FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: April 11, 2000
Date of Earliest Event Reported: April 5, 2000
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 0-25464
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Volvo Parkway
Chesapeake, VA 23320
(Address of principal executive offices)
Registrant's telephone number, including area code: (757) 321-5000
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ITEM 5: OTHER EVENTS
On April 5, 2000, Dollar Tree Stores, Inc. issued a press release regarding the
signing of a definitive merger agreement with Dollar Express, Inc. and first
quarter sales. A copy of the press release is attached to this Form 8-K as
Exhibit 99.1 and is incorporated herein by this reference.
The full text of the Merger Agreement and the related Registration Rights
Agreement is attached as Exhibits 2.1 and 4.1, respectively.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit # Description
2.1 Merger Agreement dated April 5, 2000 by and among Dollar Tree
Stores, Inc., DT Keystone, Inc., Dollar Express, Inc., and The
Shareholders of Dollar Express, Inc.
4.1 Registration Rights Agreement dated April 5, 2000.
99.1 Dollar Tree Stores, Inc.'s press release regarding the announcement
of the signing of a definitive merger agreement between Dollar Tree
Stores, Inc. and Dollar Express, Inc. and first quarter sales.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
DATE: April 11, 2000
DOLLAR TREE STORES, INC.
By: /s/ Macon F. Brock, Jr.
-----------------------
Macon F. Brock, Jr.
President and CEO
MERGER AGREEMENT
by and among
DOLLAR TREE STORES, INC.
DT KEYSTONE, INC.
DOLLAR EXPRESS, INC.
and
THE SHAREHOLDERS OF
DOLLAR EXPRESS, INC.
April 5, 2000
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TABLE OF CONTENTS
ARTICLE 1
THE MERGER..............................................................2
1.1 Surviving Corporation.............................................2
1.2 Articles of Incorporation.........................................2
1.3 Bylaws............................................................2
1.4 Directors and Officers............................................2
1.5 Effective Time....................................................3
1.6 Other Effects of the Merger.......................................3
1.7 Tax-Free Reorganization...........................................3
1.8 Registration of Shares............................................3
ARTICLE 2
CONVERSION OF SHARES....................................................4
2.1 Conversion or Cancellation of Shares..............................4
(a) Cancellation of Treasury Stock and Parent-Owned
Stock; Conversion of Company Preferred Stock................4
(b) Exchange Ratio..............................................4
(c) Escrow of Shares............................................5
(d) Stock Splits, etc...........................................5
(e) Stock of Sub................................................5
2.2 Fractional Shares.................................................6
2.3 Procedures Relating to Company Shares.............................6
(a) Exchange of Certificates....................................6
(b) Cash Payments...............................................7
(c) Lost, Mislaid, Stolen or Destroyed Certificates.............7
(d) No Stock Transfers..........................................7
(e) Unclaimed Merger Consideration..............................7
(f) Dissenting Shares...........................................8
ARTICLE 3
CLOSING.................................................................8
3.1 Time and Place of Closing.........................................8
ARTICLE 4
COMPANY REPRESENTATIONS AND WARRANTIES..................................9
4.1 Organization and Good Standing....................................9
4.2 Authority; No Conflict...........................................10
4.3 Capitalization...................................................12
4.4 Subsidiaries; Affiliates; Conflict of Interest...................14
4.5 Investments in Others............................................15
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4.6 Financial Statements.............................................15
4.7 Unreported and Contingent Liabilities............................16
4.8 Absence of Certain Changes.......................................16
4.9 Licenses and Permits.............................................17
4.10 Litigation.......................................................18
4.11 Inventory........................................................18
4.12 Real Property....................................................19
4.13 Environmental Matters............................................20
4.14 Compliance With Laws Generally...................................22
4.15 Employee Benefit Plans...........................................22
4.16 Intellectual Property............................................26
4.17 Tax Matters......................................................27
4.18 No Broker Involved...............................................29
4.19 Contracts........................................................29
4.20 Officers and Employees...........................................30
4.21 Labor Relations..................................................31
4.22 Insurance........................................................32
4.23 Title to Property and Related Matters............................32
4.24 Accounts and Notes Receivable....................................32
4.25 Undisclosed Payments.............................................32
4.26 Business Practices...............................................33
4.27 Affiliates.......................................................33
4.28 Pooling..........................................................33
4.29 Reorganization Under Section 368 of the Code.....................34
4.30 SEC Reports......................................................34
4.31 Full Disclosure..................................................34
ARTICLE 5
SHAREHOLDER REPRESENTATIONS AND WARRANTIES.............................34
5.1 Authority; No Conflict...........................................35
5.2 Securities Law Matters...........................................35
5.3 Due Diligence....................................................37
5.4 Company Representations..........................................37
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.......................38
6.1 Organization.....................................................38
6.2 Authority; No Conflict...........................................39
6.3 Capitalization...................................................40
6.4 SEC Reports......................................................40
6.5 Financial Statements.............................................41
6.6 No Undisclosed Liabilities.......................................41
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6.7 Legal Proceedings................................................42
6.8 Parent Common Stock..............................................42
6.9 Pooling..........................................................42
6.10 Reorganization under Section 368 of the Code.....................42
6.11 Brokers..........................................................42
6.12 No Material Adverse Change.......................................42
ARTICLE 7
PRE-CLOSING COVENANTS..................................................42
7.1 Conduct of Business..............................................42
7.2 Cooperation......................................................45
7.3 Notification of Certain Matters..................................45
7.4 Company Loan Repayment by Parent.................................45
7.5 Release of Shareholder Guarantees................................45
ARTICLE 8
ADDITIONAL AGREEMENTS..................................................46
8.1 Public Announcements.............................................46
8.2 Pooling of Interests Accounting..................................46
(a) Pooling Affiliates.........................................46
(b) Actions Jeopardizing Pooling Treatment.....................46
(c) Company Affiliate Agreements...............................46
(d) Affiliate Stock Legends....................................46
8.3 Non-Competition Agreements.......................................47
8.4 Certain Shareholder Covenants....................................47
8.5 Shareholder Representative.......................................48
8.6 Additional Shares Listing Application............................49
8.7 Antitrust Filing.................................................49
8.8 No Solicitation of Transactions..................................50
8.9 Shareholder Approval.............................................51
8.10 Dissenters' Rights Notices.......................................51
8.11 Access to Information; Confidentiality...........................51
8.12 Indemnification of Directors and Officers of the Company.........52
8.13 Letters of Company Accountants...................................52
8.14 Commercially Reasonable Efforts to Effect The Merger.............52
8.15 Company Termination Benefits.....................................54
8.16 Company Employee Benefit Plans...................................54
8.17 Tax Treatment....................................................55
8.18 Takeover Laws....................................................55
8.19 Current Report...................................................55
8.20 Collective Bargaining Agreement..................................55
8.21 Company Option Plan..............................................55
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8.22 Related Party Agreements.........................................56
ARTICLE 9
CONDITIONS TO MERGER...................................................56
9.1 Conditions Precedent to Obligation of Each Party.................56
(a) HSR Act....................................................56
(b) No Restraints..............................................56
9.2 Conditions Precedent to Obligations of Parent and Sub............57
(a) Accuracy of Representations and Warranties.................57
(b) Performance of Covenants...................................57
(c) Deliveries.................................................57
(d) Consents...................................................58
(e) Dissenting Shares..........................................58
(f) No Material Adverse Change.................................59
(g) No Litigation..............................................59
9.3 Conditions Precedent to Obligations of Company and the
Shareholders.....................................................59
(a) Accuracy of Representations and Warranties.................59
(b) Performance of Covenants...................................59
(c) Deliveries.................................................59
(d) No Material Adverse Change.................................60
(e) Listing....................................................60
(f) Effectiveness of Registration Statement....................60
(g) No Litigation..............................................60
ARTICLE 10
SURVIVAL AND INDEMNIFICATION...........................................61
10.1 Indemnification Obligations of the Shareholders..................61
10.2 Indemnification Obligations of Parent............................62
10.3 Limitations on Indemnification...................................62
10.4 Indemnification Procedure........................................63
10.5 Survival; Claims Period..........................................64
10.6 Recovery.........................................................65
10.7 Exclusive Remedy.................................................65
ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER......................................65
11.1 Termination......................................................65
11.2 Effect of Termination............................................66
11.3 Amendment........................................................66
11.4 Extension; Waiver................................................67
11.5 Expenses.........................................................67
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ARTICLE 12
MISCELLANEOUS..........................................................67
12.1 Taxes............................................................67
12.2 Benefits and Burdens: Assignment.................................67
12.3 Notices..........................................................68
12.4 Entire Agreement.................................................69
12.5 Construction; Certain Definitions................................70
12.6 Incorporation of Exhibits and Schedules..........................70
12.7 Disclosure Schedules.............................................70
12.8 Counterparts.....................................................70
12.9 Governing Law....................................................71
12.10 Enforcement; Jurisdiction; Waiver of Jury Trial..................71
12.11 Severability.....................................................71
12.12 Time.............................................................72
12.13 Knowledge........................................................72
12.14 Statutes.........................................................72
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DEFINED TERMS
The following is a list of the defined terms used in this Agreement:
TERMS SECTION
1997 Financial Statements........................................Section 4.6(a)
1998 Financial Statements........................................Section 4.6(a)
1999 Financial Statements........................................Section 4.6(a)
Acquisition Proposal.............................................Section 8.8(b)
Affiliate.......................................................Sections 4.4(b)
Affiliate Agreements.............................................Section 8.2(c)
Agreement..............................................................Recitals
Articles of Merger..................................................Section 1.5
Assumed Option .................................................Section 8.21(a)
Average Closing Price............................................Section 2.2(b)
Benefit Plans...................................................Section 4.15(b)
Blue Sky Laws.................................................Section 4.2(d)(i)
CERCLA..........................................................Section 4.13(b)
Certificate(s) ..................................................Section 2.3(a)
Claims Period.......................................................Section10.5
Closing.............................................................Section 3.1
Closing Date........................................................Section 3.1
COBRA...........................................................Section 4.15(e)
Code ..................................................................Recitals
Company................................................................Recitals
Company Common Stock................................................Section 2.1
Company Contract................................................Section 4.19(a)
Company Disclosure Schedule...........................................Article 4
Company Material Adverse Effect .................................Section 4.1(a)
Company Option Plan..............................................Section 2.1(b)
Company Preferred Stock.............................................Section 2.1
Company Registration Statement.....................................Section 4.30
Company Shares......................................................Section 2.1
Confidential Information .......................................Section 8.11(b)
Consent......................................................Section 4.2(c)(vi)
Constituent Corporations............................................Section 1.1
Contemplated Transactions........................................Section 4.2(a)
control.........................................................Sections 4.4(b)
Damages............................................................Section 10.1
Dissenting Shares.............................................Section 2.3(f)(i)
E&Y................................................................Section 8.13
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E&Y Pooling Letter.................................................Section 8.13
Effective Time......................................................Section 1.5
Employees.......................................................Section 4.15(b)
Encumbrance.................................................Section 4.2(c)(vii)
environment.....................................................Section 4.13(e)
Environmental Law(s)............................................Section 4.13(a)
ERISA...........................................................Section 4.15(a)
Escrow Agreement.................................................Section 2.1(c)
Escrow Shares....................................................Section 2.1(c)
Exchange Act..................................................Section 4.2(d)(i)
Exchange Ratio...................................................Section 2.1(b)
Expenses...........................................................Section 11.5
Financial Statement Date.........................................Section 4.6(a)
Fully Diluted Company Shares.....................................Section 2.1(b)
GAAP........................................................Section 4.2(c)(iii)
Governmental Authorization..................................Section 4.2(c)(iii)
Governmental Body............................................Section 4.2(c)(ii)
hazardous materials................................................Section 4.13
HSR Act.......................................................Section 4.2(d)(i)
including.......................................................Section 12.5(b)
Indemnified Party...............................................Section 10.4(a)
Indemnifying Party..............................................Section 10.4(a)
Intellectual Property...........................................Section 4.16(a)
Interim Balance Sheet............................................Section 4.6(b)
Interim Financial Statements.....................................Section 4.6(b)
Inventory..........................................................Section 4.11
KPMG.............................................................Section 2.1(c)
KPMG Pooling Letter..........................................Section 9.2(c)(vi)
Leased Real Property............................................Section 4.12(a)
Leases..........................................................Section 4.12(d)
Legal Requirement............................................Section 4.2(c)(ii)
Merger.................................................................Recitals
Merger Consideration.............................................Section 2.1(b)
Multiemployer Plan..............................................Section 4.15(h)
Nasdaq...........................................................Section 2.2(b)
Non-Competition Agreements..........................................Section 8.3
Options.......................................................Section 4.3(b)(i)
Order........................................................Section 4.2(c)(ii)
Organizational Documents.........................................Section 4.1(b)
Parent.................................................................Recitals
Parent Balance Sheet................................................Section 6.5
Parent Basket Amount............................................Section 10.3(b)
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Parent Basket Losses............................................Section 10.3(a)
Parent Common Stock.................................................Section 1.8
Parent Disclosure Schedule............................................Article 6
Parent Indemnified Parties.........................................Section 10.1
Parent Losses......................................................Section 10.1
Parent Material Adverse Effect...................................Section 6.1(a)
Parent Preferred Stock..............................................Section 6.3
Parent Registration Statement.......................................Section 1.8
Parent SEC Reports.................................................Sections 6.4
Parent Stock Options................................................Section 6.3
Pennsylvania Law.......................................................Recitals
Person..........................................................Section 12.5(b)
Pooling Affiliate................................................Section 8.2(a)
pooling of interests...............................................Section 4.28
Proceeding.........................................................Section 4.10
Product Safety Law.................................................Section 4.11
Public Disclosure Law...............................................Section 8.1
Qualified Retirement Plan.......................................Section 4.15(k)
Recapitalization Documents.......................................Section 8.4(c)
Registration Rights Agreement.......................................Section 1.8
Related Party Agreements...........................................Section 8.22
Related Party Leases...............................................Section 8.22
Related Party Obligations........................................Section 4.4(d)
release.........................................................Section 4.13(e)
Representatives .................................................Section 8.8(a)
S Corporation Period............................................Section 4.17(j)
S Election......................................................Section 4.17(j)
SEC..............................................................Section 4.1(c)
Securities Act................................................Section 4.2(d)(i)
Shareholder(s).........................................................Recitals
Shareholder Basket Amount.......................................Section 10.3(a)
Shareholder Basket Losses.......................................Section 10.3(b)
Shareholder Guarantees..............................................Section 7.5
Shareholder Indemnification Parties................................Section 10.2
Shareholder Losses.................................................Section 10.2
Shareholder Questionnaire........................................Section 5.2(g)
Shareholder Representative.......................................Section 8.5(a)
Significant Subsidiary...............................Sections 4.1(c) and 6.1(c)
Spain Employment Agreements......................................Section 8.4(a)
Sub....................................................................Recitals
Subsidiary.......................................................Section 2.1(a)
Surviving Corporation...............................................Section 1.1
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Tax.............................................................Section 4.17(a)
Tax Return......................................................Section 4.17(b)
Terminating Company Breach......................................Section 11.1(b)
Terminating Parent Breach.......................................Section 11.1(c)
Unanimous Consent................................................Section 4.2(b)
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EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Affiliate Agreement
Exhibits D1-D3 Form of Non-Competition Agreements
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
Schedule 8.16 Benefit Plan Matters
Schedule 9.2(d) Lease Consents
Schedule 9.3(d) Certain Material Adverse Changes
Schedule 10.1(e) Certain Matters Related to Damages
Schedule 10.1(f) Certain Matters Related to Damages
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MERGER AGREEMENT
THIS MERGER AGREEMENT, dated April 5, 2000 ("Agreement"), by and among
DOLLAR TREE STORES, INC., a Virginia corporation ("Parent"), DT KEYSTONE, INC.,
a Pennsylvania corporation and a wholly owned subsidiary of Parent ("Sub"), and
DOLLAR EXPRESS, INC., a Pennsylvania corporation ("Company"), and THE
UNDERSIGNED SHAREHOLDERS OF COMPANY, the sole common and preferred shareholders
of the Company (each may be referred to herein as a "Shareholder" or
collectively as the "Shareholders").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each determined that it is in the best interests of their respective
shareholders that, upon the terms and subject to the conditions of this
Agreement and in accordance with the Pennsylvania Business Corporation Law
("Pennsylvania Law"), Sub and the Company will enter into a business combination
transaction pursuant to which Sub will merge with and into the Company (the
"Merger");
WHEREAS, Parent and Sub require the Merger to be accounted for as a
pooling of interests and to qualify as a "reorganization" within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties have determined that the Merger and the other
transactions contemplated hereby are consistent with, and in furtherance of,
their respective business strategies and goals;
WHEREAS, the Boards of Directors of Sub and Parent (on behalf of Parent
and in its capacity as sole shareholder of Sub) have approved this Agreement,
the Merger, and the transactions contemplated hereby in accordance with
applicable law and the Articles or Certificate of Incorporation and Bylaws of
Parent and Sub;
WHEREAS, the Board of Directors of the Company has (i) approved this
Agreement, the Merger, and the transactions contemplated hereby in accordance
with the requirements of Pennsylvania Law and the Articles of Incorporation and
the Bylaws of the Company; (ii) found this Agreement, the Merger, and the
transactions contemplated hereby to be fair to the Shareholders; and (iii)
directed this Agreement and the Merger to be submitted to, and recommended
approval by, the Shareholders;
WHEREAS, the Shareholders have irrevocably and unanimously approved the
Merger;
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WHEREAS, following the Merger, Parent intends to liquidate the surviving
corporation and merge it into Parent;
WHEREAS, the Company and the Shareholders, on the one hand, and Parent and
Sub, on the other hand, desire to make certain representations, warranties,
covenants and other agreements in connection with the Merger; and
WHEREAS, a portion of the shares of common stock of Parent otherwise
issuable by Parent in connection with the Merger shall be placed in escrow by
Parent for purposes of satisfying damages, losses, expenses and other similar
charges which result from breaches of the representations, warranties and
covenants of the Company and the Shareholders contained herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 Surviving Corporation. Subject to the provisions of this Agreement and
applicable law, at the Effective Time (as defined in Section 1.5), Sub shall be
merged with and into the Company, and the separate corporate existence of Sub
shall cease. The Company shall be the surviving corporation in the Merger and
shall continue its corporate existence under the laws of the Commonwealth of
Pennsylvania. (Sub and Company are sometimes referred to below as the
"Constituent Corporations" and Company is sometimes referred to below as the
"Surviving Corporation")
1.2 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Surviving Corporation shall be amended to have the same
form as the Articles of Incorporation of Sub, provided however that the name of
the Surviving Corporation shall be "Dollar Express, Inc."
1.3 Bylaws. At the Effective Time, the Surviving Corporation shall adopt
amended and restated Bylaws in the same form as the Bylaws of the Company.
1.4 Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold the office of director of the Surviving
Corporation in accordance with the provisions of the applicable laws of the
Commonwealth of Pennsylvania and the Articles of Incorporation and Bylaws of the
Surviving Corporation until their successors are duly qualified and elected. The
officers of Sub immediately prior to the Effective Time shall be the
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officers of the Surviving Corporation immediately after the Effective Time, each
to hold office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
1.5 Effective Time. Upon satisfaction or waiver of the conditions set
forth in Article 9 hereof, and if this Agreement shall not have been terminated
in accordance with Article 11 hereof, the parties hereto shall cause an
agreement of merger in such form as is required by the relevant provisions of
the Pennsylvania Code (the "Articles of Merger") to be duly prepared, adopted by
the relevant Boards of Directors, executed and acknowledged and thereafter
delivered to the Secretary of State of Pennsylvania for filing, as provided in
Pennsylvania Law, as soon as practicable on or after the Closing Date (as
defined in Article 3). The Merger shall become effective as of the time of
filing of a properly adopted and executed Articles of Merger or at such later
date and time as is specified in the Articles of Merger. The date and time when
the Merger becomes effective is herein referred to as the "Effective Time."
1.6 Other Effects of the Merger. The Merger shall have all further effects
as specified in the applicable provisions of Pennsylvania Law. Without limiting
the generality of the foregoing, at and after the Effective Time, the Surviving
Corporation will possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, will be vested in the Surviving Corporation, and all
property, rights, privileges, powers and franchises, and all and every other
interest will be thereafter as effectually the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise, in either of the Constituent
Corporation, will not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of either of the Constituent
Corporations will be preserved unimpaired, and all debts, liabilities and duties
of the Constituent Corporations will thereafter attach to the Surviving
Corporation, and may be enforced against it to the same extent as if such debts
and liabilities had been incurred by it.
1.7 Tax-Free Reorganization. The Merger is intended to constitute a
reorganization within the meaning of Section 368(a) of the Code. This Agreement
is intended to constitute a plan of reorganization within the meaning of the
regulations promulgated under Section 368(a) of the Code.
1.8 Registration of Shares. Parent shall file a registration statement on
Form S-3 ("Parent Registration Statement") covering the resale by the
Shareholders of 1.8 million of the shares of voting common stock, par value $.01
per share, of Parent (the "Parent Common Stock") to be issued in the Merger. In
connection therewith Parent and Shareholders shall
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execute and deliver simultaneously herewith a Registration Rights Agreement in
the form attached hereto as Exhibit A (the "Registration Rights Agreement").
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion or Cancellation of Shares.
"Company Shares" means the Company's common stock ("Company Common Stock")
and the Company's Series A Cumulative Convertible Preferred Stock ("Company
Preferred Stock") without distinction. Subject to the provisions of this Article
2, at the Effective Time, by virtue of the Merger and without any further action
by the holders thereof, the Company Shares issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished and automatically
converted into shares of Parent Common Stock, as follows:
(a) Cancellation of Treasury Stock and Parent-Owned Stock;
Conversion of Company Preferred Stock. All Company Common Stock that is owned by
Company as treasury stock and any Company Common Stock owned by Parent, Sub or
any other wholly owned Subsidiary (as defined below) of Parent will be canceled
and retired and will cease to exist and no stock of Parent or other
consideration will be delivered in exchange therefor. Prior to the Effective
Time, Shareholders holding any outstanding shares of Company Preferred Stock
agree to convert such shares into shares of Company Common Stock in accordance
with the terms of the Company Preferred Stock, such that no shares of Company
Preferred Stock shall be outstanding at the Effective Time. All shares of Parent
Common Stock owned by Company will remain unaffected by the Merger. As used in
this Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
(b) Exchange Ratio. Other than Dissenting Shares (as defined in
Section 2.3) and shares to be canceled in accordance with Section 2.1(a) above),
each Company Share issued and outstanding immediately prior to the Effective
Time shall be converted, subject to Sections 2.1(c) and 2.2, into the right to
receive that number of shares of Parent Common Stock as is determined by
multiplying such Company Share by a ratio equal to (i) six million (6,000,000)
shares of Parent Common Stock ("Merger Consideration") divided by (ii) the Fully
Diluted Company Shares (such ratio shall be referred to herein as the "Exchange
Ratio"). "Fully
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Diluted Company Shares" shall be equal to the sum of (A) the total number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time and shall include, without double counting, (1) Dissenting Shares
and (2) shares of Company Common Stock into which the Company Preferred Stock
shall be converted pursuant to Section 2.1(a) above PLUS (B) the total number of
shares of Company Common Stock issuable upon the exercise of Options (as defined
in Section 4.3(b)(i)), which number shall include Options issued under the
Dollar Express, Inc. 1999 Stock Option Plan ("Company Option Plan"). All such
Company Shares, when so converted, will no longer be outstanding and will
automatically be canceled and retired and will cease to exist, and each holder
of a certificate representing any such shares will cease to have any rights with
respect thereto, except the right to receive the shares of Parent Common Stock
and any cash in lieu of fractional shares of Parent Common Stock to be issued or
paid in consideration therefor upon the surrender of such certificate in
accordance with Section 2.2, without interest.
