of total debt to
EBITDA will not exceed 4.40 to 1.00 (excluding
Letters of Credit issued for the purposes of
workers' compensation liability and based upon
the Borrower's pro-forma total debt and pro
forma EBITDA for the relevant 12-month period).
For the period ended January 22, 2000 the EBITDA
amount is $34.8 million; provided that, in the
event that unaudited financial statements are
available for the period ended April 15, 2000,
then the EBITDA amount shall be calculated as
$27.8 million plus an amount equal to EBITDA
earned for the quarter ended April 15, 2000. In
the case of (a) and (b) above, the calculations
(1) shall not include borrowings required to
finance up to $5 million in transaction fees and
expenses to be paid within five days after the
Closing Date and (2) shall give effect to any
pay-down of debt from the proceeds of the
receivables transaction with W. Robert Stover
described in paragraph (ii) above, without
including in the amount of debt the amount of
any receivable note purchased by Mr. Stover
pursuant to paragraph (ii) above.
- --------------------------------------------------------------------------------
A-4
<PAGE> 11
(iv) Financial Statements. The Administrative Agent
shall have received (a) audited financial
statements of the Borrower for its most recent
three fiscal years, (b) the most recent
unaudited quarterly financial statements of the
Borrower, (c) an unaudited pro forma balance
sheet of the Borrower and its subsidiaries which
gives effect to the Transaction as if it had
occurred on the last day of the most recently
completed fiscal quarter of the Borrower, and
(d) an unaudited pro forma income statement of
the Borrower (including a calculation of EBITDA)
which gives effect to the Transaction for the
trailing 12 months of operations ending on the
most recently completed fiscal quarter end of
the Borrower.
(v) Other Obligations. On or prior to Closing, (a)
all fees and expenses due and payable to Bank of
America, any other Lender and/or their
affiliates pursuant to the Commitment Letter,
the Fee Letter or otherwise shall have been paid
in full as contemplated therein, and (b) the
Borrower and the Buyer shall have complied with
all of their obligations under the Commitment
Letter and the Fee Letter, and each such letter
shall be in full force and effect.
(vi) Consents. All material governmental, shareholder
and third-party consents (including
Hart-Scott-Rodino clearance) and approvals
necessary or desirable in connection with the
Transaction and the other transactions
contemplated hereby shall have been obtained;
all such consents and approvals shall be in full
force and effect; and all applicable waiting
periods shall have expired without any action
being taken by any authority that could
restrain, prevent or impose any material adverse
conditions on the Transaction or such other
transactions or that could seek or threaten any
of the foregoing.
(vii) Judgments, Etc. There shall not exist (a) any
order, decree, judgment, ruling or injunction
which restrains the consummation of the
Transaction in the manner contemplated by the
Transaction Documents and (b) any pending or
threatened action, suit, investigation or
proceeding which, if adversely determined, could
materially adversely affect the ability of the
Borrower or the Guarantors to perform any of
their respective obligations under the Credit
Agreement Documents or the ability of the
Lenders to exercise their rights thereunder.
(viii) Opinions, Etc. The Administrative Agent shall
have received (a) satisfactory opinions of
counsel to the Borrower and the Guarantors
(which shall cover, among other things,
authority, legality, validity, binding effect
and enforceability of the Credit Agreement
Documents) and such corporate resolutions,
certificates, and other documents as the
Administrative Agent shall reasonably require
and (b) satisfactory evidence that the
Administrative Agent holds a perfected, first
priority lien in substantially all collateral
for the Senior Credit Facilities, subject to no
other liens except for permitted liens to be
determined.
(ix) Other Reports. The Administrative Agent shall
have received, in form and substance reasonably
satisfactory to it, all environmental reports,
Year 2000 questionnaires, and such other
reports, audits or certifications as it may
reasonably request.
- --------------------------------------------------------------------------------
A-5
<PAGE> 12
REPRESENTATIONS AND
WARRANTIES: Usual and customary for leveraged financings generally
and for this transaction in particular (with appropriate
qualifications), including, but not limited to, the
following: (i) corporate existence and status; (ii)
corporate power and authority/enforceability; (iii) no
violation of law or contracts or organizational
documents; (iv) no material litigation; (v) correctness
of specified financial statements and other information
and no material adverse change; (vi) no required
governmental or third party approvals; (vii) use of
proceeds/compliance with margin regulations; (viii)
status under Investment Company Act; (ix) ERISA matters;
(x) environmental matters; (xi) perfected liens and
security interests; (xii) payment of taxes; (xiii)
accuracy of disclosure; (xiv) Year 2000 matters; and
(xv) consummation of the Transaction.
COVENANTS: Usual and customary for leveraged financings generally
and for this transaction in particular (with appropriate
qualifications), including, but not limited to, the
following: (i) delivery of financial statements and
other reports; (ii) delivery of compliance certificates;
(iii) delivery of notices of default, material
litigation and material governmental and environmental
proceedings; (iv) compliance with laws (including
environmental laws and ERISA matters) and material
contractual obligations; (v) payment of taxes; (vi)
maintenance of insurance; (vii) limitation on liens and
negative pledges; (viii) limitation on mergers,
consolidations and sales of assets; (ix) limitation on
incurrence of debt; (x) limitation on dividends, stock
redemptions and the redemption and/or prepayment of
subordinated debt; (xi) limitation on investments
(including loans and advances) and acquisitions; (xii)
limitation on capital expenditures; (xiii) limitation on
transactions with affiliates; and (xiv) satisfactory
interest rate protection.