(c) Escrow of Shares. An aggregate of five percent (5%) of the
shares of Parent Common Stock issuable with respect to Company Shares in the
Merger (exclusive of Dissenting Shares but including any dividends or
distributions accrued or made with respect to such shares of Parent Common Stock
after the Effective Time and any other securities or property which may be
issued after the Effective Time in exchange for such shares of Parent Common
Stock in any merger or recapitalization or similar transaction involving Parent,
the "Escrow Shares") shall be transferred and pledged when and as issued on a
pro rata basis to the Escrow Agent (as defined in the "Escrow Agreement"
attached as Exhibit B) to secure the indemnification obligations of the
Shareholders pursuant to this Agreement and the Escrow Agreement. Such Escrow
Shares shall be comprised exclusively of restricted shares of Parent Common
Stock issuable in the Merger.
(d) Stock Splits, etc. If after the date of the signing of this
Agreement but prior to the Effective Time, Parent should split or combine the
Parent Common Stock, or pay a stock dividend or other stock distribution in
Parent Common Stock, or otherwise change the Parent Common Stock into any other
securities, or make any other dividend or distribution on the Parent Common
Stock, then the Exchange Ratio and the number of shares of Parent Common Stock
constituting the aggregate consideration issuable in the Merger in respect of
Company Common Stock shall be appropriately adjusted to reflect such change.
(e) Stock of Sub. Each share of common stock, no par value, of Sub
issued and outstanding immediately prior to the Effective Time shall remain as
one issued and outstanding share of common stock, no par value, of the Surviving
Corporation as of and after the Effective Time.
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2.2 Fractional Shares.
(a) No scrip or fractional shares of Parent Common Stock shall be
issued in the Merger. For purposes of determining the number of shares of Parent
Common Stock to be issued to each Shareholder in the Merger, all the Company
Shares owned by such Shareholder shall be aggregated prior to applying the
Exchange Ratio. If, after such aggregation, any Shareholder is to receive a
fractional share, such Shareholder shall be entitled, after the later of (a) the
Effective Time or (b) the surrender of such Shareholder's Certificate(s) (as
defined below) that represent such Company Shares, to receive from Parent an
amount in cash in lieu of such fractional share, based on the Average Closing
Price (as defined below).
(b) For the purposes of this calculation, each share of Parent
Common Stock shall be valued at the arithmetic average of the closing price per
share of Parent Common Stock, as reported on the Nasdaq National Market System
(the "Nasdaq") for each of the five (5) consecutive trading days ending with the
trading day which occurs immediately prior to the Effective Time (the "Average
Closing Price"). If Parent effects any stock split, stock combination, stock
dividend or similar transaction with respect to the outstanding shares of Parent
Common Stock during the five consecutive trading days during which the Average
Closing Price is determined, the dollar amounts in the preceding sentence shall
be appropriately adjusted to reflect such change.
2.3 Procedures Relating to Company Shares.
(a) Exchange of Certificates. On or prior to the Closing Date, each
Shareholder shall surrender all outstanding certificates which immediately prior
to the Effective Time represented Company Shares (the "Certificate" or
"Certificates") for payment therefor and conversion thereof. Delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to Parent. Upon surrender to Parent of a
Certificate, the holder of such Certificate shall be entitled to receive in
exchange therefor (i) one or more certificates as requested by the holder
(properly issued, executed and countersigned, as appropriate) representing that
number of whole shares of fully paid and nonassessable shares of Parent Common
Stock to which such holder of Company Shares shall have become entitled pursuant
to the provisions of Section 2.1 hereof; (ii) as to any fractional share of
Parent Common Stock, a check representing the cash consideration to which such
holder shall have become entitled pursuant to Section 2.2 hereof; and (iii) any
dividend or other distribution to which such holder is entitled pursuant to
Section 2.3(b) hereof, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the cash payable upon the
surrender of the Certificates. If any portion of the consideration to be
received pursuant to Sections 2.1, 2.2 and 2.3(b) upon exchange of a Certificate
(whether a certificate representing shares of Parent Common Stock or by check
representing cash for a fractional share) is to be issued or paid to a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such issuance and payment
that the Certificate so surrendered
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shall be properly endorsed or otherwise in proper form for transfer and that the
person requesting such exchange shall pay in advance any transfer or other taxes
required by reason of the issuance of a Certificate or a check representing cash
for a fractional share to such other person, or established to the satisfaction
of Parent that such tax has been paid or that such tax is not applicable. From
the Effective Time until surrender in accordance with the provisions of this
Section 2.3, each Certificate shall represent for all purposes only the right to
receive the consideration provided in Sections 2.1, 2.2 and 2.3(b). All payments
of respective shares of Parent Common Stock that are made upon surrender of
Certificates in accordance with the terms hereof shall be deemed to have been
made in full satisfaction of rights pertaining to the Company Shares evidenced
by such Certificates.
(b) Cash Payments. No dividends or other distributions with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2, in each case until the
surrender of such Certificate in accordance with this Article 2. Following
surrender of any such Certificate, there shall be paid to the holder of the
certificate representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Parent
Common Stock.
(c) Lost, Mislaid, Stolen or Destroyed Certificates. In the case of
any lost, mislaid, stolen or destroyed Certificate, the holder thereof may be
required, as a condition precedent to delivery to such holder of the
consideration described in Sections 2.1, 2.2 and 2.3(b) hereof, to deliver to
Parent a bond in such reasonable sum or a reasonably satisfactory indemnity
agreement as Parent may direct as indemnity against any claim that may be made
against Parent or the Surviving Corporation with respect to the Certificate
alleged to have been lost, mislaid, stolen or destroyed.
(d) No Stock Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of the
Company Shares that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for the
consideration described in Sections 2.1, 2.2 and 2.3(b) hereof.
(e) Unclaimed Merger Consideration. Any shares of Parent Common
Stock or cash due former shareholders of the Company pursuant to Sections 2.1,
2.2 and 2.3(b)
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hereof that remain unclaimed after the Effective Time shall be held by Parent,
and any former holder of Company Shares who has not theretofore complied with
Section 2.3(a) shall thereafter look only to Parent for issuance of the number
of shares of Parent Common Stock and other consideration to which such holder
has become entitled pursuant to the provisions of Sections 2.1, 2.2 and 2.3(b)
hereof; provided, however, that neither Parent nor any party hereto shall be
liable to a former holder of Company Shares for any amount required to be paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Dissenting Shares.
(i) To the extent that the availability of dissenters' rights
are mandated under Pennsylvania Law, Company Shares that have not
been voted for adoption of the Merger and with respect to which
dissenters' rights have been properly demanded in accordance with
Pennsylvania Law (the "Dissenting Shares") shall not be converted
pursuant to this Article 2 or transferred to the Escrow Agent at or
after the Effective Time unless and until the holder of such shares
becomes ineligible for such dissenters' rights. If a holder of
Dissenting Shares becomes ineligible to assert dissenters' rights,
then, as of the Effective Time or the occurrence of such event,
whichever later occurs, such holder's Dissenting Shares shall cease
to be Dissenting Shares and shall be converted pursuant to this
Article 2 (subject to all of the rights and obligations of the
Shareholders hereunder). The Company shall immediately give Parent
notice of such assertion and Parent shall have the right to
participate in all negotiations and proceedings with respect to any
such demands. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment. Holders of
Dissenting Shares shall have those rights, but only those rights, of
a "dissenter" under Subchapter D of Chapter 15 of Pennsylvania Law,
and payment for Dissenting Shares shall only be made as required by
Pennsylvania Law.
(ii) Each Shareholder hereby irrevocably disclaims and
relinquishes, for himself, his personal representative, successors,
heirs and assigns any and all rights to demand or be paid for the
fair value of such Company Shares as described in Section 2.3(f)(i)
above.
ARTICLE 3
CLOSING
3.1 Time and Place of Closing. The closing ("Closing") will take place at
10:00 a.m. Virginia time on a date to be specified by the parties, at a mutually
agreed location, no later than the second business day after fulfillment of all
the conditions set forth in Article 9 which have not been waived by the Company
or by Parent, as the case may be. The date on which the Closing is held is
referred to as the "Closing Date."
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ARTICLE 4
COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and Sub, that subject only
to the exceptions specifically stated in this Article and in Article 5 and
contained in the disclosure schedule delivered by the Company to Parent
concurrently and identified as the "Company Disclosure Schedule," the following
representations, warranties and schedules are true, accurate, and complete as of
the date of this Agreement and as of the Closing Date. On the Closing Date, the
Company shall supplement or amend the Company Disclosure Schedule with respect
to any matter hereafter arising which, if existing or occurring at or prior to
the date of this Agreement, would have been required to be set forth or
described in such disclosure schedules or which is necessary to correct any
information in any such disclosure schedules which has been rendered inaccurate
thereby. No supplement or amendment to such disclosure schedules shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Article 9 of this Agreement.
4.1 Organization and Good Standing.
(a) Company and each of its Subsidiaries are corporations duly
organized, validly existing, and in good standing under the laws of their
respective jurisdictions of incorporation, with full corporate power and
authority to conduct their respective businesses as now being conducted, to own
or use the respective properties and assets that they purport to own or use, and
to perform all their respective obligations under any Company Contracts (as
defined in Section 4.19(a)). Company and each of its Significant Subsidiaries
(as defined below) are duly qualified to do business as foreign corporations and
are in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by them, or the
nature of the activities conducted by them, requires such qualification, except
where the failure to be so qualified could not reasonably be expected to,
individually or in the aggregate, result in a material adverse effect on the
business, assets, condition (financial or otherwise), or results of operation of
Company and its Subsidiaries, taken as a whole (a "Company Material Adverse
Effect").
(b) Company has previously delivered to Parent true, correct and
complete copies of the Certificates or Articles of Incorporation and Bylaws, and
any other formation and organizational documents, as the case may be, including
all amendments thereto ("Organizational Documents"), of Company and each of its
Subsidiaries, as currently in effect. The minute books of Company and each of
its Subsidiaries have been made available to counsel for Parent and such minute
books are the only minute books of Company and its Subsidiaries and contain a
reasonably accurate summary of all material actions and decisions occurring
during all meetings of directors (or committees thereof) and the shareholders or
actions by written consent since the time of incorporation of Company and its
Subsidiaries.
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(c) As used in this Agreement, a "Significant Subsidiary" of Company
is a Subsidiary of Company that constitutes a Significant Subsidiary of Company
within the meaning of Rule 1-02 of Regulation S-X of the United States
Securities and Exchange Commission (the "SEC"). All Subsidiaries of Company that
are not Significant Subsidiaries of Company would not, if combined, constitute a
Significant Subsidiary of Company within the meaning of such Rule 1-02.
4.2 Authority; No Conflict.
(a) 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 all of the transactions contemplated by this Agreement
and by all agreements, documents and instruments to be executed and delivered in
connection herewith or in connection with the Closing hereon (collectively, the
"Contemplated Transactions"). The execution and delivery of this Agreement by
Company and the consummation by Company of the Contemplated Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Company are necessary to authorize this
Agreement or to consummate the Contemplated Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Pennsylvania). This Agreement has been duly and validly
executed and delivered by Company and constitutes the legal, valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except as enforceability may be limited by laws of general application relating
to bankruptcy, insolvency and debtors' relief, and by general principles of
equity.
(b) Pursuant to those certain unanimous consents in writing dated
March 31, 2000 (collectively, the "Unanimous Consents"), certified copies of
which are attached at Section 4.2(b) of the Company Disclosure Schedule, each of
the Board of Directors and Shareholders of Company have, as of the date of this
Agreement, determined unanimously that this Agreement and the Merger is fair to,
and in the best interests of the Company and its shareholders, the Board of
Directors of the Company has recommended that the Shareholders approve this
Agreement and the Board of Directors and Shareholders have irrevocably approved
this Agreement, the Merger and the other transactions contemplated hereby,
subject only to conditions precedent set forth in Article 9. Every holder of
outstanding capital stock of the Company has signed a Shareholder Unanimous
Consent and has signed this Agreement. No holder of any Option granted by the
Company or its subsidiaries has exercised such Option as of the date of this
Agreement and no holder of unexercised Options has a right to vote on, grant
approval of, or otherwise make an investment decision in connection with the
approval of the Merger, this Agreement, or the Articles of Merger.
(c) Except as set forth in Section 4.2(c) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of any of
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the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time or both):
(i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of Company or any of
its Subsidiaries or of any of the Shareholders, or (B) any
resolution adopted by the board of directors or the shareholders of
Company or any of its Subsidiaries or any of the Shareholders;
(ii) contravene, conflict with, or result in a violation of,
or give any federal, state, local, municipal, foreign, multinational
or other governmental body, agency, branch, department, official,
entity, court, tribunal or other authority ("Governmental Body") or
other Person (as defined in Section 12.5(b)) the right to challenge
any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, federal, state, local, municipal, foreign,
international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute or treaty ("Legal Requirement") or any award, decision,
preliminary or permanent injunction, temporary restraining order,
order of specific performance, judgment, order, ruling, subpoena or
verdict entered, issued, made or rendered by any Governmental Body
or by any arbitrator ("Order") to which Company or any of its
Subsidiaries, or any of the assets owned or used by Company or any
of its Subsidiaries, may be subject;
(iii) contravene, conflict with, or result in a violation of
any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or
modify, any approval, consent, license, permit, waiver or other
authorization issued, granted, given or otherwise made available by
or under the authority of any Governmental Body or pursuant to any
Legal Requirement ("Governmental Authorization") that is held by
Company or any of its Subsidiaries, or that otherwise relates to the
business of, or any of the assets owned or used by, Company or any
of its Subsidiaries;
(iv) cause Company or any of its Subsidiaries to become
subject to, or to become liable for the payment of, any Tax (as
defined in Section 4.17(a));
(v) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the
vesting, maturity or performance of, or to cancel, terminate, or
modify, any material Company Contract (as defined in Section
4.19(a));
(vi) require any approval, consent, ratification, waiver or
other authorization (including any Governmental Authorization)
("Consent") from any Person; or
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(vii) result in the imposition or creation of any charge,
claim, community property interest, condition, equitable interest,
lien, option, pledge, security interest, right of first refusal or
restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of
ownership ("Encumbrance") upon or with respect to any of the assets
owned or used by Company or any of its Subsidiaries, except, in the
case of clauses (ii), (iii), (iv), (v), and (vii), for any such
conflicts, violations, breaches, defaults or other occurrences that
would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Company from performing its
obligations under this Agreement in any material respect, and could
not reasonably be expected to, individually or in the aggregate,
result in a Company Material Adverse Effect.
(d) The execution and delivery of this Agreement by Company do not,
and the performance of this Agreement and the consummation of the Contemplated
Transactions by Company will not, require any Consent of, or filing with or
notification to, any Governmental Body, except
(i) for (A) 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") and state
securities or "blue sky" laws ("Blue Sky Laws"), (B) the pre-merger
notification requirements of the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended ("HSR Act"), and (C) filing and
recordation of appropriate merger documents as required by
Pennsylvania Law, and
(ii) where failure to obtain such Consents, or to make such
filings or notifications, would not prevent or delay consummation of
the Merger in any material respect, or otherwise prevent Company
from performing its obligations under this Agreement in any material
respect, and could not reasonably be expected to, individually or in
the aggregate, result in a Company Material Adverse Effect.
(e) Attached as Section 4.2 (e) of the Company Disclosure Schedule
is a description of (i) all amounts that may become payable; (ii) all Company
Contracts that may be in default or be breached, assuming no consents or waivers
are obtained; and (iii) any expense or loss that may be realized under United
States Generally Accepted Accounting Principles ("GAAP"), as a result of or in
connection with the Merger or the transactions contemplated by this Agreement.
4.3 Capitalization.
(a) The authorized capital stock of the Company and the issued and
outstanding shares of capital stock are set forth in Section 4.3(a) of the
Company Disclosure
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Schedule. Section 4.3(a) of the Company Disclosure Schedule also sets forth a
true and complete list of all of the shareholders of the Company as of the date
of this Agreement, the number of shares of capital stock (designated on such
list as either Company Common Stock or Company Preferred Stock) owned by each of
them, the date such shares were transferred to the shareholders, and each
shareholder's social security number and address. All of the Company's issued
and outstanding shares of capital stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to preemptive rights,
and have been issued in compliance with all applicable federal and state
securities laws.
(b) Except for the Shareholders and as otherwise set forth in
Section 4.3(b) of the Company Disclosure Schedule, no person owns or has a
beneficial or legal interest in any portion of the Company's capital stock.
Except as set forth in Section 4.3(a) or in Section 4.3(b) of the Company
Disclosure Schedule, there are:
(i) no options, stock appreciation rights, warrants or other
rights, contracts, arrangements or commitments of any character
(collectively, "Options") relating to the issued or unissued capital
stock of Company or any of its Subsidiaries, or obligating Company
or any of its Subsidiaries to issue, grant or sell any shares of
capital stock of, or other equity interests in, or securities
convertible into equity interests in, Company or any of its
Subsidiaries, and
(ii) no right of first refusal, co-sale right, right of
participation, right of first offer demand, registration rights,
restriction on transfer (other than pursuant to applicable
securities laws), or other agreement or understanding applicable to
the Company's capital stock or securities.
Since February 5, 1999, neither Company nor any of its Subsidiaries has issued
or reserved any shares of its capital stock or Options in respect thereof,
except with respect to the conversion of the securities or the exercise of those
Options that are described on Section 4.3(b) of the Company Disclosure Schedule.
All shares of Company Common Stock subject to issuance as described above will,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.3(b) of the Company Disclosure
Schedule, neither the Company nor any Shareholder is a party or subject to any
agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between or among any other persons, that affects or
relates to the voting or giving of written consent with respect to any
outstanding security of the Company, other than as contemplated hereby.
(c) The Company Shares set forth as owned by each Shareholder on
Section 4.3(a) of the Company Disclosure Schedule are in fact owned only by such
Shareholder
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and are free and clear of all Encumbrances, except as set forth in Section
4.3(c) of the Company Disclosure Schedule.
(d) The Merger constitutes a "Liquidity Event" under and as defined
in that certain Statement with Respect to Shares filed with the Secretary of
State of Pennsylvania with respect to the Company Preferred Stock.
(e) As of the Closing:
(i) all outstanding shares of the Company Preferred Stock will
have been converted to shares of Company Common Stock, and all
accrued and unpaid dividends under the Company Preferred Stock will
have been extinguished without liability for payment;
(ii) all warrants for the purchase of Company Common Stock
will have been canceled and will not remain outstanding or
exercisable, and no holder of any such warrant shall have any rights
thereunder; and
(iii) all Options granted for the purchase of Company Common
Stock under the Company Option Plan will either have been exercised
or treated in accordance with the provisions of Section 8.21.
4.4 Subsidiaries; Affiliates; Conflict of Interest.
(a) The Company (by itself or through its wholly-owned direct or
indirect Subsidiaries) owns all of the issued and outstanding capital stock of
each of its Subsidiaries. Except as set forth in Section 4.4(a) of the Company
Disclosure Schedule, each outstanding share of capital stock of each of
Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Company or one of its Subsidiaries is
free and clear of all Encumbrances of any nature whatsoever. None of the
outstanding equity securities or other securities of Company or any of its
Subsidiaries was issued in violation of the Securities Act or any other Legal
Requirement (including Blue Sky Laws).
(b) The business of the Company is conducted by the Company and its
Subsidiaries and is not directly or indirectly conducted through any other
Affiliate (as defined below) of Company, or by any other entity. The term
"Affiliate" with respect to any Person means any Person or entity which controls
such Person, which that Person controls, or which is under common control with
that Person. In the case of the Company, the term "Affiliate" shall include, but
not be limited to, the Shareholders and the Shareholders' Affiliates. Affiliates
of Shareholders include the general partner, manager, or managing entity of any
Shareholder, spouse of any Shareholder, siblings and lineal descendants or
ancestors of Shareholders, and any corporation, partnership, joint venture or
other entity which any of the Shareholders, any spouse,
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sibling or lineal descendant or ancestor of a Shareholder, or a trust for the
benefit of any of them, controls. For purposes of the preceding sentences, the
term "control" means the power, direct or indirect, to direct or cause the
direction of the management and policies of a person or entity through voting
securities, contract or otherwise. Except as set forth in Section 4.4(b) of the
Company Disclosure Schedule, no Affiliate of the Company has any direct or
indirect interest (other than an investment interest in no more than five
percent (5%) of the stock of a publicly traded company) in any creditor,
competitor, supplier, customer, or lessor of Shareholders.
(c) Except as set forth in Section 4.4(c) of the Company Disclosure
Schedule, no Affiliate of the Company is presently a party to any agreement or
arrangement with the Company: (i) providing for the furnishing of raw materials,
products or services to or by, or (ii) providing for the sale or rental of real
or personal property to or from, any such entity.
(d) Except as set forth in Section 4.4(d) of the Company Disclosure
Schedule, no Affiliate of the Company has any interest in: (i) any contract,
arrangement or understanding with, or relating to, the business or operations of
the Company; (ii) any loan, arrangement, understanding, agreement or contract
for or relating to indebtedness of the Company; or (iii) any property (real,
personal or mixed), tangible or intangible, used or currently intended to be
used in, the business or operations of the Company. Following the Closing, the
Company will not have any obligations of any kind to any Shareholder or any
Affiliate of a Shareholder except for (i) accrued salary for the pay period
commencing immediately prior to the Closing Date; and (ii) the obligations set
forth at Section 4.4(d) of the Company Disclosure Schedule (collectively, the
"Related Party Obligations").
4.5 Investments in Others. The Company does not have any investment in or
advance or loan to or guarantee of, or any commitment to make any investment in,
advance or loan to or guarantee of, any Person, except as set forth in the
Interim Balance Sheet (as defined below).
4.6 Financial Statements.
(a) The Company's audited balance sheets as of the end of, and
related audited statements of income, retained earnings and cash flow for, the
fiscal year ended December 30, 1999 (the "Financial Statement Date"), and the
fiscal years ended December 31, 1998, and December 31, 1997, are attached hereto
at Section 4.6(a) of the Company Disclosure Schedule and are referred to herein
collectively as the "Financial Statements" and individually as the "1999
Financial Statements," "1998 Financial Statements" and "1997 Financial
Statements," respectively. The Financial Statements (i) present fairly, in all
material respects, the financial position, results of operations and changes in
cash flows, as the case may be, of the Company at the Financial Statement Date;
and (ii) were prepared in accordance with GAAP in a manner consistent with the
Company's historic GAAP accounting practices applied on a consistent basis,
except as otherwise indicated in the text of such statements.
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(b) The unaudited balance sheet of the Company and its Subsidiaries
as of March 2, 2000 (the "Interim Balance Sheet"), and the related statements of
income for the nine (9) week period ended March 2, 2000 attached at Section
4.6(b) of the Company Disclosure Schedule, are referred to herein as the
"Interim Financial Statements." The Interim Financial Statements (i) present
fairly, in all material respects, the financial position and results of
operations, as the case may be, of the Company and its Subsidiaries at March 2,
2000; and (ii) except as described in Section 4.6(b) of the Company Disclosure
Schedule were prepared in conformity with GAAP and in a manner consistent with
the Company's historic accounting practices applied on a consistent basis,
subject to normal and customary year-end closing adjustments, the lack of full
footnote presentations, and lack of statements of cash flows and retained
earnings.
(c) Attached at Section 4.6(c) of the Company Disclosure Schedule
are reports showing year-to-date sales information and comparable store net
sales information for each of the Company's and its Subsidiaries' retail store
locations separately stated for the Dollar Express operations and the Spain's
Card and Gifts operations (i) on an annual basis for the fiscal year ended
December 30, 1999 compared with the year ended December 31, 1998; (ii) on a
comparable basis for the nine-week period ended March 2, 2000 compared with the
nine-week period ended March 4, 1999; and (iii) on a weekly basis for the period
from March 3, 2000 to the date hereof compared with the same period in 1999.
Such reports are true and complete and correctly present actual year-to-date
sales and comparable store net sales of Company in all material respects.
(d) The Company has also provided Parent with true and correct
copies of financial statements separately stated for both the Dollar Express
operations and the Spain's Cards and Gifts operations for the calendar years
ending December 31, 1998 and 1997, and related consolidating schedules and other
schedules setting forth all intercompany accounts.
4.7 Unreported and Contingent Liabilities. Except as set forth at Section
4.7 of the Company Disclosure Schedule or as set forth in the 1999 Financial
Statements and the Interim Financial Statements, neither the Company nor its
Subsidiaries has any material liabilities or obligations, whether accrued,
absolute, fixed, known or unknown, contingent or otherwise, existing, arising
out of or relating to any transaction entered into, or state of facts existing,
on or prior to the date of this Agreement other than liabilities and obligations
incurred since the date of the Interim Balance Sheet in the ordinary course of
business consistent with past practice.
4.8 Absence of Certain Changes. Since the Financial Statement Date, the
business of the Company and its Subsidiaries has been conducted only in the
ordinary course and consistent with past practices, and except as set forth at
Section 4.8 of the Company Disclosure Schedule, there has not been (a) any event
which could reasonably be expected to result in a Company Material Adverse
Effect; (b) any damage, destruction, casualty or other similar
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occurrence or event (whether or not insured against), which either singly or in
the aggregate materially adversely affects the assets, liabilities, earnings,
business or operations of the Company and its Subsidiaries; (c) any mortgage or
pledge of or encumbrance attached to any of the properties or assets of the
Company and its Subsidiaries not in the ordinary course of business; (d) any
incurrence or creation of any liability, commitment or obligation in excess of
$10,000 by the Company or its Subsidiaries, except unsecured trade payables and
other unsecured liabilities incurred in the ordinary course of business, and
capital expenditures or contracts and commitments for capital expenditures made
or entered into in the ordinary course of business; (e) any sale, transfer or
other disposition by the Company or its Subsidiaries of any of its assets in
excess of $50,000 in the aggregate, except for inventory sold by the Company or
its Subsidiaries in the ordinary course of business; (f) any amendments or
changes to the Organizational Documents; (g) any labor trouble, claim of
wrongful discharge, or unlawful labor or employment practice or claim (except
matters in the aggregate will not result in potential damages greater than
$20,000); (h) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Company and its
Subsidiaries; (i) any revaluation by Company of any of its assets; (j) any
declaration, setting aside or payment of a dividend or other distribution or
deposit with respect to the capital stock of Company, its Subsidiaries, or a
Shareholder, or direct or indirect redemption, purchase or other acquisition by
Company or any Subsidiary of any of its capital stock; (k) any increase in the
salary or other compensation payable or to become payable to any of Company's or
Subsidiaries' officers, directors, employees or advisors, or the declaration,
payment or commitment or obligation of any kind for the payment of a bonus or
other additional salary or compensation to any such person and except for
increases, payments or commitments in the ordinary course of business and
consistent with past practices; (l) any amendment or termination of any material
contract, agreement or license to which Company or a Subsidiary is a party or by
which it is bound; (m) any loan by Company or a Subsidiary to any Person or
entity, incurring by Company or a Subsidiary of any indebtedness, guaranteeing
by Company or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of Company or any Subsidiary or guaranteeing of any debt securities
of others, except for advances to employees for travel and business expenses in
the ordinary course of business, consistent with past practices; (n) any waiver
or release of any material right or claim of Company or any Subsidiary,
including any write-off or other compromise of any account receivable of Company
or any Subsidiary other than in the ordinary course of business and consistent
with past practices; (o) any commencement or notice or, to the Company's
knowledge, threat of commencement of any lawsuit or proceeding against or
governmental investigation of Company or any Subsidiary or its affairs; or (p)
any issuance or sale by Company or any Subsidiary of any of its shares of
capital stock, or securities or option or warrants exchangeable, convertible or
exercisable therefor, or of any other of its securities.
4.9 Licenses and Permits. The Company and its Subsidiaries possess all
Governmental Authorizations (including food stamp licenses, FDA licenses, food
permits, liquor licenses, business licenses, fictitious name certificates, etc.)
necessary for the conduct of the business of the Company and its Subsidiaries as
now operated, except for such Governmental
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Authorizations that are not material to the operations of the Company. Such
Governmental Authorizations are valid and in full force and effect. No action or
claim is pending, or, to the knowledge of the Company, threatened, to revoke or
terminate any such Governmental Authorizations or declare any of them invalid in
any respect and, except as set forth on Section 4.9 of the Company Disclosure
Schedule, the transactions contemplated by this Agreement will not result in the
revocation or termination of any such Governmental Authorizations.
4.10 Litigation. Except as set forth at Section 4.10 of the Company
Disclosure Schedule, there is not pending against the Company or any Subsidiary
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary any claim, action, suit, arbitration proceeding, demand letter,
governmental proceeding, action or investigation, or other proceeding of any
character (the "Proceeding") not fully covered by insurance (whose coverage is
uncontested by the applicable insurer) (a) demanding money damages from the
Company in excess of $25,000, or (b) demanding a temporary restraining order,
preliminary injunction or a permanent injunction or order of specific
performance against the Company or any Subsidiary. All pending Proceedings
relating to or involving the Company or any Subsidiary (or any of its officers
or directors as such) are adequately provided for in the Interim Balance Sheet
in accordance with GAAP. Neither the Company nor any Subsidiary is subject to
any Order and neither the Company nor any Subsidiary is subject to any
governmental restriction which is reasonably likely (i) to have a Company
Material Adverse Effect or (ii) to cause a material limitation on Parent's
ability to operate the business of the Company and the Subsidiaries after the
Closing. There are no Proceedings pending, nor to the best of the Company's
knowledge, threatened, under or pursuant to any warranty, whether expressed or
implied, on products sold by the Company and its Subsidiaries.
4.11 Inventory. All of the Inventory was purchased in the ordinary course
of business. The Inventory is maintained on the financial records of the Company
and its Subsidiaries using historical valuation methods and practices consistent
with those used in preparing the 1999 and 1998 Financial Statements as well as
the Interim Financial Statements. Except to the extent reserved for in the
Financial Statements and the Interim Financial Statements, all items of
Inventory are of good and merchantable quality for sale or use in the ordinary
course of business and are not spoiled, damaged, crushed, defaced, defective,
past their expiration date, or subject to recall. All items of inventory are in
conformity in all material respects with all applicable government requirements
(including the Consumer Product Safety Act, Child Safety Protection Act, Federal
Hazardous Substances Act, Flammable Fabrics Act, and other Legal Requirements
relating to product safety and labeling laws (collectively, "Product Safety
Law") and do not violate the Intellectual Property (as defined in Section
4.16(a)) rights of any third party. "Inventory" shall mean all of the Company's
and its Subsidiaries' inventory and merchandise whether located in the stores,
in a warehouse, or in transit to the stores, together with the packaging
Inventory and displays.
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4.12 Real Property.
(a) Except as set forth in Section (a) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary owns, nor has it ever owned,
any real property. Section 4.12(a) of the Company Disclosure Schedule sets forth
a true and correct list of all real property currently leased by the Company or
its Subsidiaries (together with all fixtures and improvements thereon, the
"Leased Real Property," broken down as follows:
(i) all leases for retail stores of the Company open on the
date hereof;
(ii) all leases for retail stores of the Company that are not
open as of the date hereof;
(iii) a list of all leases for retail stores of the Company
under negotiation; and
(iv) all other real property leases of the Company, including
the warehouse and office leases.
(b) Neither the Company nor any of its Subsidiaries is a tenant
under any leases of real property used by the Company except as reflected in
Section 4.12(b) of the Company Disclosure Schedule. The Company has previously
delivered to Parent correct and complete copies of all of the leases and related
amendments, modifications, subleases, and store, warehouse or headquarters
license agreements.
(c) Except as set forth at Section 4.12(c) of the Company Disclosure
Schedule, the Company or a Subsidiary, as applicable, has a valid leasehold
interest in the Leased Real Property, free and clear of any mortgages, pledges,
liens, security interests or other encumbrances of any nature.
(d) Except as set forth at Section 4.12(d) of the Company Disclosure
Schedule, the leases of the Leased Real Property (the "Leases") are in full
force and effect; provided, however, the Company makes no representations in
this sentence with respect to the effect of any applicable United States
bankruptcy law on the Leases. To the Company's knowledge, no landlord under any
Lease has a pending case or petition for relief under applicable United States
bankruptcy law. Neither the Company nor a Subsidiary has sent or received
written notice of any default under the Leases. Except as set forth at Section
4.12(d) of the Company Disclosure Schedule, neither the Company nor its
Subsidiaries have breached, and they are in compliance with, each Lease,
including any permitted uses clause or any other material covenant, agreement or
condition contained therein, nor has there occurred any event which with the
passage of time or the giving of notice or both would constitute such a breach
by the Company or a Subsidiary. Each of the Company and its Subsidiaries has
paid in full or accrued all amounts due and owing, and has satisfied in full or
accrued all of its liabilities and obligations, under the
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Leases. Neither the Company nor a Subsidiary has received any notice of any
pending claim by any landlord or other third party adverse to the possessory
rights of the Company or a Subsidiary under any Leases, nor any other written
notice of uncured default by the Company or a Subsidiary regarding any of the
Leased Real Property. The Company and each Subsidiary, as applicable, has the
right to use such Leased Real Property for the operations presently conducted.
The Company or a Subsidiary, as applicable, is the tenant under all of the
Leases. Except as set forth at Section 4.12(d) of the Company Disclosure
Schedule, each of the Leases for any Leased Real Property which constitutes
warehouse, office or other non-retail space may be terminated without penalty
upon not more than six months' notice to the landlord thereunder.
(e) To the Company's knowledge, no portion of the Leased Real
Property, or any of the buildings and improvements located thereon, violates in
any material respect any Legal Requirement including those relating to zoning,
building, land use, environmental, health and safety, fire, air, sanitation and
noise control. To the knowledge of the Company, except as set forth at Section
4.12(e) of the Company Disclosure Schedule, no pending or threatened
condemnation or similar Proceeding exists with respect to the Leased Real
Property.
4.13 Environmental Matters. Except as set forth at Section 4.13 of the
Company Disclosure Schedule:
(a) to the Company's knowledge, the Company and each of its
Subsidiaries possesses, and is in compliance in all material respects with, all
Government Authorizations and has filed all notices that are required under any
Legal Requirement relating to protection of the environment, pollution control,
product registration and hazardous materials (as defined below) ("Environmental
Law"). The Company and each of its Subsidiaries is in compliance in all material
respects with all applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice, permit or demand letter issued, entered, promulgated or
approved thereunder;
(b) neither the Company nor any Subsidiary has received any notice
of actual or threatened liability under the Federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or any similar state or
local statute or ordinance from any governmental agency or any third party and
to the Company's knowledge there are no facts or circumstances which could
reasonably form the basis for the assertion of any claim against the Company or
any Subsidiary under any Environmental Laws including, without limitation,
CERCLA or any similar local, state or foreign law with respect to any on-site or
off-site location;
(c) neither the Company nor any Subsidiary has entered into, agreed
to or contemplates entering into any consent decree or order, or is subject to
any judgment,
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decree or judicial or administrative order relating to compliance with, or the
cleanup of hazardous materials under, any applicable Environmental Laws;
(d) neither the Company nor any Subsidiary has been alleged to be in
violation of, nor has been subject to any administrative or judicial proceeding
pursuant to, applicable Environmental Laws or regulations either now or any time
during the past five years;
(e) to the Company's knowledge, neither the Company nor any
Subsidiary is subject to any claim, obligation, liability, loss, damage or
expense of whatever kind or nature, contingent or otherwise, incurred or imposed
or based upon any provision of any Environmental Law and arising out of any act
or omission of the Company, the Subsidiaries, or their respective Employees,
agents or representatives (except for obligations and expenses relating to
compliance with Environmental Laws) or arising out of the ownership, use,
control or operation by the Company or a Subsidiary of any plant, facility,
site, area or property (including, without limitation, any plant, facility,
site, area or property currently or previously owned or leased by the Company or
a Subsidiary) from which any hazardous materials were released into the
environment in violation of an Environmental Law (the term "release" meaning any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment, and the term
"environment" meaning any surface or ground water, drinking water supply, soil,
surface or subsurface strata or medium, or the ambient air);
(f) the Company has heretofore provided Parent with true, correct
and complete copies of all files of the Company and its Subsidiaries relating to
environmental matters (or an opportunity to review such files), and Section
4.13(f) of the Company Disclosure Schedule sets forth the amount of all fines,
penalties or assessments paid within the last five years by the Company and its
Subsidiaries with respect to environmental matters, including the date of
payment and the basis for the assertions of liability;
(g) except as set forth in Section 4.13(g) of the Company Disclosure
Schedule, to the Company's knowledge, neither the Leased Real Property nor
improvements or equipment included within the Leased Real Property contains any
asbestos or underground storage tanks;
(h) except as set forth in Section 4.13(h) of the Company Disclosure
Schedule attached hereto (i) to the knowledge of the Company, no polychlorinated
biphenyl or substances containing polychlorinated biphenyl are present, in use
or stored in any Leased Real Property, and no asbestos or materials containing
asbestos have been brought upon, kept or used in or about or discharged, leaked,
emitted or entered into or onto any such Leased Real Property, and (ii) no
polychlorinated biphenyl or substances containing polychlorinated biphenyl are
present, in use or stored in any other real property owned, leased or used by
Company or its Subsidiaries, and no asbestos or materials containing asbestos
have been brought upon, kept or
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used in or about or discharged, leaked, emitted or entered into or onto any such
other real property;
(i) except as set forth in Section 4.13(i) of the Company Disclosure
Schedule attached hereto, to Company's knowledge, neither Company nor any of its
Subsidiaries has, either expressly, by merger or similar transaction or, to the
knowledge of the Company, otherwise by operation of law, assumed or undertaken
any Liability including, without limitation, any Liability for corrective
remedial action of any other Person relating to Environmental Law other than any
indemnity obligation by Company or its Subsidiaries, as a tenant, or any of its
agents to a landlord under any of the leases or sublease set forth in Section
4.12(a) of the Company Disclosure Schedule, and neither this Agreement nor the
consummation of the Contemplated Transactions will result in any Liability for
site investigation or cleanup, or notification to or consent of any Governmental
Body or other Person, pursuant to any of the so-called "transaction triggered"
or "responsible property" transfer Environmental Laws.
As used in this Section 4.13, the term "hazardous materials" means any
pollutant, hazardous substance, toxic, ignitable, reactive or corrosive
substance, hazardous waste, special waste, industrial substance, by-product,
process intermediate product or waste, petroleum or petroleum-derived substance
or waste, chemical liquids or solids, liquid or gaseous products, or any
constituent of any such substance or waste, the use, handling or disposal of
which by the Company is in any way governed by or subject to any applicable law,
rule or regulation of any Governmental Authority.
4.14 Compliance With Laws Generally. The Company and each Subsidiary has
complied and is in current compliance with all Legal Requirements to which it is
subject or by which it is bound (including the Product Safety Laws), except
those that will not result in claims, liabilities or obligations which,
individually or in the aggregate, could reasonably be expected to result in a
Company Material Adverse Effect. The Company's and each Subsidiary's purchasing
and sales practices comply in all material respects with all Legal Requirements
as well as all restrictions to which the Company is subject. No Proceeding has
been filed, commenced, or, to the Company's knowledge, threatened against the
Company alleging any uncured failure so to comply. There are no existing or, to
the knowledge of the Company, proposed Legal Requirements of such a nature as
could reasonably be expected to materially adversely affect the continued
conduct or profitability of the Company's business in the manner presently
conducted.
4.15 Employee Benefit Plans.
(a) Section 4.15(a) of the Company Disclosure Schedule sets forth a
true and complete list of (i) the names, titles, locations of employment, annual
salaries and other compensation and benefits of all employees of the Company and
its Subsidiaries; and (ii) the wage rates for non-salaried employees of the
Company and its Subsidiaries. Except as set forth
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at Section 4.15(a) of the Company Disclosure Schedule, there are no employees of
the Company or its Subsidiaries who are on military, disability, family or other
leave of absence (whether or not approved) and who have reemployment rights.
Section 4.15(a) of the Company Disclosure Schedule lists each employee, former
employee, and each eligible dependent of either who is receiving health care
continuation coverage under Part 6 of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or who, as of the date hereof, has a
right to elect such coverage.
(b) Section 4.15(b) of the Company Disclosure Schedule contains a
true and complete list of all the following agreements or plans ("Benefit
Plans") which are presently in effect or which have previously been in effect
within the six-year period preceding the date hereof and which cover or covered
any current or former employees, officers, directors or independent contractors
of the Company or its Subsidiaries ("Employees"):
(i) any employee benefit plan as defined in Section 3(3) of
ERISA, under which the Company or its Subsidiaries have any
outstanding, present, or future obligation or liability, or under
which any Employee has any present or future right to benefits which
are covered by ERISA; or
(ii) any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus,
vacation, severance, disability, hospitalization, medical, cafeteria
plan, life insurance, or other employee benefit plan, program,
policy, or arrangement, written or oral, which the Company or its
Subsidiaries maintain or to or under which the Company or its
Subsidiaries have any outstanding, present, or future obligations to
contribute or make payments, whether voluntary, contingent or
otherwise.
(c) The Company has made available to Parent true, correct and
complete copies of all documents relating to the Benefit Plans, including but
not limited to: (i) all plan documents, amendments, trust instruments and other
material agreements adopted or entered into in connection with each of the
Benefit Plans; (ii) all insurance and annuity contracts related to any Benefit
Plans; (iii) all administrative notices and forms used for the Benefit Plans,
including the notices and election forms used to notify employees and their
dependents of their continuation coverage rights under the group health plans of
the Company or its Subsidiaries; and (iv) the most recently filed Form 5500
annual reports, certified financial statements, actuarial reports, summary plan
descriptions required by applicable law to be prepared in connection with any
Benefit Plan and (v) the most recent favorable determination, notification, or
opinion letters, as applicable, obtained with respect to any Benefit Plan that
is a Qualified Retirement Plan (as defined below) or the prototype plan adopted
by the Company as such a Benefit Plan. Since the date these documents were
supplied to Parent, no plan amendments have been adopted, no changes to these
documents have been made, and no amendments or changes will be adopted or made
prior to the Closing Date.
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(d) All of the Benefit Plans and the related trusts subject to ERISA
comply and have been administered in compliance in all material respects with
(i) the provisions of ERISA; (ii) all provisions of the Code applicable to
secure the intended tax consequences; (iii) all applicable state and federal
securities laws; and (iv) all other applicable laws, rules, regulations and
collective bargaining agreements, except where the failure to so comply or to be
so administered would not result in any monetary penalty against the Company or
its Subsidiaries. The Company or its Subsidiaries have not received any written
notice from any governmental agency or instrumentality questioning or
challenging such compliance.
(e) The Company and its Subsidiaries have materially complied with
the continuation coverage requirements of Section 1001 of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601
through 608 ("COBRA").
(f) Neither the Company, its ERISA Affiliates (that is, any entity
which, together with the company, will be treated as a single employer within
the meaning of Code Section 414(b), (c), (m) or (o)), nor any trustee of any
Benefit Plan (or agent or delegate of any of the foregoing) has engaged in any
transaction or acted or failed to act in any manner that could subject the
Company or its Subsidiaries to any direct or indirect liability (by indemnity or
otherwise) for a breach of any fiduciary or co-fiduciary duty under ERISA. To
the knowledge of the Company and the Shareholders, no party in interest (as
defined in ERISA), disqualified person (as defined in the Code), or fiduciary of
any Benefit Plan has engaged in any prohibited transaction (within the meaning
of ERISA Section 406 or Code Section 4975) or has breached any fiduciary or
co-fiduciary duty under ERISA.
(g) No Benefit Plan is subject to Title IV of ERISA, and neither the
Company nor any of its ERISA Affiliates have incurred any liability under Title
IV of ERISA arising in connection with the termination of any plan covered or
previously covered by Title IV of ERISA that could become, after the Closing
Date, an obligation of the Surviving Corporation or any of its ERISA Affiliates.
(h) Neither the Company nor any of its ERISA Affiliates currently is
a party to, does not sponsor or contribute to, and has not at any time sponsored
or contributed or been obligated to contribute to, any pension or welfare plan
that is a multiemployer plan within the meaning of ERISA Section 4001(a)(3)
("Multiemployer Plan").
(i) None of the Benefit Plans provides welfare benefits, including,
without limitation, death or medical benefits (whether or not insured), with
respect to current or former Employees beyond their retirement or other
termination of service (other than coverage required by COBRA or any similar
state law).
(j) Levels of insurance reserves, trust funding and accrued
liabilities with regard to all Benefit Plans (to which such reserves or
liabilities do or should apply) are
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described at Section 4.15(j) of the Company Disclosure Schedule, and such levels
are reasonable and sufficient to provide for all incurred but unreported claims
and any retroactive or prospective premium adjustments.
(k) Each Benefit Plan which is intended to be qualified under Code
Section 401(a) ("Qualified Retirement Plan") meets the requirements in form and
complies in all material respects with the requirements in operation for
qualification under Code Section 401(a) and its related trust is tax-exempt
under Code Section 501. For each such plan, the prototype sponsor of the plan
adopted by the Company or its Subsidiaries have received from the Internal
Revenue Service a favorable notification or opinion letter to the effect that
the plan in form satisfies the requirements for qualification under Code Section
401(a) (taking into account the provisions of the Tax Reform Act of 1986 and all
subsequent legislation, except for changes with respect to which each such plan
is within the applicable remedial amendment period). No amendment to any
Qualified Retirement Plan made since applying for such determination letter
could reasonably be expected to cause a disqualification of such plan. Any
noncompliance or failure prior to the Closing Date properly to maintain,
operate, or administer any Qualified Retirement Plan has not rendered and will
not render: (i) such plan or its related trust or Sub or its ERISA Affiliates
subject to, or liable (directly or indirectly) for, any taxes, penalties, or
liabilities to any person or governmental agency; (ii) such plan subject to
disqualification; or (iii) the trust under such plan subject to any liability
for taxes.
(l) All contributions (including all employer contributions and
employee salary reduction contributions) which are due or withheld have been
paid to each Benefit Plan which is an employee pension benefit plan (as defined
in Section 3(2) of ERISA) and all contributions for any period ending on or
before the Closing Date which are not yet due have been paid to each such
employee pension benefit plan or accrued in accordance with the past custom and
practice of the Company. All premiums or other payments for all periods ending
on or before the Closing Date have been paid when due and in accordance with
GAAP with respect to each such Benefit Plan which is an employee welfare benefit
plan.
(m) The records of the Company and its Subsidiaries accurately
reflect their Employees' employment histories with the Company and its
Subsidiaries.
(n) There is no pending or, to the Company's knowledge, threatened
complaint, claim (other than a routine claim for benefits), Proceeding, audit,
or investigation of any kind in or before any court, tribunal, or governmental
agency with respect to any Benefit Plan.
(o) The Company has timely filed or caused to be timely filed with
the Internal Revenue Service annual reports on form 5500 or 5500C/R, as
applicable, for each Benefit Plan for all years and periods for which such
reports were required. All statements made on documents or forms filed with any
government body with respect to any Benefit Plan have
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been true and complete in all material respects and have been filed timely. No
Benefit Plan has been assessed any excise tax Liability. To the knowledge of the
Company and its Subsidiaries, no event, fact or circumstance has occurred that
would likely result in any Benefit Plan incurring such excise tax Liability.