Financial covenants shall be:
- Maintenance on a rolling four quarter basis of
the following maximum Leverage Ratios (total
funded debt to EBITDA):
<TABLE>
<CAPTION>
PERIOD MAXIMUM RATIO
------ -------------
<S> <C> <C>
Closing through 10/31/01 5.25x
11/1/01 through 10/31/02 4.75x
11/1/02 through 10/31/03 4.25x
11/1/03 through 10/31/04 3.75x
11/1/04 to maturity 3.25x
</TABLE>
- Maintenance on a rolling four quarter basis of
the following maximum Senior Leverage Ratio
(senior funded debt to EBITDA):
<TABLE>
<CAPTION>
PERIOD MAXIMUM RATIO
------ -------------
<S> <C> <C>
Closing through 10/31/01 4.25x
11/1/01 through 10/31/02 3.75x
</TABLE>
- --------------------------------------------------------------------------------
A-6
<PAGE> 13
<TABLE>
<S> <C>
11/1/02 through 10/31/03 3.25x
11/1/03 through 10/31/04 2.75x
11/1/04 to maturity 2.25x
</TABLE>
- Maintenance on a rolling four quarter basis of
the following minimum Interest Coverage Ratios
(EBITDA to interest expense):
<TABLE>
<CAPTION>
PERIOD MINIMUM RATIO
------ -------------
<S> <C>
Closing through 10/31/01 1.80x
11/1/01 through 10/31/02 2.00x
11/1/02 through 10/31/03 2.25x
11/1/03 through 10/31/04 2.50x
</TABLE>
For the purposes of the foregoing financial covenants,
certain Letters of Credit related to workers
compensation liabilities of the Borrower will not be
included for purposes of calculating the leverage
ratios.
EVENTS OF DEFAULT: Usual and customary for leveraged financings generally
and for this transaction in particular (with grace
periods and thresholds, where appropriate, to be
agreed), including, but not limited to, the following:
(i) nonpayment of principal, interest, fees or other
amounts, (ii) violation of covenants, (iii) inaccuracy
of representations and warranties in any material
respect, (iv) cross-default to other material
indebtedness, (v) bankruptcy and other insolvency
events, (vi) material judgments, (vii) ERISA matters,
(viii) actual or asserted invalidity of any loan
documentation, subordination provisions or security
interests, or (ix) change of control of the Borrower (to
be defined).
ASSIGNMENTS AND
PARTICIPATIONS: Each Lender will be permitted to make assignments in
acceptable minimum amounts to other financial
institutions approved by the Borrower, which approval
shall not be unreasonably withheld; provided, however,
that the approval of the Borrower shall not be required
in connection with assignments to other Lenders or any
of their affiliates. Lenders will be permitted to sell
participations with voting rights limited to significant
matters such as changes in amount, rate and maturity
date and releases of all or substantially all of the
collateral and the Guarantors. An assignment fee of
$3,500 shall be payable by the Lender to the
Administrative Agent upon the effectiveness of any such
assignment (including, but not limited to, an assignment
by a Lender to any other Lender).
WAIVERS AND
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will
require the approval of Lenders holding loans and
commitments representing more than 50% of the aggregate
amount of loans and commitments under the Senior Credit
Facilities, except that the consent of each Lender
affected thereby shall be required with respect to (a)
increases in the commitment of such Lender, (b)
reductions of principal, interest, or fees, or (c)
extensions of final scheduled maturities
- --------------------------------------------------------------------------------
A-7
<PAGE> 14
or times for payment, and the consent of all of the
Lenders shall be required with respect to (i) releases
of all or substantially all of the collateral, and (ii)
releases of all or substantially all of the Guarantors.
INDEMNIFICATION: The Borrower shall indemnify the Administrative Agent,
BAS and the Lenders and their respective affiliates from
and against all losses, liabilities, claims, damages or
expenses arising out of or relating to the Transaction,
the Senior Credit Facilities, the Borrower's use of loan
proceeds or the commitments (except to the extent
resulting from the gross negligence, bad faith or
willful misconduct of the indemnified party), including,
but not limited to, reasonable attorneys' fees and
settlement costs.
GOVERNING LAW: New York.
FEES/EXPENSES: As set forth in Addendum I.
OTHER: This Summary of Terms and Conditions is intended as an
outline of certain of the material terms of the
Transaction and the Senior Credit Facilities and does
not purport to summarize all of the conditions,
covenants, representations, warranties and other
provisions which would be contained in definitive legal
documentation for the Senior Credit Facilities
contemplated hereby. The Borrower and each Guarantor
shall each waive its right to a trial by jury.
- --------------------------------------------------------------------------------
A-8
<PAGE> 15
ADDENDUM I
WESTAFF, INC.
INTEREST RATES, FEES AND EXPENSES
MARCH 7, 2000
COMMITMENT FEE The Borrower will pay a per annum fee (the "COMMITMENT
FEE") on the unused portion of the Senior Credit
Facilities of 0.50%. The Commitment Fee is payable
quarterly in arrears commencing upon Closing. Swing Line
Loans shall not be included for purposes of determining
the unused portion of the Senior Credit Facilities in
connection with the calculation of the Commitment Fee
except with respect to the unused portion of the
commitment of the Swing Line Lender.
INTEREST RATES: The Senior Credit Facilities shall bear interest at the
Borrower's option of (a) LIBOR, or (b) the Base Rate (to
be defined as the higher of (i) the Bank of America
prime rate and (ii) the Federal Funds rate plus 0.50%);
in each case plus an applicable margin as set forth in
the Pricing Grid below, except that Swing Line Loans
shall bear interest at the Base Rate plus the applicable
margin for Base Rate loans.
The Borrower may select interest periods of 1, 2, 3 or 6
months for LIBOR loans or 9 or 12 months subject to
availability. Interest shall be payable at the end of
the selected interest period, but no less frequently
than quarterly.
At any time when the Borrower is in default in the
payment of any amount of principal due under the
Facilities, such amount shall bear interest at 2% above
the rate otherwise applicable thereto. Overdue interest,
fees and other amounts then due and payable shall bear
interest at 2% above the rate applicable to Base Rate
loans.
LETTER OF
CREDIT FEES: The Borrower will pay a per annum fee (the "LETTER OF
CREDIT FEE") on the amount available to be drawn under
each Letter of Credit at a rate equal to that applicable
to LIBOR loans under the Revolving Credit Facility.
Letter of Credit Fees are payable quarterly in arrears
to be shared proportionately among the Lenders. The
Borrower will also pay a fronting fee (the "FRONTING
FEE") of 0.125% per annum on the amount available to be
drawn under each Letter of Credit. Fronting Fees are
payable quarterly in arrears for the sole account of the
Fronting Bank.
PRICING GRID: Applicable margins will be determined based upon the
Borrower's Senior Leverage Ratio (defined as total
senior debt to EBITDA) in accordance with the following
Pricing Grid:
<TABLE>
<CAPTION>
SENIOR LEVERAGE LIBOR RATE
RATIO ADVANCES BASE RATE ADVANCES
----- -------- ------------------
<S> <C> <C>
less than 2.5x 2.50% 1.50%
2.5x less than or equal to
x less than or equal to 3.0x 3.00% 2.00%
</TABLE>
- --------------------------------------------------------------------------------
A-9
<PAGE> 16
<TABLE>
<CAPTION>
SENIOR LEVERAGE LIBOR RATE
RATIO ADVANCES BASE RATE ADVANCES
----- -------- ------------------
<S> <C> <C>
>3.0x 3.25% 2.25%
</TABLE>
INITIAL PRICING: For a period of not less than six months following
Closing, the Initial Pricing will be locked at an
applicable percentage equal to LIBOR plus 3.25% or Base
Rate plus 2.25%. After the initial six month period,
pricing will fluctuate according to the Pricing Grid.
Any "B" term loan will bear interest at an applicable
percentage LIBOR plus 3.75% or Base Rate plus 2.75% and
will be subject to adjustment pursuant to the Pricing
Grid.
CALCULATION OF
INTEREST AND FEES: Other than calculations in respect of interest
at the Base Rate (which shall be made on the basis of
actual number of days elapsed in a 365/366 day year),
all calculations of interest and fees shall be made on
the basis of actual number of days elapsed in a 360 day
year.
COST AND YIELD
PROTECTION: Customary for transactions and facilities of this type,
including, without limitation, in respect of breakage or
redeployment costs incurred in connection with
prepayments, changes in capital adequacy and capital
requirements or their interpretation, illegality,
unavailability, reserves without proration or offset and
payments free and clear of withholding or other taxes.
EXPENSES: The Borrower will pay all reasonable costs and expenses
of the Agent associated with the preparation, due
diligence, administration, syndication and enforcement
of all documentation executed in connection with the
Senior Credit Facilities, including, without limitation,
the reasonable legal fees of counsel to the
Administrative Agent and BAS. The Borrower will also pay
the reasonable expenses of each Lender in connection
with the enforcement of any of the Credit Agreement
Documents.
- --------------------------------------------------------------------------------
A-10
<PAGE> 1
EXHIBIT 4
ALBION Albion Alliance LLC
ALLIANCE 1345 Avenue of the Americas
New York, New York 10105
----------------------------------------------------------------
Andrew H. Steuerman, Senior Vice President
212 969-1548 tel
212 969-6659 fax
[email protected]
March 7, 2000
<TABLE>
<S> <C>
Mr. Robert Bergmann Mr. Michael E. Najjar
Managing Director Managing Director
Centre Partners Management LLC Cornerstone Equity Investors, LLC
30 Rockefeller Plaza, 50th Floor 717 Fifth Avenue, Suite 1100
New York, NY 10020 New York, NY 10022
</TABLE>
Gentlemen:
We ("Purchaser") are pleased to inform you that we have
authorized the purchase of $35 million of the $35 million of
Senior Subordinated Notes with Warrants (together, the "Notes")
of Westaff, Inc. or its predecessor (the "Company") in support
of Centre Partners Management LLC and Cornerstone Equity
Investors, LLC (collectively, the "Sponsor Group")
recapitalization of the Company ("Recapitalization"). We
anticipate that the Documents will include the substance of the
terms outlined Proposed Term Sheet (the "Summary"), attached and
dated March 7, 2000, inclusive of orally agreed modifications,
but the Documents will of course contain additional provisions
which are not in the attached Summary if that should be found
necessary or desirable by either party to protect their
interests as the drafting of the Documents progresses and
further information is developed. We may, at our option, decline
to proceed further with this transaction in the event of a
material adverse change in the condition, business or operations
of the Company as represented in information and material
heretofore furnished to us. Should this transaction not close by
July 31, 2000, the Purchaser shall have no further obligations.
Purchaser has issued this letter subject to the various
conditions precedent described in the Summary and to the usual
reservations that neither an adverse change in the financial
condition or affairs of the Company, nor any substantive changes
in the governmental regulations or market conditions that, in
the opinion of the Purchaser, would affect this letter shall
have occurred on or prior to Closing.