4.16 Intellectual Property.
(a) "Intellectual Property" means (a) all inventions, patents, and
patent applications; (b) all trademarks, service marks, trade dress, logos,
domain names, trade names and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals thereof,
including any such Intellectual Property associated with the names "Dollar
Express," "Dollar Expres$," "Dollar Express Everything $1.00" (and design),
"dollarxpress.com," "Spain's," "Spain's Cards and Gifts" and "Today's Home" (and
design) or other similar store, domain, or trade name used by the Company or its
Subsidiaries; (c) all copyrightable works and copyrights, and all applications,
registrations, and renewals thereof; (d) all trade secrets and confidential
business information (including ideas, research, and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals);
(e) all other proprietary rights; and (f) all copies and tangible embodiments
thereof (in whatever medium).
(b) Except as described on Section 4.16(b) of the Company Disclosure
Schedule, the Company or a Subsidiary, as applicable, owns (or has the
royalty-free right to use pursuant to license, sublicense, agreement, or
permission) all Intellectual Property necessary and used for the operation of
its business activities as presently conducted. Each item of Intellectual
Property owned or available for use prior to the Closing hereunder will be owned
or available for the royalty-free use by the Company or a Subsidiary immediately
subsequent to the Closing. The Company or a Subsidiary as applicable, has used
its commercially reasonable efforts to protect each item of Intellectual
Property that it owns or uses. Neither the Company nor any Subsidiary has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with, in each case in any material respect, any Intellectual Property
rights of third parties, and neither the Company, any Subsidiary, nor any
officers, directors, or employees of the Company or any Subsidiary has ever
received any charge, complaint, claim, demand, or notice alleging such
interference, infringement, misappropriation, or violation (including any claim
that the Company or any Subsidiary must license or refrain from using any
Intellectual Property rights of any third party). Except as described on Section
4.16(b) of the Company Disclosure Schedule, to the knowledge of the Company, no
third party has any rights to, interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of the
Company or any Subsidiary.
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(c) Section 4.16(c) of the Company Disclosure Schedule identifies
each Intellectual Property registration which has been issued to the Company or
any Subsidiary and each pending Intellectual Property application which has been
made by the Company or any Subsidiary. Section 4.16(c) of the Company Disclosure
Schedule identifies each license, agreement, or other permission which the
Company or any Subsidiary has granted to any third party with respect to any of
its Intellectual Property. Section 4.16(c) of the Company Disclosure Schedule
identifies each license, agreement, or other permission which has been granted
to the Company or any Subsidiary by any third party with respect to any
Intellectual Property used in the operation of the business of the Company and
its Subsidiaries.
4.17 Tax Matters.
(a) "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
(b) "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(c) Except as set forth in Section 4.17(c) of the Company Disclosure
Schedule, (i) the Company and its Subsidiaries have filed all Tax Returns that
they are required to file; (ii) all such Tax Returns were correct and complete
in all respects; (iii) all Taxes owed by the Company and its Subsidiaries
(whether or not shown on such Tax Returns) have been paid; (iv) the Company and
its Subsidiaries are not currently the beneficiary of any extension of time
within which to file any Tax Return; (v) no claim has ever been made by an
authority in a jurisdiction where the Company or its Subsidiaries do not file
Tax Returns that they are or may be subject to taxation by that jurisdiction;
and (vi) there are no Security Interests on any of the assets of the Company or
its Subsidiaries that arose in connection with any failure (or alleged failure)
to pay any Tax.
(d) The Company and its Subsidiaries have withheld, paid or will pay
before Closing (subject to the terms of this Agreement) all Taxes required to
have been withheld, paid or will pay before Closing (subject to the terms of
this Agreement) in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
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(e) Except as set forth in Section 4.17(e) of the Company Disclosure
Schedule, no director or officer (or employee responsible for Tax matters) of
the Company or its Subsidiaries expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax liability of the Company or its Subsidiaries either
(A) claimed or raised by any authority in writing or (B) as to which any of the
directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries have knowledge based upon personal contact with any
agent of such authority. Section 4.17(e) of the Company Disclosure Schedule
lists all federal, state, local, and foreign income Tax Returns filed with
respect to the Company and its Subsidiaries for taxable periods ended on or
after December 31, 1994, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Company
has delivered to Parent correct and complete copies of all federal and state
income Tax Returns filed by the Company and its Subsidiaries, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company or its Subsidiaries for all tax periods beginning after December 31,
1994.
(f) Except as set forth in Section 4.17(f) of the Company Disclosure
Schedule, the Company and its Subsidiaries have not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(g) The Company and its Subsidiaries have not filed any consent
under Code Section 341(f) concerning collapsible corporations. The Company and
its Subsidiaries have not made any payments, are not obligated to make any
payments, and are not parties to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Code
Section 280G. The Company and its Subsidiaries have not been United States real
property holding corporations 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 its Subsidiaries have disclosed on their federal and state income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal or state income Tax within the meaning of Code Section
6662 or any comparable state statute. The Company and its Subsidiaries are not
parties to any Tax allocation or sharing agreement. The Company and its
Subsidiaries (A) have not been members of an affiliated group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company) or (B) has any Liability for the Taxes of any Person
(other than any of the Company and its Subsidiaries) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(h) With respect to any period for which Tax Returns have not yet
been filed, or for which Taxes are not yet due or owing, Company has made due
and sufficient accruals on the Interim Balance Sheet not considering any reserve
for deferred Taxes.
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(i) Dollar Express Stores, Inc. (f/k/a Spain's, Inc. and Dollar
Express, Inc.) made a valid election under Subchapter S of the Code (the "S
Election") to which all persons who were shareholders on the date of such
election gave their consent and which became effective on July 1, 1992 (a copy
of which is attached as Section 4.17(j) of the Company Disclosure Schedule), and
Company was, at all times since July 1, 1992, until February 5, 1999, an S
corporation (as defined in Section 1361 of the Code) (such period being called
the "S Corporation Period"). To the extent applicable, in each state in which
Dollar Express Stores, Inc. did business during its S Corporation Period, either
its federal S election was recognized and given effect or it made an appropriate
and timely election to be treated as an S corporation for state income taxation
purposes. The S Corporation Period for all states in which Dollar Express
Stores, Inc. did business coincided with when it was an S corporation for
federal purposes. The cause of the termination of Company's status as an "S"
corporation was the issuance of Company Shares to an ineligible shareholder.
4.18 No Broker Involved. Neither the Shareholders nor the Company or any
of its Subsidiaries has engaged any broker, finder or agent with respect to the
transactions contemplated by this Agreement or with respect to the Company's
sale or merger or any other transaction relating to the disposition of the
Company's or any Subsidiary's assets. Neither the Shareholders nor the Company
nor any of its Subsidiaries has signed any engagement letter or underwriting
agreement with respect to the public offering contemplated by the Company
Registration Statement, and neither the Company nor any of its Subsidiaries has
made any commitment with respect thereto (and will make no commitment) other
than to reimburse its underwriters for their reasonable out of pocket expenses.
The Company's legal, accounting, consulting, underwriting, and other fees and
expenses incurred in connection with the contemplated initial public offering
and Merger and the other Contemplated Transactions will not exceed the amounts
set forth in Section 4.18 of the Company Disclosure Schedule.
4.19 Contracts.
(a) "Company Contract" means any agreement, contract, obligation,
promise or undertaking, (whether express or implied) that is legally binding (i)
under which Company or its Subsidiaries has or may acquire any rights, (ii)
under which Company or its Subsidiaries has or may become subject to any
obligation or liability, or (iii) by which the Company or its Subsidiaries or
any of the assets owned or used by any of them are or may become bound.
(b) Section 4.19(b) of the Company Disclosure Schedule lists, and
Company has provided to Parent, each Company Contract and other instrument or
document (including any amendment to any of the foregoing):
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(i) described in paragraphs (b)(3), (b)(4), (b)(9) or (b)(10)
of Item 601 of Regulation S-K of the SEC (whether or not Company has
been under any obligation to file such items with the SEC);
(ii) with any director, officer or Affiliate of Company,
(iii) evidencing, governing or relating to indebtedness for
borrowed money,
(iv) not entered into in the ordinary course of business that
involves expenditures or receipts in excess of $50,000 in the case
of a single commitment or arrangement or more than $150,000 in the
case of a series of related commitments or arrangements; or
(v) evidencing or relating to any collective bargaining
agreement, contract or other agreement or understanding with a labor
union or labor organization.
(c) Except as set forth in Section 4.19(c) of the Company Disclosure
Schedule, each contract filed as an exhibit to one or more of the Company
Registration Statement or identified or required to be identified in Section
4.19(b) of the Company Disclosure Schedule is in full force and effect and is
valid and enforceable in accordance with its terms with respect to the Company
and to the Company's knowledge to any other party thereto (as applicable),
except as the enforceability may be limited by laws of general application
relating to bankruptcy, insolvency, and debtor's relief and by the general
principles of equity.
(d) Except as set forth in Section 4.19(d) of the Company Disclosure
Schedule, neither Company nor any of its Subsidiaries has failed to perform any
of its obligations under, or is in default or violation of any Company Contract
except for such failures, defaults and violations which could not reasonably be
expected to, individually or in the aggregate, result in a Company Material
Adverse Effect. Company has no knowledge of, and Company has received no notice
of, or made a claim with respect to, any breach or default by any other party to
any such Company Contract. To the knowledge of the Company, no customer or
supplier which paid the Company or any Subsidiary or was paid by the Company or
any Subsidiary more than $10,000 during calendar year 1998 or 1999 intends to
terminate or materially alter its level of business with the Company or any
Subsidiary as a result of the Contemplated Transactions. The Company and its
Subsidiaries have physical possession of all equipment and other tangible
physical assets which are covered by leases.
4.20 Officers and Employees. Section 4.20 of the Company Disclosure
Schedule contains a true and complete list of all of the officers and managers
(except for store managers and warehouse managers) of the Company and its
Subsidiaries, specifying their title
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and annual rate of compensation, bonus eligibility and a true and complete list
of all of the Employees of the Company and its Subsidiaries as of the date
hereof with whom the Company or any Subsidiary has a written employment
agreement or to whom the Company or any Subsidiary has made verbal commitments
which are binding on the Company or any Subsidiary under applicable law. To
Company's knowledge after reasonable inquiry, no Employee of Company or any
Subsidiary (i) is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such Employee to be employed by
Company or any Subsidiary because of the nature of the business conducted or
presently proposed to be conducted by Company or any Subsidiary or to the use of
trade secrets or proprietary information of others; and (ii) has given notice to
Company or any Subsidiary, nor is Company otherwise aware, that any Employee
intends to terminate his or her employment with Company or any Subsidiary except
for terminations of a nature and number that are consistent with Company's prior
experience.
4.21 Labor Relations.
(a) Except as disclosed in Section 4.21(a) of the Company Disclosure
Schedule, (i) neither Company nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization; (ii) to the knowledge of
Company, neither Company nor any of its Subsidiaries is the subject of any
Proceeding asserting that it or any of its Subsidiaries has committed an unfair
labor practice or seeking to compel it to bargain with any labor organization as
to wages or conditions of employment; (iii) there is no strike, work stoppage or
other labor dispute involving Company or any of its Subsidiaries pending or, to
Company's knowledge, threatened; (iv) to the knowledge of Company, no action,
suit, complaint, charge, arbitration, inquiry, Proceeding or investigation by or
before any Governmental Body brought by or on behalf of any Employee,
prospective employee, former employee, retiree, labor organization or other
representative of its employees is pending or threatened against Company or any
of its subsidiaries; (v) to the knowledge of Company, no grievance is pending or
threatened against Company or any of its subsidiaries; and (vi) neither Company
nor any of its subsidiaries is a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Body relating to Employees or
employment practices.
(b) Except as described at Section 4.21(b) of the Company Disclosure
Schedule, all Employees are employed at the will of the Company or its
Subsidiaries and can be terminated by Company or its Subsidiaries without cause
at any time after the Closing without liability, penalty, salary continuation,
or severance obligations of any sort whatsoever (including without limitation
attorneys' fees). There is no promise, arrangement, agreement or contract with
any Employee relating to compensation, awards, bonus, stock or option awards or
the like, relating to the successful completion of the public offering
contemplated by the Company Registration Statement.
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4.22 Insurance. Company and its Subsidiaries are covered by valid and
currently effective insurance policies issued in favor of Company as set forth
in Section 4.22 of the Company Disclosure Schedule. All such policies are in
full force and effect, all premiums due thereon have been paid and Company has
complied in all material respects with the provisions of such policies. Neither
the Company nor any Subsidiary has been advised of any defense to coverage in
connection with any claim to coverage asserted or noticed by Company or any
Subsidiary under or in connection with any of its extant insurance policies.
Neither the Company nor any Subsidiary has received any written notice from or
on behalf of any insurance carrier issuing policies or binders relating to or
covering Company and its subsidiaries that there will be a cancellation or non
renewal of existing policies or binders, or that alteration of any equipment or
any improvements to real estate occupied by or leased to or by Company or its
Subsidiaries, purchase of additional equipment, or material modification of any
of the methods of doing business, will be required.
4.23 Title to Property and Related Matters. The Company, or a Subsidiary,
as applicable, has good and valid title to or valid leasehold interest in its
assets and property, as reflected in the Interim Balance Sheet or acquired after
the date thereof (other than property sold or otherwise disposed of in the
ordinary course of business since such date), and all of such assets and
property is held free and clear of all title defects, liens, encumbrances,
security interests and restrictions whatsoever, except, with respect to all such
properties, (a) liens securing debt reflected as liabilities on the Interim
Balance Sheet and (b) (i) liens for current taxes and assessments not overdue or
in default; and (ii) mechanics', carriers', workmen's, repairmen's, statutory or
common law liens relating to payments that are not delinquent.
4.24 Accounts and Notes Receivable. The accounts and notes receivable of
the Company and its Subsidiaries reflected on the Interim Balance Sheet arose
from bona fide transactions in the ordinary course of business, have been
extended on terms consistent with the past practice of the Company, and are not
subject to any counterclaims or setoffs other than in the ordinary course
(except for the amount of any applicable existing reserves for counterclaims or
setoffs), and the receivable due from the insurance company in connection with
the warehouse fire is fully collectible. At Closing, all loans payable to or
receivable from any Employees or the Shareholders or their Affiliates will be
paid in full.
4.25 Undisclosed Payments. Neither the Company, any Subsidiary, nor any of
the Company's or any Subsidiary's officers or directors, nor, to the Company's
knowledge, anyone acting on behalf of any of them, has made or received any
material payments not correctly categorized and fully disclosed in the Company's
books and records in connection with or in any way relating to or affecting the
Company.
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4.26 Business Practices.
(a) Neither the Company, any Subsidiary, nor any director or officer
or, to the Company's knowledge, any agent, employee or other Person acting on
behalf of the Company or any Subsidiary, has used any Company funds for improper
or unlawful contributions, payments, gifts or entertainment, or made any
improper or unlawful expenditures relating to political activity to domestic or
foreign governmental officials or others. The Company has adequate financial
controls to prevent such improper or unlawful contributions, payments, gifts,
entertainment or expenditures. Neither the Company nor any current director or
officer, or, to the Company's knowledge, any agent, Employee or other Person
acting on behalf of the Company or any Subsidiary has accepted or received any
improper or unlawful contributions, payments, gifts or expenditures. The Company
and each Subsidiary has at all times complied, and is in compliance, in all
respects with the Foreign Corrupt Practices Act and all foreign laws and
regulations relating to prevention of corrupt practices and similar matters.
(b) There is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which Company or any Subsidiary is a
party or, to the knowledge of Company, otherwise binding upon Company or any
Subsidiary, which has or reasonably could be expected to have the effect of
prohibiting or impairing any material business practice of Company or any
Subsidiary, any acquisition of property (tangible or intangible) by Company or
any Subsidiary or the conduct of business by Company or any Subsidiary. Without
limiting the foregoing, neither the Company nor any Subsidiary has entered into
any agreement under which Company or any Subsidiary is restricted in any
material respect from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
4.27 Affiliates. Section 4.27 of the Company Disclosure Schedule lists
each Person which is a Pooling Affiliate of the Company (as defined in Section
8.2(a)). None of the Shareholders nor any Pooling Affiliate has, within the 30
days prior to the date of this Agreement, sold, transferred or otherwise
disposed of, or in any other way reduced such person's risk with respect to, any
shares of Parent Common Stock or other shares of the capital stock of Parent or
shares of the capital stock of the Company held by such person.
4.28 Pooling. To the actual knowledge of the Company's directors and
executive officers, neither Company nor any of its Subsidiaries has taken any
action that would prevent the accounting of the business combination to be
effected by the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations ("pooling
of interests"). Neither the Company nor its Subsidiaries had any plan or
intention to consummate the Merger until March 2000. The shares of Parent Common
Stock issued in the Merger will be shared ratably by the Shareholders based on
their respective percentage ownership of the Company capital stock as of the
Effective Time, and there is no agreement among the Shareholders providing for
any reallocation of such Parent Common Stock
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among the Shareholders. Company has disclosed to its independent public
accountants all actions taken by it that would impact the accounting of the
business combination to be effected by the Merger as a pooling of interests. The
Company, based on facts and circumstances known to it, believes that the Merger
will qualify for pooling of interests accounting.
4.29 Reorganization Under Section 368 of the Code. Neither the Company,
any of its Subsidiaries, nor any of their Affiliates has taken, agreed to take,
or omitted to take any action that would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
4.30 SEC Reports. Neither the Company nor any of its Subsidiaries is
required to file any forms, reports and documents with the SEC. Section 4.30 of
the Company Disclosure Schedule lists, and Company has made available to Parent
copies of the registration statement in the form filed with the SEC (together
with all exhibits and amendments thereto, the "Company Registration Statement")
and all correspondence between the Company or its counsel and the SEC relating
to such Company Registration Statement. The Company Registration Statement (x)
was prepared in accordance in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder and (y) did not, at the
time it was filed, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The Company Registration Statement never became
effective under the Securities Act and has been voluntarily withdrawn by the
Company. To the Company's knowledge, no action was pending or threatened by the
SEC to prevent effectiveness of the Company Registration Statement or to
require, demand or suggest that it be withdrawn by the Company.
4.31 Full Disclosure. The 1999 Financial Statements, the Interim Financial
Statements, the representations and warranties and other agreements of the
Company contained in this Agreement (including all information in the Company
Disclosure Schedule and Exhibits hereto and the certificate to be furnished by
the Company pursuant to Section 9.2(c)(i)) do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements so made or information so delivered not misleading.
ARTICLE 5
SHAREHOLDER REPRESENTATIONS AND WARRANTIES
Each Shareholder severally, and not jointly, represents and warrants to
Parent and Sub, as to himself or itself only, that subject only to the
exceptions specifically stated in this Article and in Article 4 and contained in
the Company Disclosure Schedule, the following representations, warranties and
schedules are true, accurate, and complete as of the date of this Agreement and
as of the Closing Date. On the Closing Date, the Shareholders shall supplement
or amend the Company Disclosure Schedule with respect to any matter hereafter
arising which, if
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existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in such disclosure schedules or which is
necessary to correct any information in any such disclosure schedules which has
been rendered inaccurate thereby. No supplement or amendment to such disclosure
schedules shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Article 9 of this Agreement.
5.1 Authority; No Conflict. Each of the Shareholders has the requisite
power and capacity to execute and deliver this Agreement and all agreements,
documents and instruments executed and delivered by such Shareholder in
connection with the Contemplated Transactions and to fully perform his
respective obligations hereunder and thereunder. Each Shareholder that is not a
natural Person has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Contemplated Transactions. The execution and delivery of this Agreement by each
Shareholder and the consummation by the Shareholders of the Contemplated
Transactions have been duly and validly authorized by all necessary action and
no other proceedings on the part of any Shareholder are necessary to authorize
this Agreement or to consummate the Contemplated Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Pennsylvania Law). This Agreement has been duly and
validly executed and delivered by the Shareholders and constitutes the legal,
valid and binding obligation of the Shareholders, enforceable against the
Shareholders in accordance with its terms, except as enforceability may be
limited by laws of general application relating to bankruptcy, insolvency and
debtors' relief, and by general principles of equity.
5.2 Securities Law Matters.
(a) Each Shareholder is acquiring Parent Common Stock issuable in
the Merger for Shareholder's own account, and not as nominee or agent, for
investment, with no intention of distributing or reselling any portion thereof
within the meaning of the Securities Act, and will not transfer Parent Common
Stock in violation of the Securities Act or the then applicable rules or
regulations thereunder or any other applicable law. Shareholder was not formed
for the specific purpose of acquiring Parent Common Stock issuable in the
Merger.
(b) Each Shareholder is aware that Shareholder's rights to transfer
Parent Common Stock are restricted by the Securities Act and applicable state
securities laws and laws of other jurisdictions. Shareholder further understands
that (i) Parent Common Stock will not be, and Shareholder has no rights to
require that Parent Common Stock be, registered under the Securities Act, except
as may be provided in this Agreement and the Registration Rights Agreement; (ii)
Shareholder may not be able to avail itself of exemptions available for resale
of Parent Common Stock without registration, and accordingly, may have to hold
Parent Common Stock indefinitely; and (iii) it may not be possible for
Shareholder to liquidate its Parent Common Stock. Shareholder hereby
acknowledges that the shares of Parent Common Stock to be issued in the Merger
(unless no longer required in the reasonable opinion of counsel to Parent
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whereupon such legend shall promptly be removed) shall bear a legend
substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
(c) Each Shareholder's financial condition is such that Shareholder
is able to bear the risk of holding Parent Common Stock for an indefinite period
of time and the risk of loss of Shareholder's entire investment in the Parent
Common Stock.
(d) Each Shareholder acknowledges that it is purchasing Parent
Common Stock without being furnished any offering literature or prospectus other
than the Parent SEC Reports. No representations or warranties have been made to
Shareholder by Parent or any agent of the Parent other than as set forth in this
Agreement.
(e) Each Shareholder is a sophisticated investor and has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of its investment in the Parent Common Stock
issuable in the Merger of making an informed investment decision with respect
thereto. Such Shareholder further represents that he is an "accredited investor"
as such term is defined in Rule 501 of Regulation D of the SEC under the
Securities Act ("Accredited Investor") with respect to the purchase of the
Parent Common Stock pursuant to the Merger.
(f) Each Shareholder has read this Agreement, is familiar with and
understands the nature and scope of the rights and remedies provided to Parent
hereunder and is prepared to accept the exercise against Shareholder of such
rights and remedies as may be permitted under this Agreement.
(g) Each Shareholder certifies that (i) the Shareholder's completed
suitability questionnaire ("Shareholder Questionnaire") is set forth in Section
5.2(g) of the Company Disclosure Schedule and (ii) such Shareholder
Questionnaire is true, complete and correct. The address set forth in the
Shareholder Questionnaire is Shareholder's true and correct domicile.
Shareholder is not subject to backup withholding because (A) the undersigned has
not been notified that the undersigned is subject to backup withholding as a
result of a failure to report all interest or dividends; or (B) the Internal
Revenue Service has notified the undersigned that the undersigned is no longer
subject to backup withholding. In the Shareholder
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Questionnaire, Shareholder has furnished to Parent or its agents, to the best of
its knowledge and ability, any and all relevant information to assist the Parent
in determining (i) the number of beneficial owners of Shareholder and (ii)
whether each such beneficial owner is an Accredited Investor.
(h) Each Shareholder (including any person signing this Agreement on
behalf of Shareholder) has full power, authority and capacity to make the
representations referred to herein, and to acquire Parent Common Stock pursuant
to the Merger.
(i) Each Shareholder understands that no United States Federal or
state agency or agency of any other jurisdiction has made any finding or
determination as to the fairness of the terms of the Merger.