In consideration of the delivery of this letter and Summary, you
hereby agree to indemnify the Purchaser and any other proposed
initial mezzanine investors and its officers, directors,
employees, agents, partners or affiliates (collectively, the
"Indemnified Parties") against, and agree to hold the
Indemnified Parties harmless
1
Albion Alliance is an affiliate of Alliance Capital
Management L.P.
<PAGE> 2
ALBION from, any and all liabilities, losses, claims, damages and
ALLIANCE expenses suffered by any of the Indemnified Parties arising out
of, in any way connected with, or as a result of (a) the
transactions completed hereby, (b) the use of proceeds of the
financing contemplated thereof, (c) the execution and delivery
of any subsequent document contemplated hereby or thereby by
the parties thereto or the performance of their respective
obligations hereunder or thereunder, or (d) any claim, actions,
suit, investigation or proceeding relating to the foregoing or
to the Company whether or not the Indemnified Party is a party
thereto except as the same arises out of gross negligence or
willful misconduct of the Indemnified Party. The foregoing
indemnity shall be effective immediately upon your execution
and delivery hereof and shall remain operative and in full
force and effect whether or not the financing closes, and
regardless of the expiration of this letter and the Summary and
regardless of any investigation made by or on behalf of the
Purchaser and any other proposed initial mezzanine investors or
the Company.
By executing this letter, you hereby agree to reimburse us for
all out-of-pocket fees and expenses, including reasonable
attorney fees, incurred in connection with this financing,
whether or not the transaction is consummated. It is understood
that Goodwin, Procter & Hoar LLP will be retained to represent
the Purchaser as special counsel in this transaction and that
the Sponsor Group, or the Company at the direction of the
Sponsor Group, will pay, or, at our option, reimburse us for
payment of, all reasonable fees and expenses of such special
counsel in connection with their services in this transaction
either (a) at closing or (b) promptly upon presentation to you
of a bill in the event that a closing does not occur. We have
agreed with you that we will not incur any additional
out-of-pocket fees and expenses in excess of $5,000.00 after
the date hereof until you have informed us that you will be
proceeding with the Recapitalization, and you shall give us
sufficient notice in permit us to proceed with the legal due
diligence, legal documentation and the transaction closing on a
normal and customary schedule.
In the event that the Recapitalization is not consummated and
the Sponsor Group shall receive any "break-up" fee, "topping"
fee or similar termination fee (collectively referred to as
"Recapitalization Break-Up Fees") or shall be reimbursed for
any expenses related to the Recapitalization, except for
payments of up to $400,000 ("Expense Reimbursement Fees")
pursuant to a letter dated December 28, 1999 from the Company to
the Sponsor, the Sponsor Group will, immediately upon its
receipt of any such fees or expenses, pay (or cause others to
pay) to the Purchaser an amount equal to the lesser of (i) 15%
of the Recapitalization Break-Up Fees after deducting amounts
related to transaction expenses (which transaction expenses
shall be first paid out of the Expense Reimbursement Fees) to
(x) non-affiliated entities of the Sponsor, the Company and
financing sources, including the Purchaser and (y) Prudential
Securities in its role as investment banker or (ii) the 50% of
the Funding Fee referenced in the Summary.
2
<PAGE> 3
ALBION
ALLIANCE
This letter and the Summary are provided for the sole benefit of
the Sponsor Group and the Company, are not intended to create
any rights in favor of and may not be relied upon by any third
party, and shall not be transferable or assignable by the
Sponsor Group or the Company by operation of law or otherwise.
It is expressly understood and agreed that the Purchaser may
assign this letter and Summary to any one or more of its
affiliates.
We hereby agree to use our best efforts to maintain all
information provided by you with regard to the Company and the
proposed transaction in strict confidence. We agree not to
disclose such information except (a) to directors, employees,
representatives, and advisors of Albion Alliance LLC who need
to know the information and who are informed of the
confidential nature of the information, or (b) to the extent
that (1) it has become generally available to the public, (2)
it is required or appropriate in any report or statement to any
governmental regulatory body claiming jurisdiction over Albion
Alliance LLC or to the National Association of Insurance
Commissioners or successor or similar organization, or (3) it
is required or appropriate in response to any summons or
subpoena, or in connection with any litigation, or pursuant to
any law, order, regulation or ruling applicable to Albion
Alliance LLC. This provision terminates on the earlier of (i)
mutual written consent of the Company and Albion Alliance and
(ii) one (1) year from the date listed above.
Upon your acceptance hereof, this letter will supercede the
letter between us dated January 12, 2000. This letter will be
available for acceptance until 5:00p.m. (Eastern Standard Time)
on March 8, 2000, unless further extended in writing by the
Purchaser.
3
<PAGE> 4
ALBION If the foregoing is acceptable to you, please so confirm by
ALLIANCE having the enclosed copy of this letter signed by a duly
authorized officer of each Sponsor Group and returned to us at
the address below.
Albion Alliance LLC
1345 Avenue of the Americas -- 37th Floor
New York, NY 10105
Attn: Andrew H. Steuerman
Senior Vice President
Fax: (212) 969-6659
Very truly yours,
ALBION ALLIANCE LLC
By: /s/ ANDREW STEUERMAN
---------------------------
Name: Andrew Steuerman
Title: Senior Vice President
The above is accepted and agreed to
this 7th ,day of March , 2000.
------ ---------
Centre Partners Management LLC
By: /s/ ROBERT BERGMANN
---------------------------
Name: Robert Bergmann
Title: Managing Director
The above is accepted and agreed to
this 7th , day of March , 2000.
---- -------
Cornerstone Equity Investors, LLC
By: /s/ Michael E. Najjar
---------------------------
Name: Michael E. Najjar
Title: Managing Director
4
<PAGE> 5
WESTAFF, INC.
SENIOR SUBORDINATED NOTES WITH WARRANTS
SUMMARY OF TERMS AND CONDITIONS ("SUMMARY")
Senior Subordinated Notes ("Notes")
Issuer: Westaff, Inc. (or successor entity) and Subsidiary (collectively
referred to as the "COMPANY"). Notes to be issued by the same
entity as senior debt to senior lenders (to be determined),
expected to be the operating company. Senior subordinated notes
to be supported by a subordinated parent guarantee, if a parent
guarantee is extended to the senior debt and by cross
guarantees, if cross guarantees are extended to the senior
debt.
Issue: Senior Subordinated Notes (the "Notes") and detachable warrants
(collectively referred to as "Mezzanine Securities").
Amount of
Notes(s): $35 million aggregate principal amount.
Principal
Amount
Considered
For
Purchase: Albion Alliance and or its affiliates ("Mezzanine Investors")
shall purchase $35 million of the proposed Notes. Prior to
Closing, the initial Mezzanine Investors may include additional
initial Mezzanine Investors for up to $15 million aggregate
principal amount of the Notes, with no one of such additional
initial Mezzanine Investors acquiring less than $5 million
principal amount of the Notes. The additional initial Mezzanine
Investors will have reasonable access to the Sponsors, the
Company and the Company's officers in connection with their
participation.
Interest Rate: 12.00% per annum payable in cash quarterly in arrears and
calculated on a bond basis (30/360). A final payment of accrued
and unpaid interest shall be made on the maturity date.
Default
Interest Rate: 2.00% above Interest Rate.
Funding Fee: 1.00% of the par value of the Notes.
Term and
Amortization: The COMPANY shall redeem the entire principal amount of the
Notes (including all accrued and unpaid interest thereon) on
the 8th anniversary of the Closing.
Ranking: The Notes will rank junior in right of payment to the COMPANY's
existing and future permitted Senior Debt (to be defined and to
include a dollar limit).
Use of
Proceeds: To provide a portion of the financing needed for the
recapitalization of the COMPANY by Centre Partners Management
LLC and Cornerstone Equity Investors, LLC (the "Sponsors").
-1- 03/07/00
<PAGE> 6
Voluntary
Prepayments: The Notes will be redeemable, in whole or in part, at the
Issuer's option, at any time at the following redemption prices,
plus accrued and unpaid interest:
YEAR REDEMPTION PRICE
---- ----------------
Year 1 112.0%
Year 1.25 110.0%
Year 1.50 108.0%
Year 1.75 106.5%
Year 2 105.0%
Year 3 105.0%
Year 4 104.0%
Year 5 103.0%
Year 6 102.0%
Year 7 & thereafter 100.0%
Equity
Realization
Event: In the event of an Equity Realization Event (as defined) during
the first two years after the issuance of the Notes, the COMPANY
may redeem the Notes in whole or in part, at par plus accrued
and unpaid interest thereon plus the Rate of Return Amount (as
defined) for the first two years after issuance.
Equity Realization Event to defined as a Qualified Initial
Public Offering or full sale of the COMPANY for cash or
marketable securities (to be defined) to a third party
unaffiliated with the COMPANY or the Sponsors or
recapitalization of the Company for cash or marketable
securities to a third party unafilliated with the COMPANY or the
Sponsors.
Qualifying Initial Public Offering ("OIPO"): shall mean any
initial public offering of common stock under the Securities
Act, which generates net proceeds of not less than $20 million.
Rate of Return
Amount: The rate of return amount is the additional amount which is
required to yield to a holder of the Notes a compound annual
internal rate of return ("IRR") of 20% on the Initial Face
Amount. The IRR calculation will include closing transaction
fees and interest payments, including accrued and unpaid
interest on the Notes, any cash redemption premiums paid, plus
any warrant value so paid, limited to cash or liquid public
securities, through the prepayment date (if such prepayment
date is less than two years from the funding date, then the
IRR calculation will assume a two year horizon). In no event
will the Rate of Return Amount be less than zero.
Mandatory Offer
to Repurchase
Upon Change of
Control or Sale
Of All or
Substantially
All Assets: Upon the occurrence of a Mandatory Repurchase Event, the
COMPANY shall give each holder of Notes prompt, and in any event
within 5 Business Days of the occurrence of a Mandatory
Repurchase Event, notice describing in reasonable detail the
nature of the Mandatory Repurchase Event, offering to each
holder of Notes the irrevocable right to require the COMPANY to
repurchase all or any part of such holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof,
together with accrued and unpaid interest to the date of
repurchase. The
-2-
<PAGE> 7
repurchase shall be made between 30 and 90 days after
the date of the notice.
Mandatory Repurchase Event Shall mean (i) if
applicable, at any time any parent corporation shall
cease to own directly the lesser of (a) what the parent
corporation owns at Closing or (b) 100% of the capital
stock of the subsidiaries; (a) at any time prior to
QIPO, the Sponsors shall ease to own, directly or
indirectly, at least 51% of the aggregate economic
and voting interest of all outstanding equity
interests of the COMPANY; (iii) at any time from and
after a QIPO, (a) the Sponsors shall cease to own,
directly or indirectly, at least 30% of the aggregate
economic and voting interest of all outstanding
equity interests of the COMPANY or (b) any Person or
group of Persons within the meaning of the Exchange
Act shall own of record or beneficially equity
interests in the COMPANY representing more of the
aggregate of the aggregate economic and voting
interests in the COMPANY than held by the Sponsors;
and (iv) a sale of all or substantially all of the
assets of the COMPANY.