(j) Each Shareholder is not relying on the Parent or any of Parent's
representatives for legal, investment or tax advice, and Shareholder has sought
independent legal, investment and tax advice to the extent Shareholder has
deemed necessary or appropriate in connection with Shareholder's decision to
approve the Merger.
(k) Each Shareholder understands that (i) in issuing the Parent
Common Stock issuable in the Merger, Parent is relying upon the representations
and warranties of such Shareholder in this Section 5.2 and (ii) receipt by
Parent of the representations in this Agreement is an inducement and a condition
to Parent's obligation to deliver any shares of Parent Common Stock to such
Shareholder. The acquisition by such Shareholder of such Parent Common Stock
shall constitute a confirmation by him of the foregoing.
5.3 Due Diligence. Each Shareholder acknowledges that Parent has made
available to Shareholder, and each Shareholder has in fact reviewed and
discussed, information relating to the Parent's business, affairs and current
prospects with such officers of the Parent and others as such Shareholder has
deemed appropriate or desirable in connection with the Contemplated Transactions
(including without limitation the Parent SEC Reports (as defined in Section
6.4)). Each Shareholder has consulted with counsel about, and has been afforded
a full and fair opportunity to ask questions of and receive answers from the
Parent and its representatives concerning, the terms and conditions of this
Agreement and the Contemplated Transactions. Each Shareholder has had the
opportunity to obtain any additional information necessary to verify the
accuracy of information otherwise furnished by the Parent and/or its
representatives.
5.4 Company Representations. To the best of each Shareholder's actual
knowledge without investigation, each of the Company's representations and
warranties contained in Article 4 of this Agreement is true and correct in all
material respects.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
and the Shareholders, that subject only to the exceptions specifically stated in
this Article and contained in the disclosure schedule delivered by Parent to the
Company concurrently and identified as the "Parent Disclosure Schedule," the
following representations, warranties and schedules are true, accurate, and
complete as of the date of this Agreement and as of the Closing Date. On the
Closing Date, Parent shall supplement or amend the Parent Disclosure Schedule
with respect to any matter hereafter arising which, if existing or occurring at
or prior to the date of this Agreement, would have been required to be set forth
or described in such disclosure schedules or which is necessary to correct any
information in any such disclosure schedules which has been rendered inaccurate
thereby. No supplement or amendment to such disclosure schedules shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Article 9 of this Agreement.
6.1 Organization.
(a) Parent and each of its Subsidiaries are corporations duly
organized, validly existing, and subsisting under the laws of their respective
jurisdictions of incorporation, with full corporate power and authority to
conduct their respective businesses as now being conducted, to own or use the
respective properties and assets that they purport to own or use, and to perform
all their respective obligations under Company Contracts. Parent and each of its
Significant Subsidiaries are duly qualified to do business as foreign
corporations and are in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by them, or the nature of the activities conducted by them, requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to, individually or in the aggregate, result in a material adverse
effect on the business, assets, condition (financial or otherwise), or results
of operations of Parent and its Subsidiaries, taken as a whole (a "Parent
Material Adverse Effect").
(b) Parent has delivered to Company copies of the Organizational
Documents of Parent and each of its Significant Subsidiaries, as currently in
effect.
(c) As used in this Agreement, a "Significant Subsidiary" of Parent
is a Subsidiary of Parent that constitutes a Significant Subsidiary of Parent
within the meaning of Rule 1-02 of Regulation S-X of the SEC. All Subsidiaries
of Parent that are not Significant Subsidiaries of Parent would not, if
combined, constitute a Significant Subsidiary of Parent within the meaning, of
such Rule 1-02.
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6.2 Authority; No Conflict.
(a) Parent and Sub have all necessary corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the Contemplated Transactions. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
Contemplated Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent or Sub
are necessary to authorize this Agreement or to consummate the Contemplated
Transactions (other than, with respect to the Merger, the filing and recordation
of appropriate merger documents as required by Pennsylvania Law). This Agreement
has been duly and validly executed and delivered by Parent and Sub and
constitutes the legal, valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms, except as
enforceability may be limited by laws of general application relating to
bankruptcy, insolvency and debtor's relief, and by general principles of equity.
(b) Except as set forth in Section 6.2(b) of the Parent Disclosure ,
neither the execution and delivery of this Agreement nor the consummation of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time or both) (i) contravene, conflict with. or result in a
violation of (A) any provision of the Organizational Documents of Parent or any
of its Subsidiaries, or (B) any resolution adopted by the board of directors or
the shareholders of Parent or any of its Subsidiaries; (ii) contravene, conflict
with, or result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order to which
Parent or any of its Subsidiaries, or any of the assets owned or used by Parent
or any of its Subsidiaries, may be subject; (iii) contravene, conflict with, or
result in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or
modify, any Governmental Authorization that is held by Parent or any of its
Subsidiaries, or that otherwise relates to the business of, or any of the assets
owned or used by, Parent or any of its Subsidiaries; (iv) cause Parent or any of
its Subsidiaries to become subject to, or to become liable for the payment of,
any Tax; (v) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the vesting, maturity or performance of, or
to cancel, terminate, or modify, any material contract of the Parent; (vi)
require a Consent from any Person; or (vii) result in the imposition or creation
of any Encumbrance upon or with respect to any of the assets owned or used by
Parent or any of its Subsidiaries, except, in the case of clauses (ii), (iii),
(iv), (vi) and (vii), for any such conflicts, violations, breaches, defaults or
other occurrences that would not prevent or delay consummation of the Merger in
any material respect, or otherwise prevent Parent from performing its
obligations under this Agreement in any material respect, and could not
reasonably be expected to, individually or in the aggregate, result in a Parent
Material Adverse Effect.
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(c) The execution and delivery of this Agreement by Parent and Sub
do not, and the performance of this Agreement and the consummation of the
Contemplated Transactions by Parent and Sub will not, require any Consent of, or
filing with or notification to, any Governmental Body, except (i) for (A)
applicable requirements, if any, of the Exchange Act, the Securities Act and
Blue Sky Laws, (B) the pre-merger notification requirements of the HSR Act and
(C) filing and recordation of appropriate merger documents as required by
Pennsylvania Law and (ii) where failure to obtain such Consents, or to make such
filings or notifications, would not prevent or delay consummation of the Merger
in any material respect, or otherwise prevent Parent or Sub from performing its
obligations under this Agreement in any material respect, and could not
reasonably be expected to, individually or in the aggregate, result in a Parent
Material Adverse Effect.
6.3 Capitalization. The authorized capital stock of Parent consists of
300,000,000 shares of Parent Common Stock and 1,000,000 shares of Parent
Preferred Stock, no par value per share ("Parent Preferred Stock"). As of March
27, 2000, (a) 62,356,675 shares of Parent Common Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, (b) 4,223,833 shares of Parent Common Stock are reserved for
issuance upon the exercise of outstanding stock options granted pursuant to
Parent's Stock Option Plan, Stock Incentive Plan, Step Ahead Investments, Inc.,
Long-Term Incentive Plan, as amended, 1998 Special Stock Option Plan and certain
other employee or consultant stock options ("Parent Stock Options"), (c)
5,584,899 shares of Parent Common Stock are reserved for issuance upon exercise
of outstanding warrants of Parent, (d) no shares of Parent Common Stock are held
in the treasury of Parent, and (e) 891,195 shares of Parent Common Stock are
reserved for issuance pursuant to Parent's Stock Incentive Plan and Employee
Stock Purchase Plan. No shares of Parent Preferred Stock are outstanding. Except
as set forth in this Section 6.3 or in Section 6.3 of the Parent Disclosure
Schedule, there are no Options relating to the issued or unissued capital stock
of Parent or any of its Subsidiaries, or obligating Parent or any of its
Subsidiaries to issue, grant or sell any shares of capital stock of, or other
equity interests in, or securities convertible into equity interests in, Parent
or any of its Subsidiaries. Each outstanding share of capital stock of each of
Parent's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Parent or one of its Subsidiaries is
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such other
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. None of the outstanding equity securities or other securities of
Parent or any of its Subsidiaries was issued in violation of the Securities Act
or any other Legal Requirement. Sub is the wholly owned Subsidiary of Parent.
6.4 SEC Reports. Parent has filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 1995. Company can
obtain via the SEC's EDGAR database complete copies in the form filed with the
SEC of, (i) Parent's Annual Reports on Form 10-K for each of the three most
recently completed fiscal years of Parent, (ii) its Quarterly Reports on Form
10-Q for each of the first three fiscal quarters in each of the three most
recently
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completed fiscal years of Parent, (iii) all proxy statements relating to
Parent's meetings of shareholders (whether annual or special) held, and all
information statements relating to shareholder consents, since the beginning of
the first fiscal year referred to in clause (i) above, and (iv) all other forms,
reports, registration statements and other documents (other than preliminary
materials if the corresponding definitive materials have been filed with the
SEC) filed by Parent with the SEC since January 1, 1997 (the forms, reports,
registration statements and other documents referred to in clauses (i), (ii),
(iii) and (iv) above are, collectively, the "Parent SEC Reports"). The Parent
SEC Reports and any forms, reports, registration statements and other documents
filed by Parent with the SEC after the date of this Agreement (x) were or will
be prepared in accordance with the requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations thereunder and
(y) did not at the time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No Parent Subsidiary is or has been required to file any form,
report, registration statement or other document with the SEC.
6.5 Financial Statements. The financial statements and notes contained or
incorporated by reference in the Parent SEC Reports fairly present, in all
material respects, the financial condition and the results of operations,
changes in shareholders' equity, and cash flow of the Parent and its
Subsidiaries as at the respective dates of and for the periods referred to in
such financial statements, all in accordance with GAAP and Regulation S-X of the
SEC, subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the omission of notes to the extent
permitted by Regulation S-X of the SEC (that, if presented, would not differ
materially from notes to the financial statements included in the most recently
filed Parent Annual Report on Form 10-K (the consolidated balance sheet included
in such Annual Report is the "Parent Balance Sheet")); the financial statements
referred to in this Section 6.5 reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
other than Parent and its Subsidiaries are required by GAAP to be included in
the consolidated financial statements of Parent.
6.6 No Undisclosed Liabilities. Except as set forth in Section 6.6 of the
Parent Disclosure Schedule, Parent and its Subsidiaries have no liabilities or
obligations of any nature (whether absolute, accrued, contingent, or otherwise)
of the type required to be reflected or disclosed in a balance sheet or the
notes thereto prepared in accordance with GAAP and Regulation S-X of the SEC,
except for liabilities or obligations reflected or reserved against in the
Parent Balance Sheet and current liabilities incurred in the ordinary course of
business and not in violation of this Agreement since the date thereof (assuming
for this purpose that this Agreement had been in effect since the date of the
Parent Balance Sheet).
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6.7 Legal Proceedings. There is no pending Proceeding (i) that has been
commenced by or against Parent or any of its Subsidiaries or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
Parent or any of its Subsidiaries, except for such Proceedings as are normally
incident to the business carried on by Parent and its Subsidiaries and could not
reasonably be expected to, individually or in the aggregate, result in a Parent
Material Adverse Effect, or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
6.8 Parent Common Stock. The shares of Parent Common Stock to be issued in
the Merger will be validly issued, fully paid, nonassessable and free of
preemptive rights.
6.9 Pooling. To the actual knowledge of the Parent's directors and
executive officers, Parent has taken no actions that would prevent the
accounting of the business combination to be effected by the Merger as a pooling
of interests. Parent has disclosed to its independent public accountants all
actions taken by it that would impact the accounting of the business combination
to be effected by the Merger as a pooling of interests. Parent, based on facts
and circumstances known to it, believes that the Merger will qualify for pooling
of interests accounting.
6.10 Reorganization under Section 368 of the Code. Neither Parent, its
Subsidiaries (including without limitation Sub), nor any of their Affiliates has
taken, agreed to take, or omitted to take any action that would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
6.11 Brokers. No Person is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger and the other Contemplated
Transactions based upon arrangements made by or on behalf of Parent.
6.12 No Material Adverse Change. Since December 31, 1999, the business of
the Parent has been conducted only in the ordinary course consistent with past
practices and, except as set forth in Section 6.12 of the Parent Disclosure
Schedule, there has not been any event which individually or in the aggregate
could reasonably be expected to result in a Parent Material Adverse Effect.
ARTICLE 7
PRE-CLOSING COVENANTS
7.1 Conduct of Business.
(a) During the period from the date of this Agreement and continuing
until the earlier of the termination of the Agreement or the Closing, Parent and
Company each agrees as to itself and its respective Subsidiaries (except to the
extent that the other party will
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otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted, to
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses will be unimpaired at the Closing.
(b) Parent and Company will each promptly notify the other of any
event or occurrence not in the ordinary course of business of Parent or Company
or their Subsidiaries, respectively.
(c) Except as expressly contemplated by this Agreement, Company will
not (and will not permit any of its respective Subsidiaries to), without the
prior written consent of Parent:
(i) Subject to Section 8.17(b), accelerate, amend or change
the period of exercisability of options or restricted stock granted
under any employee stock plan of such party or authorize cash
payments in exchange for any options granted under any of such plans
except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(ii) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to their Intellectual Property,
other than in the ordinary course of business consistent with past
practices;
(iii) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any
of its capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares
of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with
any termination of service to such former employees, directors or
consultants;
(iv) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose of the
purchase of, any shares of its capital stock or securities
convertible into shares of its capital stock or subscriptions,
rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares
or other convertible securities;
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(v) Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division, or otherwise acquire or agree to
acquire any assets which are material, individually or in the
aggregate, to the business of such party and its Subsidiaries, taken
as a whole;
(vi) Sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the
aggregate, to the business of such party and its Subsidiaries, taken
as a whole, except in the ordinary course of business;
(vii) (A) Increase or agree to increase the compensation
payable or to become payable to its officers or Employees, except
for increases in salary or wages of Employees other than officers of
Company in accordance with past practices, (B) increase or agree to
increase the compensation payable or to become payable to officers
of Parent, or Company or grant any additional severance or
termination pay to, or enter into any employment or severance
agreements with, such officers, (C) grant any severance or
termination pay to, or enter into any employment or severance
agreement, with any Employee, except in accordance with past
practices, (D) enter into any collective bargaining agreement, (E)
establish, adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees. For the purposes of
this Section (vii), the term "officer" will include only those
persons who would be required to file Form 3 or 4 under Section
16(a) of the Exchange Act.
(viii) Revalue any of its assets, including writing down the
value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(ix) Incur (which will not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire any debt
securities of such party or any of its Subsidiaries or guarantee any
debt securities of others, other than borrowings under the existing
Company's $20 million revolving credit facility or under letters of
credit consistent with past practice;
(x) Amend or propose to amend its Organizational Documents,
except as contemplated by this Agreement; or
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(xi) Take, or agree in writing or otherwise to take, any of
the actions described in Sections (i) through (x) above, or any
action which is reasonably likely to make any of such party's
representations or warranties contained in this Agreement untrue or
incorrect in any material respect on the date made (to the extent so
limited) or as of the Closing.
7.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Closing, each of Parent and Company will confer on a regular
and frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations
and will promptly provide the other party or its counsel with copies of all
filings made by such party with any Governmental Entity in connection with this
Agreement, the Merger and the other Contemplated Transactions.
7.3 Notification of Certain Matters. Parent will give prompt notice to
Company, and Company will give prompt notice to Parent, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (a) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Closing, or (b) any failure of Parent and Sub
or Company, as the case may be, or of any officer, director, employee, agent or
Affiliate thereof, to comply with or satisfy in all material respects any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. Notwithstanding the above, the delivery of any notice pursuant
to this section will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; provided that the failure to give
such notice on a timely basis shall not be treated as a breach of covenant for
purpose of Section 9.2(a) or 9.3(a) unless such failure prejudices the other
party in any material manner.
7.4 Company Loan Repayment by Parent. At Closing, Parent shall pay in full
the Company's obligations under, and shall cause the termination of, that
certain Credit Agreement dated February 5, 1999 among DE&S Holding Co., Dollar
Express, Inc., First Union National Bank and BankBoston N.A., and in connection
therewith shall cause the release of the shares of Company Stock pledged as
security for the loans made thereunder.
7.5 Release of Shareholder Guarantees. After the Closing, Parent shall use
all reasonable commercial efforts (other than with respect to leases for which
consents are not obtained by the Company after Closing) to obtain the release of
any guarantee or other similar obligations of any of the Shareholders relating
to the Company, its indebtedness for borrowed money, other liabilities or
obligations, or business operations (the "Shareholder Guarantees").
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ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Public Announcements. Parent and Company shall have the right to issue
a joint press release relating to the subject matter of this Agreement and the
Contemplated Transactions, provided however that the timing and content of such
press release shall be consistent with the requirements of law, SEC policy, any
applicable bylaw of the National Association of Securities Dealers, and/or any
listing agreement relating to the Parent Common Stock ("Public Disclosure Law").
The timing and content of all other announcements regarding any aspect of this
Agreement or the Merger to the financial community (including meetings with the
media, investors or analysts), government agencies, employees or the general
public shall be determined by Parent.
8.2 Pooling of Interests Accounting.
(a) Pooling Affiliates. As used in this Agreement, the term "Pooling
Affiliate" shall include all persons who are "affiliates" of such party for
purposes of Rule 145 under the Securities Act or under applicable SEC accounting
releases with respect to pooling of interests accounting treatment.
(b) Actions Jeopardizing Pooling Treatment. From and after the date
hereof, neither Parent nor the Company, nor any of their respective
Subsidiaries, nor any of the Shareholders shall take, and the Parent and Company
shall use their reasonable best efforts to ensure that their respective Pooling
Affiliates shall not take, any action that might jeopardize the characterization
of the Merger as a pooling of interests for accounting purposes, except as
expressly authorized by this Agreement. Parent, Company and Shareholders shall
use their respective reasonable best efforts to cause the transactions
contemplated by this Agreement, including the Merger, to be accounted for and
accepted as a pooling of interests.
(c) Company Affiliate Agreements. Company shall deliver herewith a
list (reasonably satisfactory to counsel for Parent) setting forth the names and
addresses of all persons who are, at the time hereof, in the reasonable judgment
of Company's counsel, Pooling Affiliates of Company. Company shall furnish such
information and documents as Parent shall reasonably request for the purpose of
reviewing such list. Company shall use its reasonable best efforts to cause each
person who is identified as a Pooling Affiliate in the such list to execute a
written "lock-up" agreement on or prior to the Closing in substantially the form
attached hereto as Exhibit C (the "Affiliate Agreements"). Each Shareholder
hereby agrees to execute an Affiliate Agreement and deliver it to Parent within
ten (10) days of the date hereof.
(d) Affiliate Stock Legends. Parent shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be
received by such Affiliates of Company pursuant to the terms of this Agreement,
and to issue appropriate
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stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Affiliate Agreements.
8.3 Non-Competition Agreements. Each of Bernard Spain, Peter Spain, and
Murray Spain shall execute and deliver to Parent at Closing a non-competition
agreement, substantially in the form attached hereto as Exhibits D-1, D-2, and
D-3 (collectively, the "Non-Competition Agreements"). Shareholders and the
Company acknowledge that the execution and delivery of such Non-Competition
Agreements is a material inducement of the Parent entering into this Agreement.
The Company has taken no action and will take no action to modify or waive any
rights it has under existing employment and non-competition agreements with its
executive officers.
8.4 Certain Shareholder Covenants.
(a) At Closing, each of Bernard Spain and Murray Spain (the
"Spains") shall voluntarily resign from their positions and terminate their
employment with the Company and its Subsidiaries. Such resignations shall not be
a Severance Event under Section 6.4 of their respective employment agreements
dated February 5, 1999 ("Spain Employment Agreements"). Each of the Spains shall
waive entitlement to any severance or insurance payments under the Spain
Employment Agreements and shall reaffirm Sections 5, 8.1, and 10 of the Spain
Employment Agreements. Each of the Spains acknowledges and agrees that such
covenants and agreements survive the termination of their employment, shall
remain in full force and effect, and shall be in addition to the obligations
contained in the Non-Competition Agreements.
(b) No Shareholder shall sell, transfer or otherwise dispose of, or
in any other way reduce such person's risk with respect to, any shares of Parent
Common Stock received in the Merger or other shares of the capital stock of
Parent until after such time as financial results covering at least 30 days of
post merger combined operations of Parent and the Company have been published
(within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies) by Parent, in the form of a post-effective amendment,
issuance of a quarterly earnings report, a Form 10-K, 10-Q or 8-K filing, or any
other public issuance which includes the combined sales and net income. Parent
shall use its commercially reasonable efforts to make such public issuance
promptly after such financial information becomes available; provided, however,
that Parent shall not be required to prepare such information on other than a
calendar-month basis.
(c) Each Shareholder hereby irrevocably waives (a) any and all
restrictions on the sale of Company Shares contained in any agreement in favor
of such Shareholder or to which such Shareholder is a party relating to Company
Shares and any rights such Shareholder may have under any such agreement; (b)
any and all preemptive rights, rights of first refusal or first offer and
registration rights with respect to any Company Shares or other
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securities of the Company or any securities issued in exchange therefor; and (c)
any and all stock purchase agreements or other agreements pursuant to which
securities were purchased from the Company and any and all shareholders
agreements or other agreements among shareholders of the Company or between
shareholders and the Company. Without limiting the generality of the foregoing,
the Company and each Shareholder shall at Closing terminate that certain
Registration Rights Agreement, that certain Investor Rights Agreement and any
operative provisions of the Securities Purchase and Contribution Agreement, each
dated as of February 5, 1999 (collectively, the "Recapitalization Documents"),
and irrevocably waive all rights and restrictions contained therein.
(d) At Closing, each Shareholder agrees to release and forever
discharge the Company, its affiliates, officers, directors and their respective
heirs, personal representatives, successors and assigns (including Parent), from
any and all claims, damages, losses, liabilities, demands, charges, suits,
penalties, actions and causes of action, whether accrued, absolute, contingent,
known or unknown, which such Shareholder may now or hereafter have, except as
set forth in Article 10 hereof.
8.5 Shareholder Representative.
(a) The Shareholders hereby select Bernard Spain and William Woo
(the "Shareholder Representatives") to act for and on behalf of all such
Shareholders with respect to all matters arising in connection with Article 10
and the Escrow Agreement, including, without limitation, the power and
authority, in his or her sole discretion, to:
(i) negotiate, determine, defend and settle any dispute which
may arise under Article 10 or the Escrow Agreement; and
(ii) make, execute, acknowledge and deliver any releases,
assurances, receipts, requests, instructions, notices, agreements,
certificates and any other instruments, and to generally do any and
all things and to take any and all actions which may be requisite,
proper or advisable in connection with Article 10 or under the
Escrow Agreement.
(b) The Shareholders by the affirmative vote of the holders of
seventy percent (70%) of Parent Common Stock owned by the Shareholders may
replace the Shareholder
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Representatives at any time with a substitute Shareholder Representative(s) who
shall have all the powers and responsibilities of the Shareholders
Representative set forth in this Section 8.5.
(c) Neither the Shareholder Representatives, nor any substitute
Shareholder Representatives, shall be liable to any Person for any action taken
or any omission to act, in good faith, in connection with the Shareholder
Representatives' responsibilities as Shareholder Representatives. The
Shareholders agree to indemnify, defend and hold harmless each of the
Shareholder Representatives, from and against any Damages incurred by such
Shareholder Representatives, in their capacity as such, so long as such
Shareholder Representative acted, or omitted to act, in good faith.
(d) Upon request by Parent, the Shareholder Representatives, or any
substitute Shareholder Representatives, shall promptly provide Parent with a
written certification of his or her selection and of the address for notices
to such Shareholder Representatives. Parent may thereafter deal exclusively with
the Shareholder Representatives in connection with the claims procedure in
reliance on such certification. Whenever in connection with the provisions of
this Agreement or the Escrow Agreement, Parent shall receive any certificate
or other written correspondence from the Shareholder Representatives, such
certificate or other written correspondence shall be full authorization to
Parent for any action taken or suffered in good faith by it under the provisions
of this Agreement or the Escrow Agreement in reliance thereon.