Representations and
Warranties: Usual and customary in transactions of this type,
including, without limitation, the following:
(i) corporate existence and status; (ii) corporate
power and authority/enforceability; (iii) no violation
of law or contracts or organizational documents; (iv)
no material litigation; (v) correctness of specified
financial statements and other information and no
material adverse changes; (vi) no required governmental
or third party approvals; (vii) use of proceeds/
compliance with margin regulations; (viii) status under
Investment Company Act; (ix) ERISA matters; (x)
environmental matters; (xi) perfected liens and
security interests; (xii) payment of taxes; (xiii)
accuracy of disclosure; (xiv) Year 2000 matters and
(xv) consummation of the Recapitalization. Mezzanine
Investors may require additional representations and
warranties customary for mezzanine securities.
Affirmative and
Negative Covenants
(non-financial): Standard in transactions of this type and others agreed
upon, which shall include, without limitation,
covenants limiting indebtedness, guarantees, liens
(other than permitted liens), investments, dividends,
distributions, and stock repurchases, mergers,
consolidations and other acquisitions (subject to
permitted acquisitions), asset sales, sale and
leaseback transactions, the Sponsors will be prohibited
from selling, transferring or otherwise disposing of
their preferred stock or common stock until such time
as the Notes are redeemed in full (subject to a basket
of 20% of the aggregate amount invested at closing),
changes in corporate structure, negative pledge
against assets of the consolidated group (other than
permitted liens), additional subsidiaries, management
compensation, transactions with affiliates, and certain
other covenants which shall include, without
limitation, books and records, inspections, insurance,
nature of business, key man life insurance ? the
extent required by senior lenders), maintenance of
properties, compliance ? laws, taxes, corporate
existence, use of proceeds, amendments to ?
agreements, sale/discount of receivables, nature of
business, other agreements ? further assurances.
-3-
<PAGE> 8
Reporting
Requirements: The COMPANY will required to deliver the following to the
holders of the Notes:
- Annual audited consolidating and consolidated financial
statements of the COMPANY and its subsidiaries and related
compliance certificate within 105 days of each fiscal year
end;
- Unaudited internally prepared quarterly consolidating and
consolidated financial statements the COMPANY and its
subsidiaries and related compliance certificate within 45
days of each quarter end;
- Unaudited monthly consolidating and consolidated financial
statements of the COMPANY and its subsidiaries certified by
the chief financial officer of the COMPANY within 30 days of
each month end;
- Annual budget for the next succeeding fiscal year in the
same form and in detail as this information is prepared and
delivered to the COMPANY's Board of Directors. In no case
shall this information be delivered to Noteholders later
than 60 days after the start of each fiscal year. In
addition, if the COMPANY prepares any and all information
for the Board of Directors as a whole, all such information
shall also be promptly delivered to the Noteholders in the
same form and detail as delivered to the COMPANY's Board of
Directors; and
- Other information including notice of default, litigation
and ERISA matters, written report on any change in the list
of subsidiaries, copies of management reports provided by
auditors and other information as reasonably requested by
the Noteholders.
Financial
Covenants: To include but not limited to: Maintenance of Maximum
Leverage Ratio (total funded debt to EBITDA); Maintenance
minimum Interest Coverage Ratio(EBITDA to interest expense);
and Limitation on Subsidiary Debt. Such covenants and any
additional covenants will be finalized upon review of senior
credit documents.
Subordination: Standard for a transaction of this type, including but not
limited to: The Notes will be subordinated to permitted
Senior Debt (to be defined - to include a dollar limit as
to principal, interest and expenses). Upon a non-monetary
default of the COMPANY's Senior Debt, the Notes will be
subject to a payment and remedies block for a period of
up to an aggregate of 180 days in each 365 day period and in
no event shall the payment and remedies block will be
exercised more than two times in each 365 day period.
Any default that gives rise to any such notice must be cured
for a stated period of time(but not less than 90 days) and
not known at the time of any previous payment block and
remedies before it may become the basis for a subsequent
payment block. Subordinated noteholders shall be allowed
to retain all securities received under any plan for
reorganization which shall be subordinated on the same
basis as the Notes and on the same basis as the
subordination agreement or otherwise agreed to by the
parties. In addition, the Noteholders will vote their own
claims and take all actions we see fit in a bankruptcy or
other proceedings under all circumstances (unless they
fail to do so in a reasonable time period). The Notes
shall be cross-accelerated to all permitted Senior Debt.
Permitted Senior Debt instruments may not be amended, or
the facility shall not be refinanced, to provide more
materially restrictive provisions without the consent of the
Noteholders. Senior credit documents will not contain the
-4-
<PAGE> 9
concept of a material adverse effect as an
event of default.
Events of Default: Those agreed upon which shall include,
without limitation:
1. Failure to pay any principal, premiums or
fees when due;
2. Failure to pay any interest within 5
business days of when due;
3. Failure to perform or observe any
negative or financial covenant;
Failure to perform or observe any
affirmative covenant after an agreed
upon grace period;
4. Any representation or warranty of the
COMPANY or guarantor shall be materially
incorrect when made;
5. Cross acceleration to Senior Debt;
6. Changes of ownership or control of the
COMPANY;
7. Bankruptcy, insolvency, appointment of
custodian/ liquidator, etc.;
8. Judgments in excess of an agreed upon
amount.
Any redemption of the Notes resulting from
the occurrence of an Event of Default (with
the exception of (7) listed about) shall be
made at the redemption price (including any
accrued and unpaid interest) as set forth in
the table under Voluntary Prepayments except
up to first year and a half (1.5) anniversary
of the closing the Redemption Price shall be
108%.
-5-
<PAGE> 10
WARRANT PROVISIONS
Warrant Amount: 10.30% of the fully diluted equity of the COMPANY at
Closing. After dilution from, management options
totaling 12.28% (calculated as 14/114) of the shares
outstanding at closing, the Warrants will represent
9.03% of the fully diluted common equity of the
Company.
Warrant Exercise Price: Nominal.
Separability: The Senior Subordinated Notes and the Warrants will be
separately transferable, subject to compliance with
applicable federal and state securities law. The
Mezzanine Investors will have the ability to transfer
their Notes and Warrants without any restrictions.
Warrant Expiration Date: The 9th anniversary of the Closing.
Warrant Provisions: Concurrently with the purchase of
the Notes, the holders will receive nominally priced
detachable warrants, representing an interest in the
COMPANY's fully diluted equity value. The warrants will
be exercisable at any time, in whole or in part, into
shares of the COMPANY prior to the warrant expiration
date. The Warrants will provide for cashless
exercise (including, without limitation, reduction of
Note indebtedness or exchange of outstanding warrants).
The Warrants will have normal and customary provisions,
including, but not limited to:
Anti-dilution: Normal and customary provisions including
weighted-average protection for (i) stock dividends,
subdivisions and combinations; (ii) insurance of
additional shares of common stock for consideration
less than the Current Market Price per share; (iii)
issuance of warrants, options or other rights,
convertible securities at effectively less than the
Current Market Price. Warrantholders will be paid
dividends on as exercised basis if dividends are paid
to common stock. However, this protection will not
apply to (i) issuance to employees pursuant to the
board approved options plans (meeting the governmental
requirements for an employee stock plan) provided that
such issuance in aggregate are as disclosed in the
Warrant Amount, (ii) issuance to Warrantholders in
connection with the exercise of preemptive rights or
(iii) after a QIPO.
Current Market Price: Shall mean (i) the market
price of the common stock as furnished by NASDAQ or
(ii) if such market price is not available, such price
shall be determined in good faith by the Company's
Board of Directors. However, if Warrantholders do not
agree with the valuation set forth, an Appraiser
(as defined in Put Option and subject to Appraisal
Standards as defined in Put Option) will be retained to
value the Current Market Price.
Tag Along Rights: Normal and customary provisions including: prior to a
QIPO, the holders of the Mezzanine Securities shall
have the right to tag along (on same terms and
conditions) pro rata on any sale of securities of
existing, and future principal shareholders. The
COMPANY or any existing or future shareholders will not
be permitted to tag along, on any basis, on any sale of
securities by the Mezzanine Investors.
-6-
<PAGE> 11
Drag Along Rights: Normal and customary provisions including: until
a QIPO, the holders of the Warrants shall be
obligated to be "dragged along" (on same terms and
conditions) in any sale of all of the common
stock by the stockholders of the COMPANY,
subject to the sale of the COMPANY to a
non-affiliated third party completed on an arms
length basis and caps on idemnity.
Pre-emptive Rights: Normal and customary provisions including: holders
of the Warrants shall have preemptive rights upon
the issuance of new equity of the COMPANY with
exceptions such as (i) issuance of employee
options as described in the anti-dilution terms
above; (ii) public offerings and (iii) common
equity issued directly to sellers (non-affiliated)
in conjunction with an acquisition.
Demand Rights: Normal and customary provisions including: holders
of the Warrants shall have two post-QIPO (2)
demand registration rights and unlimited
registration rights pursuant to Form S-3 (or
equivalent). Such registration will be at the
expense of the COMPANY, except that underwriting
commissions will be borne pro rata by the holders.
Piggyback Rights: Normal and customary provisions including: holders
of the Warrants will have unlimited piggyback
rights.
Put Option: At any time after the sixth anniversary of the
transaction, if the COMPANY has not completed a
Qualifying Initial Public Offering, holders of
Warrants shall have the right to require the
Company to purchase 100% of the Warrants at Fair
Market Value based on the Appraisal Standards
completed by a nationally recognized financial
institution selected mutually by the Mezzanine
Investors and the COMPANY and reasonably
acceptable to both ("Appraiser")
Appraisal Standards: shall mean the value of the
Common Stock will be based upon the fair market
value of 100% of the COMPANY if sold as a going
concern and without regard to the lack of
marketability and without regard for a minority
discount for the Common Stock of the COMPANY.
Call Option: At any time after the sixth anniversary of the
transaction, if the COMPANY has not completed a
Qualifying Initial Public Offering, the COMPANY
shall have the right to purchase 100% of the
Warrants at Fair Market Value based on the
Appraisal Standards completed by a nationally
recognized financial institution selected
mutually by the Mezzanine Investors and the
COMPANY and reasonably acceptable to both
("Appraiser"). This is subject to a customary
clawback provision.
Appraisal Standards: shall mean the value of the
Common Stock will be based upon the fair market
value of 100% of the Company if sold as a going
concern and without regard to the lack of
marketability and without regard for a minority
discount for the Common Stock of the COMPANY.