(e) Action by the Shareholder Representatives shall require their
unanimous consent.
8.6 Additional Shares Listing Application. Parent will file an additional
shares listing application with the Nasdaq (or any other exchange or interdealer
quotation system on which the Parent Common Stock to be issued in the Merger
pursuant to Article 2 may, at the Closing, be listed) to approve for a listing,
subject to official notice of its issuance, of such shares. Parent shall use its
reasonable best efforts to cause such shares to be approved for such listing,
subject to official notice of issuance, prior to the Closing Date.
8.7 Antitrust Filing.
(a) Parent and Company shall file (and Company shall cause each of
its Affiliates and Subsidiaries to file) any Notification and Report Form and
related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the HSR Act, shall each use its reasonable best efforts to obtain (and
Company shall cause each of its Affiliates and Subsidiaries to use its
reasonable best efforts to obtain) an early termination of the applicable
waiting period, and shall make (and Company shall cause each of its Affiliates
and Subsidiaries to make) any further filings pursuant thereto that may be
necessary, proper or advisable. Parent and Company shall consult and cooperate
with one another, shall provide copies of all documents to the non-filing party
prior to
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filing, and shall consider in good faith the views of one another in connection
with any submission, analysis, presentation or proposal.
(b) Subject to the provisions of Section 11.1(f) herein, each party
shall take all such further action as reasonably may be necessary to resolve
such objections, if any, as the Federal Trade Commission, the Antitrust Division
of the Department of Justice, state antitrust enforcement authorities or
competition authorities of any other nation or jurisdiction or any other person
may assert under applicable antitrust or competition laws with respect to the
transactions contemplated hereby. Notwithstanding any other provision of this
Agreement, in connection with seeking any such approval of a Governmental Body,
neither party shall, without the other party's prior written consent, commit to
any divestiture transaction; and Parent shall not be required to agree to sell
or otherwise dispose of, before or after Closing, any of its businesses, product
lines, properties or assets, or agree to any changes or restrictions in the
operations of such businesses, product lines, properties or assets.
8.8 No Solicitation of Transactions.
(a) From the date of this Agreement until the Closing or the
termination of this Agreement pursuant to its terms, the Company agrees that it
will not and will not permit any of its Subsidiaries, or any of its or their
officers, directors, employees, representatives, agents, or affiliates,
including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries (collectively,
"Representatives") to, directly or indirectly, (i) initiate, solicit, encourage
or otherwise facilitate (including by way of furnishing information), any
inquiries or the making of any proposal or offer that constitutes, or may
reasonably be expected to lead to an Acquisition Proposal (as defined below),
(ii) enter into or maintain or continue discussions or negotiate with any Person
in furtherance of such inquiries or to obtain an Acquisition Proposal, or (iii)
agree to, approve, recommend, or endorse any Acquisition Proposal, or authorize
or permit any of its or their Subsidiaries or Representatives to take any such
action and Company shall promptly notify the Parent of any such inquiries and
proposals received by the Company or any of its Subsidiaries or Representatives,
relating to any of such matters.
(b) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement) involving the Company or its
Subsidiaries: (i) any merger, reorganization, offering, consolidation share
exchange, recapitalization, business combination, liquidation, dissolution, or
other similar transaction involving, or, any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of, all or any portion of the assets or of
the equity securities of, the Company or any of its Subsidiaries, in a single
transaction or series of related transactions which could reasonably be expected
to interfere with the completion of the Merger; (ii) any tender offer or
exchange offer for outstanding shares of capital stock
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of the Company or the filing of a registration statement under the Securities
Act in connection therewith; or (iii) any public announcement of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
(c) Company shall ensure that the officers, directors, key
employees, agents, representatives and Affiliates of the Company are aware of
the restrictions described in this Section 8.8.
8.9 Shareholder Approval. The Company and Shareholders will take any
additional action necessary to carry out the purposes of this Agreement,
including without limitation acting by unanimous written consent to reaffirm
their approval of the Merger and the adoption of this Agreement by Company.
Neither the Board of Directors of the Company (except in the proper exercise of
their fiduciary obligations) nor any Shareholder shall take any action to cause
the reconsideration or the rescinding of any approval or adoption of the Merger,
this Agreement, and the Articles of Merger.
8.10 Dissenters' Rights Notices. The Company shall timely provide all
notices and other communications as are required under Pennsylvania Law in
connection with statutory dissenters' rights, to the extent applicable to the
Merger, including, without limitation, the notice required by Section 1571(d) of
the Pennsylvania Law to the persons specified therein.
8.11 Access to Information; Confidentiality.
(a) Each party will afford the other party and its Representatives
reasonable access during normal business hours to the properties, books, records
and personnel of the other party during the period prior to the Closing to
obtain all information concerning the business, including the status of
merchandising efforts, leasing activities, distribution center planning,
properties, results of operations and personnel of such party, as the other
party may reasonably request. No information or knowledge obtained in any
investigation will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the other party.
(b) All information furnished to the parties hereto or to their
respective Representatives pursuant to this Section 8.11 or the Confidentiality
Agreement and all analyses, compilations, studies or other documents prepared by
either party hereto or by their respective Representatives containing, or based
in whole or part on, any such information, are herein collectively referred to
as the "Confidential Information." In the event this Agreement is terminated,
each party agrees that after the date of termination neither it nor its
Representatives shall use the Confidential Information of any other party for
any purpose and all copies of the Confidential Information will be returned or
destroyed upon written request of the furnishing party, provided however that
any Confidential Information consisting of documents prepared by a party or its
Representatives based on data contained in the Confidential Information need
only be destroyed and not returned, and such party shall certify to the other
party that it has done so.
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The term Confidential Information shall not include such portions of the
Confidential Information which (i) are or become generally available to the
public other than as a result of a disclosure by a party hereto or its
Representatives in breach of its obligations hereunder or under the
Confidentiality Agreement before the date hereof, (ii) are or become available
to a party or its Representatives on a nonconfidential basis from a source other
than the other party or its Representatives, or (iii) were known to a party or
its Representatives prior to disclosure by the other party or its
Representatives.
8.12 Indemnification of Directors and Officers of the Company. Parent
shall, and agrees to cause the Surviving Corporation to indemnify and hold
harmless from liabilities for acts or omissions occurring at or prior to the
Closing the Company's directors and officers to the same extent provided in the
indemnification provisions contained in the Surviving Corporation's Articles of
Incorporation and Bylaws as of March 1, 2000. In addition, from and after the
Closing, any directors and officers of Company will be entitled to
indemnification under Surviving Corporation's Articles of Incorporation and
Bylaws, and to all other indemnity rights and protections as are afforded to
other directors and officers of Surviving Corporation, and Surviving Corporation
shall not amend, repeal or modify any such provision to reduce or adversely
affect the rights of such persons thereunder in respect of actions or omissions
by them occurring at or prior to the Closing. In the event that Surviving
Corporation or any of its successors or assigns (i) consolidates with or merges
into any other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision will be made so that the successors and assigns of
Surviving Corporation assume the obligations set forth in this Section 8.12. The
provisions of this Section 8.12 are intended to be for the benefit of, and will
be enforceable by, each indemnified party, his or her heirs and his or her
representatives.
8.13 Letters of Company Accountants. The Company shall also use its
reasonable best efforts to cause to be delivered to Parent and KPMG, a letter
from Ernst & Young LLP ("E&Y"), addressed to both Parent and Company, dated as
of a date within two business days of the Closing to the effect that, based upon
discussions with officials responsible for financial and accounting matters, and
information to be furnished to E&Y through such date, E&Y concurs with
management's conclusion that, as of such date, no conditions exist which would
preclude Parent from accounting for the merger with the Company as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations, if the Merger is closed and consummated in accordance
with this Agreement (the "E&Y Pooling Letter").
8.14 Commercially Reasonable Efforts to Effect The Merger.
(a) Each of Parent and Company shall, and each shall cause its
Subsidiaries to, take all reasonable actions necessary or advisable to give any
notice to, make any
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filing with or obtain any consent, authorization, order or approval of, or any
exemption by, any Governmental Body, required to be given, made or obtained by
Parent, Company or any of their Subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement.
(b) Each of Parent and Company shall give, and each shall cause its
Subsidiaries to give, any notices to third parties, and shall use, and cause
their respective Subsidiaries to use, their reasonable best efforts to obtain
any third-party Consents (A) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, (B) disclosed or required to be
disclosed in the Parent Disclosure Schedule or the Company Disclosure Schedule,
as the case may be, or (C) required to prevent a Company Material Adverse Effect
from occurring prior to or after the Closing or a Parent Material Adverse Effect
from occurring after the Closing. If either party shall fail to obtain any third
party Consent described in the preceding sentence, such party shall use its
reasonable best efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon Parent and Company,
their respective Subsidiaries and their respective businesses resulting, or
which could reasonably be expected to result after the Closing, from the failure
to obtain such consent.
(c) Each of Parent and Company shall use its reasonable best efforts
to effectuate the Contemplated Transactions and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement (including resolution
of any litigation prompted hereby) as promptly as practicable. Each party, at
the reasonable request of the other, shall execute and deliver such other
instrument and do and perform such other acts and things as may be necessary or
advisable for effecting completely the consummation of this Agreement and the
Contemplated Transactions as promptly as practicable. Parent and Company shall
not take any action, or refrain from taking any action, the effect of which
would be to delay or impede the ability of Parent and Company to consummate the
Contemplated Transactions.
(d) From the date of this Agreement to the Closing, Company shall
promptly notify Parent of any pending or, to the knowledge of Company,
threatened Proceeding (i) challenging or seeking material damages in connection
with the Merger or the conversion of Company common stock into Parent Shares
pursuant to the Merger or (ii) seeking to restrain or prohibit the consummation
of the Merger or otherwise limit the right of Parent or, to the knowledge of
Company, its Subsidiaries to own or operate all or any portion of the businesses
or assets of Company or its Subsidiaries, which in either case is reasonably
likely to have a Company Material Adverse Effect prior to or after the Closing,
or an Parent Material Adverse Effect after the Closing. Each party shall contest
and resist any action, including any legislative, administrative or judicial
action, and shall use its reasonable best efforts to have vacated, lifted,
reversed or overturned any Order that restricts, prevents or prohibits the
consummation of the Merger or any other Contemplated Transaction.
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(e) In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take all
such necessary action.
(f) Each of the Shareholders shall cooperate with Company and use
all reasonable commercial efforts to assist Company in complying with its
obligations under this Section 8.14.
(g) The parties obligations under this section 8.14 are in addition
to, and not in place of, their obligations under the other provisions of this
Article 8.
8.15 Company Termination Benefits. To the extent permitted under any
Benefit Plan of the Company, and subject to Section 8.2(b), Company shall take
all action necessary so that the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
acceleration of any vesting or the triggering of any payment (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
due to any Employee under any Benefit Plan (other than Options under the Company
Option Plan). The foregoing shall not effect, and shall otherwise be
inapplicable to, the six employment agreements between the Company and its
employees previously disclosed to Parent and providing for six months severance
in the event of termination without cause.
8.16 Company Employee Benefit Plans. The Benefit Plans of Company which
are described on Section 4.15(b) of the Company Disclosure Schedule shall be the
Benefit Plans of the Surviving Corporation at the Closing, subject to being
modified and applied as described on Schedule 8.16 hereto. Notwithstanding the
foregoing, (i) the Surviving Corporation shall have the right to modify, amend
or terminate the employee benefit plans of the Surviving Corporation from time
to time, and (ii) nothing in this Section 8.16, whether express or implied,
shall confer upon any Employee of Company or the Surviving Corporation, or any
other person, any rights or remedies, including (A) any right to employment or
recall, (B) any right to continued employment for any specified period, or (C)
any right to claim any particular compensation, benefit or aggregation of
benefits, of any kind or nature whatsoever, or any right to receive any
severance pay or benefits as a result of this Section 8.16. Notwithstanding the
foregoing, as to the employees of the Surviving Corporation which the Parent
decides to retain after Closing, the Parent intends to recognize their
respective past service with the Company and its Subsidiaries (in accordance
with Parent's past practice with prior mergers and acquisitions) for purposes of
fringe benefits, option programs, pay and grade.
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8.17 Tax Treatment. This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g). Parent and Company
shall each use its reasonable best efforts to cause the Merger to be a
reorganization within the meaning of Section 368(a) of the Code and shall not
knowingly take any action or cause any action to be taken which would preclude
the Merger from being so treated. Following the Closing, neither the Surviving
Corporation, Parent, its Subsidiaries nor any of their Affiliates shall take any
action or cause any action to be taken which would cause the Merger to fail to
be a reorganization under Section 368(a) of the Code.
8.18 Takeover Laws. Parent and Company and their respective Boards of
Directors shall, as promptly as practicable, take all necessary steps to exempt
the Contemplated Transactions from, or if necessary to challenge the validity or
applicability of, any applicable Takeover Law and otherwise act to minimize the
effects of any Takeover Law on the Contemplated Transactions.
8.19 Current Report. Company shall provide reasonable assistance to Parent
in the preparation and filing, on the earliest practicable date after the date
of this Agreement, of a Current Report on Form 8-K for Parent containing the
historical financial statements of Company if and to the extent required by Rule
3-05 of Regulation S-X of the SEC and the pro forma financial information with
respect to the business combination contemplated by this Agreement if and to the
extent required by Article 11 of Regulation S-X of the SEC.
8.20 Collective Bargaining Agreement. Company shall concurrently herewith
give all notices and perform all acts reasonably requested by Parent with
respect to any collective bargaining agreement between Company and any of its
Employees.
8.21 Company Option Plan.
(a) Company agrees and represents that each outstanding option to
purchase Company Common Stock issued pursuant to the Company Option Plan,
whether vested or unvested, shall not terminate or lapse on account of the
Merger but instead, to the extent not exercised at Closing, shall be assumed by
Parent and shall constitute an option (an "Assumed Option") (A) to acquire, on
the same terms and conditions as were applicable under such Option prior to the
Closing, a number of shares of Parent Common Stock (rounded to the nearest whole
number) determined by multiplying the Exchange Ratio by the number of Company
Common Stock then subject to purchase pursuant to such Option; and (B) at a per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such Assumed Option equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Option was
exercisable immediately prior to the Closing by the Exchange Ratio, rounded up
or down to the nearest whole cent. Notwithstanding the foregoing, Parent may, in
its
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discretion, substitute an equivalent option under its Stock Incentive Plan in
exchange for each Assumed Option.
(b) The Company and the Shareholders agree to take all such actions
necessary or desirable (including amending the Company Option Plan and option
agreements) to permit Parent's assumption and/or substitution of such options as
stated in Section 8.21(a) and to permit the Merger to be accounted for as a
pooling of interests.
(c) Unless the Assumed Options or options substituted therefor
qualify for inclusion under an existing registration statement of Parent, Parent
shall file and maintain the effectiveness of a short-form registration statement
or registration statements with respect to the shares of Parent Common Stock
subject to such Assumed Options for so long as such Assumed Options remain
outstanding. Parent and Company shall use reasonable efforts to take such
actions as are necessary for the conversion of the Assumed Options pursuant to
this Section 8.21(c), including the reservation, issuance and listing of shares
of Parent Common Stock as is necessary to effectuate the transactions
contemplated by this Section 8.21(c). Parent will prepare and distribute to
holders of Assumed Options a notice explaining the effect of the conversion of
such holder's options into Assumed Options.
8.22 Related Party Agreements. As of the date of the Interim Balance
Sheet, all payments with respect to any Related Party Agreements, including
rent, percentage rent, bonus and salary, have been paid or properly accrued on
the Company's Financial Statements, and all amounts due thereunder as of Closing
will be paid in full at Closing. All loans by the Company or its Subsidiaries to
the Shareholders or their Affiliates will be paid in full at or before Closing.
For purposes of this section, "Related Party Agreements" means all Company
Contracts with any Shareholders or other Affiliates.
ARTICLE 9
CONDITIONS TO MERGER
9.1 Conditions Precedent to Obligation of Each Party. Each party's
obligation to consummate the Merger and the transactions contemplated by this
Agreement is subject to the fulfillment or waiver, on or before the Closing
Date, of each of the following conditions:
(a) HSR Act. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
(b) No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction or any other
Governmental Body and shall remain in effect, and no federal, state, local,
municipal, foreign or other law, statute, rule, regulation or
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decree that makes consummation of the Merger illegal shall have been enacted,
adopted or deemed applicable to the Merger and shall remain in effect.
9.2 Conditions Precedent to Obligations of Parent and Sub. Parent's and
Sub's obligation to consummate the Merger and the other Contemplated
Transactions is subject to the fulfillment or waiver, on or before the Closing
Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the Company set forth herein shall be accurate in all material
respects on and as of the Closing Date as if made on and as of such date (it
being understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Company Material Adverse Effect"
qualifications and other materiality of qualifications contained in such
representations and warranties shall be disregarded and (ii) any update of or
modification to the Company Disclosure Schedule made or purported to have been
made after the date of this Agreement shall be disregarded).
(b) Performance of Covenants. The Company shall have complied in all
material respects with or performed in all material respects all agreements,
covenants and conditions on their part to be performed or complied with on or
prior to the Closing Date.
(c) Deliveries. The following agreements and documents shall have
been delivered to Parent, and (where applicable) shall be in full force and
effect:
(i) a certificate, executed on behalf of Company by an
executive officer of Company, confirming that the conditions set
forth in paragraphs (a), (b), (d), (f) and (g) of this Section 9.2
have been satisfied in all material respects;
(ii) a certificate, executed on behalf of Company by the
Secretary or any Assistant Secretary of Company, to the effect that
the Board of Directors and shareholders of the Company have taken
all actions necessary to authorize the execution, delivery and
performance of this Agreement and the consummation of the
Contemplated Transactions by the Company;
(iii) the minute books, any stock transfer books and any
corporate seal of the Company and its Subsidiaries which are in the
Company's possession;
(iv) the opinion of Pepper Hamilton, counsel for the Company
and the Shareholders, dated as of the Closing Date, in form and
substance satisfactory to counsel for Parent and Sub;
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(v) termination letters relating to the Recapitalization
Documents and the severance benefits contained in the Employment
Agreements between the Company on one hand and Bernard Spain and
Murray Spain, on the other;
(vi) the E&Y Pooling Letter and the letter from KPMG,
addressed to Parent dated as of a date within two business days
before Closing to the effect that, based upon discussions with
officials responsible for financial and accounting matters, and
information to be furnished to KPMG through such date, KPMG concurs
with Parent management's conclusion that, as of such date, no
conditions exist which would preclude Parent from accounting for the
merger with the Company as a pooling of interests under Opinion 16
of the Accounting Principles Board and applicable SEC rules and
regulations, if the Merger is closed and consummated in accordance
with this Agreement (the "KPMG Pooling Letter");
(vii) the Non-Competition Agreements, executed by each of
Bernard Spain, Murray Spain, and Peter Spain and the Employment and
Non- Competition Agreement executed by Peter Spain;
(viii) the Articles of Merger and the related officers'
certificate required by Pennsylvania Law executed by the Company;
(ix) the written resignations of all officers and directors of
Company, effective as of the Closing;
(x) Affiliate Agreements executed by each of the Company's
Pooling Affiliates; and
(xi) such other documents and items as are contemplated by
this Agreement or as Parent may reasonably request, including, with
respect to Company and each of its Subsidiaries, certificates of
existence, subsistence or good standing, as applicable, from their
respective states of incorporation and certificates of qualification
to do business for each other state in which such a certificate is
required.
(d) Consents. All material Consents, filings and notices required to
be obtained, made or given in connection with the Merger and other Contemplated
Transactions (including those identified on Section 4.2(a) of the Company
Disclosure Schedule) shall have been obtained, made or given and shall be in
full force and effect, except that no lease and other real property consents
shall be required except those which are set forth at Schedule 9.2(d).
(e) Dissenting Shares. Holders of not more than 9-98/100% of the
Company Common Stock shall have the right to elect to exercise dissenters'
rights pursuant to Pennsylvania Law.
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(f) No Material Adverse Change. There shall have been no material
adverse change in the business, condition, capitalization, assets, liabilities,
operations, financial or performance of Company since the date of this
Agreement, provided, however, any material adverse change that relates primarily
to (i) general economic conditions (including those in the United States, any
region of the United States, or any nation in which Company conducts material
transactions); (ii) general political conditions (including those in the United
States, any region of the United States, or any nation in which Company conducts
material transactions); (iii) general stock market conditions; (iv) the
announcement of the transactions contemplated hereby; or (v) any combination of
the foregoing, shall not be considered a material adverse change for purposes of
this Section 9.2(f).
(g) No Litigation. There shall not be pending or threatened any
Proceeding: (i) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement;
(ii) relating to the Merger and seeking to obtain from Parent or any of its
subsidiaries any damages that may be material to Parent; (iii) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; (iv) which would materially and
adversely affect the right of the Surviving Corporation to own the assets or
operate the business of Company; or (v) which, if adversely determined against
Company or Shareholders, would be reasonably likely to cause a Company Material
Adverse Effect or a Parent Material Adverse Effect.
9.3 Conditions Precedent to Obligations of Company and the Shareholders.
The obligation of the Company to consummate the Merger and the transactions
contemplated by this Agreement is subject to the fulfillment or waiver, on or
before the Closing Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties made by Parent and Sub herein shall be accurate in all material
respects on and as of the Closing Date to the same extent as if made on and as
of such date (it being understood that, for purposes of determining the accuracy
of such representations and warranties, (i) all "Parent Material Adverse Effect"
qualifications and other materiality of qualifications contained in such
representations and warranties shall be disregarded and (ii) any update of or
modification to the Parent Disclosure Schedule made or purported to have been
made after the date of this Agreement shall be disregarded).
(b) Performance of Covenants. Parent and Sub shall have complied in
all material respects with or performed in all material respects all agreements,
covenants and conditions on their part to be performed or complied with on or
prior to the Closing Date.
(c) Deliveries. The following documents shall have been delivered to
Company:
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(i) a certificate, executed on behalf of Parent and Sub by an
executive officer of each, confirming that the conditions set forth
in paragraphs (a), (b), and (d) of this Section 9.3 have been duly
satisfied;
(ii) a certificate by the Secretary or any Assistant Secretary
of Parent and Sub to the effect that the Board of Directors of
Parent and Sub and the shareholders of Parent and Sub have taken all
actions necessary to authorize the execution, delivery and
performance of this Agreement and the consummation of the
Contemplated Transactions by the Parent and Sub;
(iii) the opinion of Hofheimer Nusbaum, P.C., counsel for
Parent and Sub, dated as of the Closing Date, in form and substance
satisfactory to counsel for the Company and the Shareholders;
(iv) such other documents and items as are contemplated by
this Agreement or as the Company may reasonably request.
(d) No Material Adverse Change. There shall have been no material
adverse change in the business, condition, assets, liabilities, operations, or
financial performance of Parent nor an occurrence of any of the matters set
forth on Schedule 9.3(d) since the date of this Agreement, provided, however,
any material adverse change that relates primarily to (i) general economic
conditions (including those in the United States, any region of the United
States, or any nation in which Parent conducts material transactions); (ii)
general political conditions (including those in the United States, any region
of the United States, or any nation in which Parent conducts material
transactions); (iii) stock market performance of Parent; (iv) the announcement
of the transactions contemplated hereby; or (v) any combination of the
foregoing, shall not be considered a material adverse change for purposes of
this Section 9.3(d).
(e) Listing. The shares of Parent Common Stock to be issued in the
Merger pursuant to this Agreement shall have been approved for listing (subject
to notice of issuance) pursuant to Section 8.6.
(f) Effectiveness of Registration Statement. The Parent Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order suspending the effectiveness of the Parent
Registration Statement shall have been issued by the SEC, and no proceeding
shall have been initiated or threatened in writing by the SEC for the purpose of
seeking or obtaining such a stop order.
(g) No Litigation. There shall not be pending or threatened any
Proceeding: (i) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement;
(ii) relating to the Merger and seeking to obtain from Company or any of its
subsidiaries any damages that may be material to
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Company; (iii) which would materially and adversely affect the right of the
Surviving Corporation to own the assets or operate the business of the Company;
or (iv) which, if adversely determined against Parent, would be reasonably
likely to cause a Parent Material Adverse Effect or a Company Material Adverse
Effect.
ARTICLE 10
SURVIVAL AND INDEMNIFICATION
10.1 Indemnification Obligations of the Shareholders. To the extent
provided in Section 10.3, the Shareholders, on a pro-rata basis as defined in
Section 10.3(c) and not jointly, agree to indemnify, defend and hold harmless
Parent and its subsidiaries and Affiliates (including Sub and the Surviving
Corporation), each of their respective officers, directors, employees, agents
and representatives and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, the "Parent Indemnified Parties") from,
against and in respect of any and all claims, liabilities, obligations, losses,
costs, expenses, penalties, fines and judgments (at equity or at law) and
damages (including exemplary or consequential damages) whenever arising or
incurred (including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) ("Damages") arising
out of or relating to:
(a) any breach or inaccuracy of any representation or warranty made
by or with respect to the Company, any of its Subsidiaries, or any Shareholder
in this Agreement;
(b) any breach of any covenant, agreement or undertaking made by or
with respect to the Company, any of its subsidiaries, or any Shareholder in this
Agreement;
(c) any fraud made by or with respect to the Company, any of its
Subsidiaries, or any Shareholder in connection with this Agreement and the
transactions contemplated hereby;
(d) any amounts paid in excess of the Average Closing Price to
holders of Dissenting Shares pursuant to such holders' exercise of dissenters'
rights incident to the Merger;
(e) the aggregate Damages relating to the matters described on
Schedule 10.1(e); and
(f) the aggregate Damages relating to the matters described on
Schedule 10.1(f).
The claims, liabilities, obligations, losses, costs, expenses, penalties, fines
and damages of the Parent Indemnified Parties described in this Section 10.1 as
to which the Parent Indemnified Parties are entitled to indemnification are
hereinafter collectively referred to as "Parent Losses."
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10.2 Indemnification Obligations of Parent. Except as limited in Section
10.3, Parent shall indemnify and hold harmless the Shareholders and each of the
affiliates, heirs, executors, successors and assigns of such Shareholders
(collectively, the "Shareholder Indemnification Parties") from, against and in
respect of any and all Damages arising out of or relating to:
(a) any breach or inaccuracy of any representation or warranty made
by or with respect to Parent in this Agreement;
(b) any breach of any covenant, agreement or undertaking made by or
with respect to Parent or Sub in this Agreement; or
(c) any fraud made by or with respect to Parent in connection with
this Agreement and the transactions contemplated hereby; or
(d) the Shareholder Guarantees.
The claims, liabilities, obligations, losses, costs, expenses, penalties, fines
and damages of the Shareholder Indemnification Parties described in this Section
10.2 as to which the Shareholder Indemnification Parties are entitled to
indemnification are hereinafter collectively referred to as "Shareholder
Losses."
10.3 Limitations on Indemnification.
(a) The Parent Indemnified Parties will not be entitled to seek
indemnification for Parent Losses under Section 10.1(a) (excepting Section 4.3
(Capitalization)), 10.1(b) or under Section 10.1(f) (collectively, "Parent
Basket Losses"), unless and until the aggregate of all Parent Basket Losses
incurred by the Parent Indemnified Parties exceeds Seven Hundred Fifty Thousand
Dollars ($750,000) (the "Shareholder Basket Amount") and only then to the extent
that the aggregate amount of Parent Basket Losses exceeds $750,000. In no event
will the Shareholders obligations for Parent Losses claimed under Section 10.1
be greater than (i) $28.8 million, if the Closing has not occurred, and (ii)
after Closing, ten percent (10%) of the product of 6,000,000 multiplied by the
Average Closing Price (the "Indemnification Cap Amount").
(b) The Shareholder Indemnification Parties will not be entitled to
seek indemnification for Shareholder Losses under Section 10.2(a) and 10.2(b)
(collectively, "Shareholder Basket Losses") unless and until the aggregate
amount of all Shareholder Basket Losses incurred by the Shareholder
Indemnification Parties exceeds Seven Hundred Fifty Thousand Dollars ($750,000)
(the "Parent Basket Amount") and only then to the extent the aggregate amount of
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Shareholder Basket Loses exceeds $750,000. In no event will Parent's obligation
for Shareholder Losses under Section 10.2 be greater than the Indemnification
Cap Amount.
(c) Each Shareholder's indemnification obligation under this Article
10 shall be limited to the product of (i) the total amount of the Parent Losses
subject to indemnification (after application of the other limitations contained
in this Article 10) multiplied by (ii) a fraction equal to the total number of
shares of Parent Common Stock such Shareholder receives pursuant to the Merger
divided by the total number of shares of Parent Comment Stock received pursuant
to the Merger by all Shareholders who are signatories to this Agreement.
10.4 Indemnification Procedure.
(a) Promptly after receipt by a Parent Indemnified Party or a
Shareholder Indemnified Party (hereinafter collectively referred to as an
"Indemnified Party") of notice from a third party of any complaint or the
commencement of any action, Proceeding or claim with respect to which such
Indemnified Party may be entitled to receive payment from the other party for
any Parent Losses or Shareholder Losses (as the case may be and subject to the
limitation on Parent Losses and Shareholder Losses in Section 10.3), such
Indemnified Party shall notify Parent or the Shareholders (through the
Shareholder Representative), whoever is the appropriate indemnifying party
hereunder (the "Indemnifying Party"), of the commencement of such action,
Proceeding or claim; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party from liability for
such claim arising otherwise than under this Agreement and such failure to so
notify the Indemnifying Party shall relieve the Indemnifying Party from
liability under this Agreement with respect to such matter only if, and only to
the extent that, such failure to notify the Indemnifying Party results in the
forfeiture by the Indemnifying Party of rights and defenses otherwise available
to the Indemnifying Party with respect to such matter. The Indemnifying Party
shall have the right, upon written notice delivered to the Indemnified Party
within twenty (20) days thereafter, to assume the defense of such matter,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of the fees and disbursements of such counsel. In the
event, however, that the Indemnifying Party declines or fails to assume the
defense of the matter or to employ counsel reasonably satisfactory to the
Indemnified Party, in either case within such twenty (20) day period, then such
Indemnified Party may employ counsel to represent or defend it in any such
action or Proceeding and the Indemnifying Party shall pay the reasonable fees
and disbursements of such counsel as incurred; provided, however, that the
Indemnifying Party shall not be required to pay the fees and disbursements of
more than one counsel for all Indemnified Parties in any jurisdiction in any
single action or Proceeding. In any action or Proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such action, shall
have the right to participate in such matter and to retain its own counsel at
such party's own expense. The Indemnifying Party or the Indemnified Party, as
the case may be, shall at all times use reasonable efforts to keep the
Indemnifying Party or the Indemnified Party, as the case may be, reasonably
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apprised of the status of the defense of any action the defense of which they
are maintaining and to cooperate in good faith with each other with respect to
the defense of any such action.
(b) No Indemnified Party may settle or compromise any claim or
consent to the entry of any judgment with respect to which indemnification is
being sought hereunder without the prior written consent of the Indemnifying
Party, unless (i) the Indemnifying Party fails to assume and maintain the
defense of such claim pursuant to Section 10.4(a); or (ii) such settlement,
compromise or consent includes an unconditional release of the Indemnifying
Party from all liability arising out of such claim. An Indemnifying Party may
not, without the prior written consent of the Indemnified Party, settle or
compromise any claim or consent to the entry of any judgment with respect to
which indemnification is being sought hereunder unless such settlement,
compromise or consent includes an unconditional release of the Indemnified Party
from all liability arising out of such claim and does not contain any equitable
order, judgment or term which in any manner affects, restrains or interferes
with the business of the Indemnified Party or any of the Indemnified Party's
respective affiliates.
(c) In the event an Indemnified Party shall claim a right to payment
(or, a credit towards the Shareholders Basket Amount or Parent Basket Amount)
pursuant to this Agreement, such Indemnified Party shall send written notice of
such claim to the appropriate Indemnifying Party. Such notice shall specify the
basis for such claim. As promptly as possible after the Indemnified Party has
given such notice, such Indemnified Party and the appropriate Indemnifying Party
shall establish the merits and amount of such claim (by mutual agreement,
litigation, arbitration or otherwise) and, within five (5) business days of the
final determination of the merits and amount of such claim, the Indemnifying
Party shall pay to the Indemnified Party immediately available funds (or, if
applicable, shall provide notice to the escrow agent regarding disbursement of
the appropriate portion of the escrow fund) in an amount equal to such claim as
determined hereunder (or shall record an appropriate credit against the
Shareholder Basket Amount or Parent Basket Amount).
10.5 Survival; Claims Period. All representations and warranties,
covenants and agreements contained in this Agreement, the Disclosure Schedules,
the supplements to the Disclosure Schedules, certificates delivered pursuant to
Sections 9.2(c)(i) and 9.3(c)(i) hereof, and any other certificate or document
delivered pursuant to this Agreement shall survive the Closing for the claims
period specified in this Section 10.5 (the "Claims Period"), and shall not be
deemed waived or otherwise affected by any investigation made or any knowledge
acquired with respect thereto. A claim for indemnification may be asserted under
this Agreement by an Indemnified Party only during the Claims Period.
The Claims Periods shall commence on the date of this Agreement and shall
terminate one (1) year following the Effective Time; provided, however, no claim
may be brought after the date of issuance of the first independent audit report
with respect to the financial statements of Parent after the Effective Time if
such claim is of a type expected to be encountered in the course
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of such audit performed in accordance with generally accepted auditing
standards. Notwithstanding the foregoing, if prior to the close of business on
the last day of the applicable Claims Period, an Indemnifying Party shall have
been properly notified as provided hereunder of a claim for indemnity hereunder
and such claim shall not have been finally resolved or disposed of at such date,
such claim shall continue to survive and shall remain a basis for indemnity
hereunder until such claim is finally resolved or disposed of in accordance with
the terms hereof.
10.6 Recovery. Parent may recover Parent Losses in accordance with the
provisions of the Escrow Agreement; provided, however, that Parent's ability to
recover Parent Losses in accordance with the Escrow Agreement shall not in any
way be construed to limit any remedy Parent may have against the Shareholders
under this Article 10. Parent's recovery of Parent Losses shall come first from
all available shares of Parent Common Stock held in escrow pursuant to the
Escrow Agreement, and then from the Shareholders pursuant to the terms of this
Article 10.
10.7 Exclusive Remedy. The indemnity of this Article 10 shall be the
exclusive remedy of the Shareholder Indemnified Party against Parent or Sub in
the performance of the representations, warranties, covenants, or agreements of
this Agreement, or any certificate, exhibit or schedule contemplated hereby,
except in the event of fraud. The indemnity of this Article 10 shall be the
exclusive remedy of the Parent and Sub against the Shareholders for a breach,
misrepresentation, nonfulfillment, or default by Company in the performance of
the representations, warranties, covenants, or agreements of this Agreement, or
any certificate, exhibit or schedule contemplated hereby, except in the event of
fraud.
ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing, whether before or after approval of this Agreement and the Merger
by the Shareholders:
(a) by mutual consent of the Parent and the Company;
(b) by the Parent, upon a breach on the part of the Company, the
Shareholders, or any Shareholder of any covenant or agreement set forth in this
Agreement, or if any representation or warranty of the Company or any
Shareholder shall have become untrue, in either case such that the conditions
set forth in Section 9.2(a) would not be satisfied (a "Terminating Company
Breach"); provided that, if such Terminating Company Breach is curable by the
Company through the exercise of reasonable efforts and for so long as the
Company continues to exercise such reasonable efforts, the Parent may not
terminate this Agreement under this Section 11.1(b);
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(c) by the Company, upon breach of any covenant or agreement on the
part of the Parent or Sub set forth in this Agreement, or if any representation
or warranty of the Parent or Sub shall have become untrue, in either case such
that the conditions set forth in Section 9.3(a) would not be satisfied (a
"Terminating Parent Breach"); provided that, if such Terminating Parent Breach
is curable by the Parent or Sub through the exercise of its reasonable efforts
and for so long as the Parent and Sub continue to exercise such reasonable
efforts, the Company may not terminate this Agreement under this Section
11.1(c);
(d) by either Parent or the Company, if there shall be any Order
which is final and nonappealable preventing the consummation of the Merger,
unless the party relying on such Order has not complied with its obligations
under Article 7 and Article 8; and
(e) by either Parent or the Company, if the Merger shall not have
been consummated before June 30, 2000; provided, however, that the right to
terminate this Agreement under this Section 11.1(f) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of the failure of the Merger to occur on or before such date; provided
further, however, if the Closing Date is after May 31, 2000, Parent agrees to
publish as soon as practicable such financial information covering the first
full calendar month of combined Parent-Company operations beginning after the
Closing Date as shall be required to end the pooling of interests risk-sharing
period.
The right of any party hereto to terminate this Agreement pursuant to this
Section 11.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
11.2 Effect of Termination. Each party's right of termination under
Section 11.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 11.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 8.11 and 11.5 will survive; provided, however,
that if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
11.3 Amendment. This Agreement may be amended by the parties hereto by
action taken or authorized by their respective Boards of Directors at any time
prior to the Closing; provided, however, that, after approval of the Merger by
the shareholders of the Company or Parent, no amendment may be made which by law
requires further approval by such
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shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by each of the parties hereto.
11.4 Extension; Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
11.5 Expenses. If the Merger and the other Contemplated Transactions do
not close, all out-of-pocket expenses payable to financial advisors,
accountants, lawyers, and consultants relating to the negotiation and execution
of this Agreement and the performance of the obligations and the carrying out of
the Contemplated Transactions ("Expenses") incurred by the parties hereto shall
be borne solely and entirely by the party which has incurred such Expenses. In
the event of the Closing of the Merger and the other Contemplated Transactions,
the Company agrees that it will pay all reasonable costs, fees, and expenses
incurred in connection with the Company's planned initial public offering, the
Merger, and the other Contemplated Transactions, and the Company agrees that
such amounts will not exceed the amounts set forth at Section 4.18 of the
Company Disclosure Schedule.
ARTICLE 12
MISCELLANEOUS
12.1 Taxes. Each party shall pay any and all stamp and other taxes payable
or determined to be payable by it in connection with the execution and delivery
of this Agreement and the other documents to be delivered by it hereunder, and
agrees to save the other party harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes.
12.2 Benefits and Burdens: Assignment.
(a) Upon the execution of this Agreement by Parent, Sub, the
Company, and the Shareholders, this Agreement shall become a binding and
enforceable agreement with respect to Parent, Sub, the Company and the
Shareholders.
(b) This Agreement shall inure to the benefit of and shall be
binding upon the Company, Sub, Parent, the Shareholders and each of their
respective heirs, personal representatives, successors and permitted assigns. No
party to this Agreement may assign its rights or obligations hereunder without
the prior written consent of each of the other parties
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hereto; provided, however, that this Agreement may be assigned by Parent to a
corporation, all of whose issued and outstanding capital stock is owned directly
or indirectly by Parent, but in such event Parent shall not be released from its
obligations hereunder.
(c) Except for Section 8.11, nothing contained in this Agreement or
in any instrument or document executed by any party in connection with the
transactions contemplated hereby shall create any rights in, or be deemed to
have been executed for the benefit of, any person or entity that is not a party
hereto, a successor or permitted assign of such a party or a person or entity
expressly entitled to indemnification hereunder.
12.3 Notices. All notices, communications and deliveries hereunder shall
be made in writing signed by or on behalf of the party making the same, shall
specify the Section hereunder pursuant to which it is given or being made, and
shall be delivered personally or by telecopy transmission or sent by registered
or certified mail (return receipt requested) or by any national overnight
courier service (with postage and other fees prepaid) as follows:
If to Parent or, after the Closing, the Company:
DOLLAR TREE STORES, INC.
500 Volvo Parkway
Chesapeake, Virginia 23320
Attention: Mr. Frederick C. Coble
With a required copy to:
HOFHEIMER NUSBAUM, P.C.
999 Waterside Drive, Suite 1700
P. O. Box 3460
Norfolk, Virginia 23514
Attention: William A. Old, Jr., Esquire
Facsimile: 757-629-0660
If, prior to Closing, to the Company and the Shareholders:
DOLLAR EXPRESS, INC.
1700 Tomlinson Road
Philadelphia, PA 19116-3848
Attention: Mr. Bernard Spain
Facsimile: 215-969-3123
If, after Closing, to the Shareholders or the Shareholder Representative:
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Mr. Bernard Spain
Mr. William Woo
In either case, with a required copy to:
PEPPER HAMILTON LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Attention: Cary S. Levinson, Esq.
Facsimile: 215-981-4750
and to:
FOX, ROTHSCHILD, O'BRIEN & FRANKEL
2000 Market Street, 10th Floor
Philadelphia, PA 19103-3291
Attention: Ramon R. Obod, Esq.
Facsimile: 215-299-2150
or to such other address or to such other person or persons designated in
writing by such party or counsel, as the case may be. Any such notice,
communication or delivery shall be deemed given or made (a) on the date of
delivery if delivered in person, (b) on the date after delivery to a national
overnight courier service, (c) upon transmission by facsimile if receipt is
confirmed by telephone or (d) on the fifth (5th) business day after it is mailed
by registered or certified mail.
12.4 Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties (including, without limitation, those confidentiality
agreements dated March 21, 2000 previously entered into between the Company and
the Parent in connection with their consideration of the Merger, which shall be
deemed null and void ab initio). The parties make no representations or
warranties to each other, except as contained in this Agreement, and any and all
prior representations, warranties, assurances and promises made by any party or
its representatives, whether verbally or in writing, are deemed to have been
merged into this Agreement, it being intended that no such prior
representations, warranties, assurances and promises shall survive the execution
and delivery of this Agreement.
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12.5 Construction; Certain Definitions.
(a) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Where the context requires, any reference to
Parent may be deemed to include a reference to Parent, Dollar Tree Management,
Inc. and/or Dollar Tree Distribution, Inc. (which are wholly owned subsidiaries
of Parent), and any reference to Company may be deemed to include a reference to
Company and all of its Subsidiaries, including Dollar Express Stores, Inc.,
Dollar Express Management, Inc., DE&S Finance Company, and Dollar Express
Royalties, Inc. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(b) The word "including" shall mean including without limitation.
The term "Person" may refer to any individual, corporation, (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or Governmental Body.
(c) The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. The table of
contents, headings and definitional cross-reference contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
12.6 Incorporation of Exhibits and Schedules. The exhibits and schedules
identified in this Agreement, including the Company Disclosure Schedule and the
Parent Disclosure Schedule are incorporated herein by reference and made a part
hereof. The term "Agreement" shall include all such exhibits and schedules.
12.7 Disclosure Schedules. The inclusion of any item in any Disclosure
Schedule is not evidence of the materiality or immateriality of such item for
the purposes of this Agreement.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute
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one and the same instrument, and, when signed by all of the parties hereto,
shall become legally binding on such parties effective as of the date set forth
at the beginning of this Agreement.
12.9 Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Delaware applicable to contracts made and to be
performed entirely within such State without giving effect to the choice of law
principles of such State; provided, however, that the Articles of Merger and the
provisions of this Agreement relating solely to the operation of the Merger for
purposes of corporate law shall be governed by the applicable provisions of
Pennsylvania Law.
12.10 Enforcement; Jurisdiction; Waiver of Jury Trial.
(a) The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to any other remedy to which
any party is entitled at law or in equity.
(b) Any action or Proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement brought by the Company or the
Shareholders against the Parent may be brought by the Company or any of the
Shareholders ONLY in the state courts of (or if jurisdictional requirements are
satisfied, the federal district courts located in) Norfolk, Virginia.
(c) Any action or Proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement brought by the Parent against
the Company or the Shareholders may be brought by the Parent ONLY in the state
courts of (or if jurisdictional requirements are satisfied, the federal district
courts located in) Philadelphia, Pennsylvania.
(d) Process in any action or proceeding referred to in this Section
12.10 may be served on any party anywhere in the world and the parties agree
that mailing of process or other papers in connection with any such action or
proceeding in such manner as may be permitted by law shall be valid and
sufficient service thereof. The signatories hereby waive any right to a trial by
jury in connection with any such action, suit or Proceeding.
12.11 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 substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party hereto.
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12.12 Time. Time is of the essence under this Agreement.
12.13 Knowledge. The phrase "to the knowledge of" Company or Parent or its
equivalent as used herein shall mean to the knowledge of directors and officers
and shareholders after appropriate inquiry of the Company and its Subsidiaries
or Parent and its Subsidiaries, as the case may be.
12.14 Statutes. Any reference herein to any federal, state or local
statute shall include all amendments to such statute through the date of this
Agreement or the Closing, as applicable.
[The remainder of this page is left intentionally blank.]
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IN WITNESS WHEREOF, each of the parties has executed or caused to be
executed this Agreement under his, her or its hand and seal effective as of the
day and year first above written.
COMPANY: DOLLAR EXPRESS, INC.
By: /s/ Bernard Spain
----------------------
Bernard Spain
Chairman & Chief Executive Officer
PARENT: DOLLAR TREE STORES, INC.
By: /s/ Macon F. Brock
-----------------------
Macon F. Brock, Jr.
President & Chief Executive Officer
SUB: DT KEYSTONE, INC.
By: /s/ Macon F. Brock
-----------------------
Macon F. Brock, Jr.
President & Chief Executive Officer
[EXECUTIONS CONTINUED]
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SHAREHOLDERS:
/s/ Bernard Spain
------------------------------------------
BERNARD SPAIN
/s/ Murray Spain
------------------------------------------
MURRAY SPAIN
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BERNARD SPAIN FAMILY LIMITED PARTNERSHIP
By: Murray Spain, its General Partner
/s/ Murray Spain
-----------------------------------------
Murray Spain
MURRAY SPAIN FAMILY LIMITED PARTNERSHIP
By: Stephen Greenfield, its General Partner
/s/ Stephen Greenfield
-----------------------------------------
Stephen Greenfield
GLOBAL PRIVATE EQUITY III LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
its General Partner
By: Advent International Corporation, its
General Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
75
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ADVENT PGGM GLOBAL LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
its General Partner
By: Advent International Corporation, its
General Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
ADVENT PARTNERS GPE III LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
ADVENT PARTNERS (NA) GPE III LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
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ADVENT PARTNERS LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
GUAYACAN PRIVATE EQUITY FUND
LIMITED PARTNERSHIP
By: Advent-Morro Equity Partners, Inc., its
General Partner
By:/s/ Cyril L. Meduna_
-----------------------
Name: Cyril L. Meduna
Title: President
DOLLAR EXPRESS INVESTMENT, LLC
By: /s/ John T. Johnston III
-----------------------------
Name: John T. Johnston III
Title: Managing Director
77
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of April 5, 2000, by and among the persons indicated on Schedule
1 hereto (each a "Holder" or collectively as the "Holders") and Dollar Tree
Stores, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, this Agreement is made in connection with the acquisition by
the Company of 100% of the capital stock of Dollar Express, Inc., a Pennsylvania
corporation ("Dollar Express"), pursuant to an Merger Agreement, dated April 5,
2000 (the "Merger Agreement"), under which a wholly-owned subsidiary of the
Company will merge with and into Dollar Express ("Merger");
WHEREAS, as a result of the Merger, the Holders will exchange of all of
their interests in Dollar Express for an aggregate number of shares of common
stock, $0.01 par value per share ("Common Stock"), of the Company as determined
pursuant to section 2.1 of the Merger Agreement; and
WHEREAS, as used herein the term "Registrable Shares" shall mean the
shares of Common Stock received by Holders upon the original issuance thereof in
the Merger and any other shares of capital stock of the Company issued in
respect of any such shares of Common Stock as a result of stock splits, stock
dividends, reclassification, exchange offer, recapitalizations, mergers,
consolidations or similar events.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto, intending to be
legally bound, agree as follows:
Registration Rights Agreement -- Page 1
<PAGE>
1. Registration Rights. Subject in each case to the obligations of the
Holders under Section 3:
(a) Shelf Registration.