Company Covenants: Warrantholders will receive the benefit of the
covenants in the Note, whether or not the Notes
are outstanding or redeemed. Such covenants are
expected to include, but not limited to: (i)
information and access rights to the Company and
its accountants; (ii) payment of taxes; (iii)
operation of the Company in ordinary
-7-
<PAGE> 12
course of business; (iv) maintenance of
insurance; (v) affiliated transactions; (vi)
limitation of waiver/amendment of certain
agreements; (vii) enforcement of Company rights
in certain transaction agreements; and (viii)
limitation on amendment to charter or bylaws.
Board Visitation Rights: The majority Mezzanine Investor will have the
right to have one representative attend (on a
nonvoting basis) meetings and receive all
information of the Board of Directors of the
COMPANY, its Subsidiaries or its Holding
Company or Companies. During the first twelve
months after closing, Albion Alliance has the
right to convert its Board Visitation Right to
a Board of Directors position to ensure its
compliance with VCOC regulations. At such time,
Albion Alliance will have the ability to place
one member on the Board of Directors. All
expenses of such representatives shall be for
the account of the COMPANY.
-8-
<PAGE> 13
General
Expenses: The Sponsors will pay all reasonable
out-of-pocket expenses, including legal fees
and expenses, of the Mezzanine Investors,
whether or not the closing occurs.
Governing Law: State of New York
Subordinated Noteholder
Counsel: Goodwin, Procter & Hoar LLP
Closing Conditions: The execution of legal documentation including
a Note and Warrant Agreement, Intercreditor
Agreement, Shareholders Agreement and
Registration Rights Agreement satisfactory in
form and substance to the Mezzanine Investors,
together with the completion of legal review of
the Company by our Counsel.
All customary closing, legal opinions,
certificates, and other documentation will be
delivered in connection with the Closing in
form and substance satisfactory to us.
Mezzanine Investors shall have completed to its
satisfaction review of and acceptance of the
final capital structure, including the terms
and conditions of such financing. Pro forma
capitalization as set forth in the attached
sources and uses schedule.
In the event that the total indebtedness of the
COMPANY to be refinanced in connection with the
recapitalization is greater than $50 million and
the days sales outstanding is greater than 46
days, the COMPANY shall be permitted to sell at
face value a strip of accounts receivable to
W. Robert Stover until the day sales
outstanding is reduced to 46 days, provided
that the accounts receivable to be sold shall
be in an amount no greater than $5 million.
All documentation evidencing the senior bank or
other senior financing will be satisfactory
to the subordinated noteholders. The terms and
conditions of the senior debt financing will be
satisfactory to the subordinated noteholders
including the amount of such senior debt
financing.
All documentation evidencing the preferred
stock will be satisfactory to the Mezzanine
Investors. The terms and conditions of the
preferred stock will be satisfactory to the
Mezzanine Investors including the amount,
dividend rate, redemption features and other
relevant rights.
Approval of all aspects of the transaction by
the Board of Directors of the COMPANY.
No material adverse event, condition or change
shall have occurred or shall be reasonably
expected to occur in the business, prospects
or financial condition of the Company.
-9-
<PAGE> 14
WESTAFF, INC.
- --------------------------------------------------------------------------------
SOURCES AND USES PROFILE (1)
<TABLE>
<CAPTION>
$MM $MM
SOURCES AMOUNT USES AMOUNT
- -------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
Revolver (3) 12.5 Equity Purchase Price $160.2
Senior Term Loan 100.0 Refinancings (2) 42.8
Subordinated Debt 35.0 -------
-------
Total Debt $147.50 Total Purchase Price $203.0
Rollover Redeemable Preferred 3.3 Excess Cash 0.8
Sponsor Redeemable Preferred 47.9 Fees and Expenses (4) $12.0
- --------------------------------------------
Seller Rollover Common Equity 1.1
Sponsors and Other Common Equity 16.0
-------
TOTAL SOURCES $215.8 TOTAL USES $215.8
======= =======
</TABLE>
NOTES:
(1) Based on information provided by Centre Partners and Cornerstone Equity
Investors.
(2) Debt or be refinanced represents the amount scheduled to be outstanding as
of April 15, 2000.
(3) Includes up to $5 million of Revolver to be funded within 5 days after
Closing for Transaction Fees and Expenses.
(4) Includes up $5 million of Transaction Fees and Expenses to be paid
within 5 days after Closing.
DATED AS OF 3/07/2000
<PAGE> 1
JOINT FILING AGREEMENT
This will confirm the agreement by and among all of the
undersigned that the Schedule 13D filed on or about this date with respect to
the beneficial ownership of the undersigned of Westaff, Inc. is being, and any
and all amendments to such Schedule may be, filed on behalf of each of the
undersigned. This Agreement may be executed in two or more counterparts, each
of which will be deemed an original, but all of which together shall constitute
one and the same instrument.
Dated: March 15, 2000
CORNERSTONE EQUITY INVESTORS IV, L.P
By: CORNERSTONE IV, L.L.C.
Its: General Partner
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: Managing Director
CORNERSTONE IV, L.L.C.
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: Managing Director
CENTRE CAPITAL INVESTORS III, L.P.
By: Centre Partners III, L.P,
As general partner of such partnership
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Robert Bergmann
----------------------------
Name: Robert Bergmann
Title: Managing Director
CENTRE PARTNERS III, L.P.
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Robert Bergmann
----------------------------
Name: Robert Bergmann
Title: Managing Director
CENTRE PARTNERS III, L.L.C.
By: /s/ Robert Bergmann
-------------------------------------
Name: Robert Bergmann
Title: Managing Director
WESTAFF ACQUISITION CORP.
By: /s/ Michael E. Najjar
-------------------------------------
Name: Michael E. Najjar
Title: President and Secretary