(i) The Company shall prepare or amend and file with
the Securities and Exchange Commission ("Commission"), a registration statement
for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended ("Securities Act"), covering one million
eight hundred thousand (1,800,000) Registrable Shares ("Shelf Registration").
The Shelf Registration shall be on Form S-3 or any similar short-form
registration statement that is available under the rules of the Commission
permitting registration of the Registrable Shares for resale by the Holders in
the manner designated herein. The Company shall file the Shelf Registration with
the Commission and use commercially reasonable efforts (subject in all cases to
any procedures and limitations which may be imposed by the staff of the
Commission) to (i) cause the Shelf Registration to be declared effective under
the Securities Act as soon as practicable, but in no event later than the
closing on the Merger, and (ii) keep the Shelf Registration continuously
effective under the Securities Act for a period ending on the date that is
soonest of (A) the first anniversary of the closing on the Merger and (B) the
date when all Registrable Shares covered by the Shelf Registration have been
disposed of by Holders.
(ii) The Company shall cause the registration
statement for the Shelf Registration, in the form in which it becomes effective,
to contain a prospectus ("Shelf Prospectus") covering the resale on nine hundred
thousand (900,000) Registrable Shares. The Company shall file an amendment to
such registration statement which shall amend the Shelf Prospectus to include
one million eight hundred thousand (1,800,000) Registrable Share, and the
Company shall use its reasonable best efforts to cause such amendment to become
effective by October 15, 2000.
(iii) Notwithstanding any provision of this Agreement
to the contrary, at any time when a prospectus is required to be delivered under
the Shelf Registration, the Company has the right to give notice to the Holders
that any event has occurred as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, including,
without limitation, statements or omissions concerning a material proposed
financing, stock offering, reorganization, recapitalization, merger,
consolidation or similar transaction involving the Company. Each Holder agrees
that, upon receipt of any such notice, such Holder will forthwith terminate and
cease any Transfers (as defined below) of Registrable Shares until it is advised
in writing by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the prospectus, and, if so directed by the Company, such Holder
will deliver to the Company (at the expense of the Company) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Shares, at the time of receipt of such notice.
Registration Rights Agreement -- Page 2
<PAGE>
(b) Demand Registrations.
(i) Until the first anniversary of the closing on the
Merger, a group of Holders willing to sell at least two million (2,000,000)
Registrable Shares may give written notice to the Company ("Demand Notice")
demanding a registration under the Securities Act for the sale of all or part of
its Registrable Shares on Form S-3 or any similar short-form registration
statement that is available under the rules of the Commission ("Demand
Registration"). The Holder or Holders, as the case may be, requesting the Demand
Registration, together with all other Holders who participate in the Demand
Registration, are referred to collectively as the "Demanding Party". The Holder
or Holders, as the case may be, not constituting the Demanding Party, are
referred to collectively as the "Non-Demanding Holders." All parties having
piggyback registration rights under the Company's Amended and Restated
Stockholders Agreement effective as of March 13, 1995, as amended, or under any
other agreement with the Company are referred to as the "Non-Demanding Party."
With respect to a Demand Registration pursuant to this Section 1(b), the
investment banker(s) and managing underwriters to administer such registration
shall be selected solely by the the Company.
(ii) If at the time the Company receives a Demand
Notice, the Company is preparing, or within 30 days thereafter engages a
managing underwriter and commences to prepare, a registration statement for an
underwriten public offering which in fact is filed and becomes effective within
90 days after the date the Company received the Demand Notice, then the Company
may, subject to Section 1(c) hereof, at its option may delay the performance of
its obligations with regards to a Demand Registration for a reasonable period
not to exceed 120 days from the date the Company received the Demand Notice.
(iii) If at the time the Company receives a Demand
Notice, the Company is engaged in any material acquisition or divestiture or
other business transaction with a third party which would be adversely affected
by such request to register Registrable Shares to the material detriment of the
Company, then the Company may at its option delay the performance of its
obligations with regards to a Demand Registration for a reasonable period not to
exceed 120 days from the date the Company received the Demand Notice; provided,
however, that the period of time during which the Holders enjoy the right to
Demand Registrations as set forth in the first sentence of Section 1(b)(i) shall
be extended by the duration of any such delay.
(iv) The Holders shall in the aggregate be entitled
to demand up to two (2) Demand Registrations under this Section 1(b).
(v) The Non-Demanding Holders and the Non-Demanding
Party shall have the right to participate in any Demand Registration made by the
Demanding Party, provided however that the Demanding Party and the Non-Demanding
Holders, in the aggregate, shall always enjoys the right to a minimum
participation of forty percent (40%) of the shares of Common Stock to be offered
and sold pursuant to the Demand Registration. Such percentage participation
shall
Registration Rights Agreement -- Page 3
<PAGE>
apply to all Demand Registrations made pursuant to this Section 1(b). The
Company shall use all reasonable efforts to cause all such Common Stock
requested by the Demanding Party, the Non-Demanding Holders and the
Non-Demanding Party to be registered by the holders thereof to be registered
under the Securities Act and any applicable securities laws in a manner
consistent with the requests; provided, that if the managing underwriter advises
in writing that less than all of the such shares should be offered for sale so
as not to materially and adversely affect the price or salability of the
offering being registered by the Company, all shareholders selling under the
Demand Registration (i.e., the Demanding Party, the Non-Demanding Holders and
the Non-Demanding Parties) will withhold from sale, such number of shares as the
managing underwriter shall specify, with such cut-back allocated among all such
shareholders, provided that the Demanding Party and the Non-Demanding Holders,
in the aggregate, always enjoys a minimum participation of forty percent (40%)
of the Demand Registration allocated among them as specified in Section 3(a).
(vi) Notwithstanding anything in this Agreement to
the contrary, a Demand Notice shall not be effective, and the Holders shall not
have a right to a Demand Registration, unless the Demanding Party states in the
Demand Notice an intention to sell at least two million (2,000,000) Registrable
Shares pursuant to a "firm commitment" underwritten public offering for cash.
The Demanding Party agrees to act in good faith and cooperate with the Company
in effecting such underwritten public offering.
(c) Participation in Other Registered Offerings.
(i) If the Company at any time or times proposes or
is required to register any of its Common Stock or other equity securities for
public sale for cash on a registration form that would also permit the
registration of Registrable Shares, the Company shall give written notice to the
Holders of its intention to do so ("Piggyback Notice"). Upon the written request
of any of the Holders given within five (5) days after the date Company give
Piggyback Notice, the Company shall use all reasonable efforts to cause all
Registrable Shares requested to be registered (a "Piggyback Registration") by
the Holders to be registered under the Securities Act and any applicable
securities laws in a manner consistent with the requests. The Holder or Holders,
as the case may be, requesting the Piggyback Registration, together with all
other Holders who participate in the Piggyback Registration, are referred to
collectively as the "Participating Holders". All other parties participating in
the Piggyback Registration (other than the Company) are referred to collectively
as the "Other Sellers." With respect to a Piggyback Registration pursuant to
this Section 1(b), the investment banker(s) and managing underwriters to
administer such registration shall be selected solely by the the Company.
(ii) Until the first anniversary of the closing on
the Merger, the Participating Holders shall have the right to participate pro
rata in any Piggyback Registration, provided however that the Participating
Holders always enjoy the right to a minimum participation of forty percent (40%)
of the shares of Common Stock to be offered and sold pursuant to the Piggyback
Registration. Such percentage participation shall apply to all Piggyback
Registrations
Registration Rights Agreement -- Page 4
<PAGE>
initiated pursuant to this Section 1(c) during the first year following closing
on the Merger. The Company shall use all reasonable efforts to cause all such
Common Stock requested by the Participating Holders and the Other Sellers to be
registered by the holders thereof to be registered under the Securities Act and
any applicable securities laws in a manner consistent with the requests;
provided, that if the managing underwriter advises in writing that less than all
of the such shares should be offered for sale so as not to materially and
adversely affect the price or salability of the offering being registered by the
Company, all shareholders selling under the Piggyback Registration (i.e., both
Participating Holders and Other Sellers) will withhold from sale, such number of
shares as the managing underwriter shall specify, with such cut-back allocated
among all such shareholders, provided that the Participating Holders always
enjoys a minimum participation of forty percent (40%) of the Piggyback
Registration.
(iii) Beginning one year after the closing on the
Merger and for two (2) years thereafter, the Participating Holders shall have
the right to participate pro rata in any Piggyback Registration in accordance
with the number of shares of Common Stock beneficially owned by such
Participating Holders and the Other Sellers. Such pro rata participation shall
apply to all Piggyback Registrations initiated pursuant to this Section 1(c)
following the first anniversary of the closing on the Merger. The Company shall
use all reasonable efforts to cause all such Common Stock requested by the
Participating Holders and the Other Sellers to be registered by the holders
thereof to be registered under the Securities Act and any applicable securities
laws in a manner consistent with the requests; provided, that if the managing
underwriter advises in writing that less than all of the such shares should be
offered for sale so as not to materially and adversely affect the price or
salability of the offering being registered by the Company, all shareholders
selling under the Piggyback Registration (i.e., both Participating Holders and
Other Sellers) will withhold from sale, such number of shares as the managing
underwriter shall specify, with such cut-back allocated among all such
shareholders pro rata in accordance with number of shares beneficially owned by
them.
(iv) This Section 1(c) shall not apply to, and the
Holders' right to a Piggyback Registration shall not be triggered by, the filing
of a registration statement (A) covering shares of Common Stock issued pursuant
to an employee benefit plan, (B) on Form S-4 for the purpose of offering such
securities to another business entity or the shareholders of such entity in
connection with the acquisition of assets or shares of capital stock,
respectively, of such entity or (C) in connection with a resale shelf
registration filed in connection with an acquisition, reorganization,
recapitalization, merger, consolidation or similar transaction involving the
Company, including a Shelf Registration described in Section 1(a) above, the
terms and conditions of which shall be governed by the provisions thereof).
(v) If any Piggyback Registration was initiated by
the Company to effect, in whole or in part, a primary public offering of its
securities and, if at any time after giving written notice of its intention to
so register securities and before the effectiveness of the registration
statement filed in connection with such registration, the Company determines for
any reason either
Registration Rights Agreement -- Page 5
<PAGE>
not to effect such registration or to delay such registration, the Company may,
at its election, by prior written notice to each Holder: (i) in the case of a
determination not to effect registration, relieve itself of its obligation to
register such Holder's Registrable Shares in connection with such registration;
or (ii) in the case of a determination to postpone registration, delay the
registration of such Holder's Registrable Shares for the same period as the
registration of Company's securities is postponed.
(d) Limitations. Notwithstanding any other provision of this
Agreement, the Company shall not be required to effect a Shelf Registration
pursuant to Section 1(a), a Demand Registration pursuant to Section 1(b) or a
Piggyback Registration pursuant to Section 1(c) (any of which may be referred to
herein as a "Registration"), or file any post-effective amendment to such a
Registration:
(i) if a Registration, or any post-effective
amendment to such a Registration, requires, under applicable statutes and rules,
a special audit (other than a normal fiscal year-end audit) of the financial
statements of the Company, unless the Holders participating in such Registration
("Selling Holders") agree to pay the fees and expenses of accountants incurred
in connection with the special audit and which would otherwise not be incurred
but for the participation of the Selling Holders in such Registration; and
(ii) unless the Company has received from the Selling
Holders all information the Company has requested pursuant to Section 3.
2. Company's Obligations. In connection with the Company's obligation
to effect a Registration, it shall:
(a) Promptly prepare and file with the Commission a
registration statement with respect to the shares to be included in such
Registration ("Shares") and use its commercially reasonable efforts to cause
such registration statement to become and remain effective as soon as reasonably
practicable thereafter;
(b) Prepare and file such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective as required herein;
(c) Furnish to the Selling Holders and to any underwriters of
the Shares such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus, and such other documents as such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
(d) Register or qualify the Shares under such state securities
or "blue sky" laws of such jurisdictions as the Selling Holders may reasonably
(in light of a reasonable plan of distribution) request as soon as reasonably
practicable, but in any event within twenty (20) days
Registration Rights Agreement -- Page 6
<PAGE>
following the original filing of such registration statement; provided, that the
Company shall not be required to take any action in any jurisdiction which would
require it to qualify to do business in such jurisdiction or otherwise subject
it to service of process, except with respect to the offering and sale of
Shares;
(e) Notify the Selling Holders promptly after it shall receive
notice thereof of the time when such registration statement has become effective
or a supplement to any prospectus forming a part of such registration statement
has been filed;
(f) Notify the Selling Holders promptly of any request by the
Commission or applicable state securities agency for the amending or
supplementing of such registration statement or prospectus or for additional
information;
(g) Prepare and promptly file with the Commission and promptly
notify the Selling Holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred, the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided however that
the Company need not file any registration statement amendment or prospectus
supplement with respect to the Shelf Registration on the account of the
existence of a proposed financing, stock offering, reorganization,
recapitalization, merger, consolidation or similar transaction until such
occurrence has been publicly announced;
(h) In case the Selling Holders or any underwriter are
required to deliver a prospectus at a time when the prospectus then in
circulation is not in compliance with the Securities Act, the Company will
prepare and file such supplements or amendments to such registration statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of the Securities Act as soon as reasonably practicable
thereafter;
(i) Advise the Selling Holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its commercially
reasonable to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
(j) Not file any amendment or supplement to such registration
statement or prospectus to which any of the Selling Holders shall reasonably
have objected on the grounds that such amendment or supplement does not comply
in all material respects with the requirements of
Registration Rights Agreement -- Page 7
<PAGE>
the Securities Act or the rules and regulations thereunder, after having been
furnished with a copy thereof prior to the filing thereof;
(k) At the request of any Selling Holder (1) use its
commercially reasonable efforts to obtain and furnish on the effective date of
the registration statement or, if such registrations include an underwritten
public offering, at the closing provided for in the underwriting agreement, an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and to the
Selling Holders making such request, which shall contain such statements as the
underwriters may reasonably request, or, if the offering is not underwritten,
shall state that such registration statement has become effective under the
Securities Act and that (i) to the best of such counsel's knowledge, no stop
order suspending the effectiveness thereof has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Securities Act; (ii) the registration statement, related prospectus, and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Securities Act and applicable rules and regulations of
the Commission thereunder (except that such counsel need express no opinion as
to financial statements, financial information, or financial schedules contained
therein); and (iii) such counsel has no reason to believe that either the
registration statement or the prospectus or any amendment or supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and (iv) the opinion of counsel shall additionally cover such
legal matters with respect to the registration and with respect to which such
opinion is being given as such requesting Selling Holder or Selling Holders may
reasonably request; and (2) use its commercially reasonable efforts to obtain
letters dated on such effective date, and such closing date, if any, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Selling Holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or, if the offering is not underwritten, stating that in the opinion of such
accountants the financial statements and other financial data pertaining to the
Company included in the registration statement or the prospectus or any
amendment or supplements thereto comply in all material respects with the
applicable accounting requirements of the Securities Act; such letter from the
independent certified public accountants shall additionally cover such other
financial matters, including information as to the period ending not more than
five (5) business days prior to the date of such letter, with respect to the
registration statement and prospectus, as the requesting Selling Holders may
reasonably request; and
(l) With respect to a Demand Registration or Piggyback
Registration, (A) execute an underwriting agreement comparable to the
underwriting agreements executed by the Company in connection with its previous
underwritten secondary public offerings (with such modifications as the
underwriters may reasonably request) and (B) provide such reasonable assistance
in the marketing of the Shares as is customary of issuers in primary
underwritten public offerings (including participation by its senior management
in "road shows").
Registration Rights Agreement -- Page 8
<PAGE>
3. Holders' Obligations.
(a) Anything in this Agreement to the contrary
notwithstanding, the Holders (including any Subsequent Holders to whom they may
Transfer Registrable Shares) agree that their rights to participate in any
particular Registration (including the Shelf Registration) or sell any
Registrable Shares thereunder shall be allocated among all Holders pro rata in
accordance with the relative ownership of the Holders as of the date of the
closing on the Merger as stated in Schedule 1 hereto; provided, however, that if
any Holder (a "Declining Holder") declines to sell his, her or its full share
under the preceding clause (or owns fewer Registrable Shares than his, her or
its full share), then the unused portion of such Holder's share shall be
reallocated among the Holders who are selling their full allocation under such
clause ("Non-Declining Holders") pro rata in accordance with their relative
ownership of the Non-Declining Holders as of the date of the closing on the
Merger as stated in Schedule 1 hereto. If applicable, this reallocation process
shall be repeated until all unused portions of any Holder's share have been
allocated among the Non-Declining Holders or until all Holders have declined
such additional allocations.
(b) In connection with the Company's obligation to effect a
Registration pursuant to Section 1, each Holder shall furnish information to the
Company concerning such Holder's holdings of securities of the Company and each
Selling Holder shall furnish information to the Company concerning the proposed
method of sale or other disposition of the Registrable Shares and such other
information and undertakings as the Company may reasonably request in connection
with the preparation and filing of the Registration or any post-effective
amendment covering all or part of the Registrable Shares. Each Selling Holder
further agrees to enter into such undertakings and take such other action
relating to the conduct of the proposed offering which the Company may
reasonably request as being necessary, in the opinion of counsel to the Company,
to ensure compliance with the federal and state securities laws and the rules or
other requirements of the National Association of Securities Dealers, Inc.
("NASD") or otherwise to effectuate the offering.
(c) No Holder may participate in any underwritten registration
hereunder unless such Holder (i) agrees to sell such Holder's Registrable Shares
on the basis provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, holdback agreements,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
(d) Each Selling Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 2(g) hereof, such Selling Holder will forthwith discontinue disposition
of Registrable Shares until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(g) hereof, or until
it is advised in writing by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the
Registration Rights Agreement -- Page 9
<PAGE>
prospectus, and, if so directed by the Company, such Selling Holder will deliver
to the Company all copies then in such Holder's possession of the prospectus
covering such Registrable Shares current at the time of receipt of such notice,
other than permanent file copies then in such Holder's possession.
(e) Until the first anniversary of the closing on the Merger,
each time any Holder intends to complete any (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, the Registrable Shares
owned by it, or (ii) any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or other securities, in cash or otherwise
("Transfer"), such Holder shall give the Company reasonable prior notice in
writing of such Transfer, including the intended method of disposition.
4. Expenses. Subject to the limitations contained herein, the Company
shall pay all expenses incident to each registration of the Registrable Shares
under Section 1, including, without limitation, all registration, filing and
NASD fees, all fees and expenses of complying with state securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, premiums and other costs of policies of insurance purchased by the
Company at its option against liabilities arising out of the public offering of
such Registrable Shares, but excluding discounts, spreads and commissions and
fees and expenses of selling brokers, dealer managers or similar securities
industry professionals relating to the distribution of the Registrable Shares,
transfer taxes, fees and disbursements of counsel for any selling shareholder(s)
and other selling expenses, if any. The Selling Holders shall bear their pro
rata share of the underwriting discounts, spreads and commissions and shall bear
any costs, fees and disbursements of accountants and counsel retained by them;
provided, however, that if any cost or expense is attributable solely to one
particular Selling Holder or group of Selling Holders and does not constitute a
normal cost or expense of a registration, such cost or expense shall be
allocated to and borne by that Selling Holder(s).
5. Indemnification.
(a) By the Company. Subject to the conditions set forth below,
in connection with any registration of securities pursuant to Section 1 above,
the Company agrees to indemnify and hold harmless the Selling Holders and each
person, if any, who control the Selling Holders within the meaning of Section 15
of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against any and all loss, claim, damage, and expense
whatsoever arising out of or based upon (including but not limited to any and
all expense whatsoever reasonably incurred in investigating, preparing, or
defending any litigation, commenced or threatened, or any
Registration Rights Agreement -- Page 10
<PAGE>
claim whatsoever based upon) any untrue or alleged untrue statement of a
material fact contained in any preliminary prospectus (if used prior to the
effective date of the registration statement), the registration statement, or
the prospectus (as from time to time amended and supplemented), or in any
application or other document executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify the Shares under the securities laws thereof or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any other violation of
applicable federal or state statutory or regulatory requirements or limitations
related to action or inaction by the Company in the course of preparing, filing,
or implementing such registered offering; PROVIDED, HOWEVER, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Holder; and PROVIDED FURTHER, that the
Company shall not be liable to any person in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, to the
person asserting an untrue statement or omission at or prior to written
confirmation of the sale of the Registrable Shares to such person if such
statement or omission was corrected in such final prospectus as amended or
supplemented.
(b) By the Selling Holders. Each Selling Holder in any
registered offering pursuant to Section 1 above severally and individually
agrees to indemnify and hold harmless the Company and each of the officers and
directors and agents of its and each other person, if any , who controls the
Company with the meaning of Section 15 of the Act or Section 20 of the Exchange
Act against any and all such losses, liabilities, claims, damages, and expenses
of a type which are indemnified against by the Company under Section 5(a) and
which arise from such Selling Holder's statements or omissions, if any, made (or
in settlements of any litigation effected with the written consent of such
Selling Holder, alleged to have been made) in any preliminary prospectus, the
registration statement, or prospectus or any amendment or supplement thereof or
any application or other document in reliance upon, and in conformity with,
written information furnished in respect of such Selling Holders by or on behalf
of such Selling Holders expressly for use in any preliminary prospectus, the
registration statement, or prospectus or any amendment or supplement thereof or
in any such application or other document; PROVIDED, HOWEVER, that no Selling
Holder shall be liable under this Section 5(b) for an amount in excess of the
proceeds received by such Selling Shareholder with respect to the Shares offered
or sold pursuant to the Registration hereunder in question.
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Sections 5(a) or 5(b), such person (the "Indemnified Party")
Registration Rights Agreement -- Page 11
<PAGE>
shall promptly notify the person from whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties as to any such proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnified Parties, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of any such separate firm
for the Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.
(d) Contribution.
(i) If the indemnification provided for in Sections
5(a) or 5(b) is unavailable or insufficient to hold harmless an indemnified
party, to the extent provided therein, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of the losses, claims, damages, or liabilities referred to in Sections 5(a) or
5(b) above, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company or the Selling Holders from the offering of the
Shares, or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, then in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Holders in connection with the statements
or omissions that resulted in such losses, claims, damages, or liabilities, as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Holders and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Selling Holders agree that it would not be just and equitable if
contributions pursuant to this Section 5(d)(i) were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the first sentence of this Section
5(d)(i). The amount paid by an indemnified party as a result of the losses,
claims, damages, or liabilities referred to in the first sentence of this
Section 5(d)(i) shall be deemed
Registration Rights Agreement -- Page 12
<PAGE>
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against any action or claim
which is the subject of this Section 5(d)(i). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
(ii) The obligations of the Company and the Selling
Holders under this Section 5(d) shall be in addition to any liability which the
Company and the Selling Holders may otherwise have and shall extend upon the
same terms and conditions to each director of the Company or a Selling Holder
(including any person who, with his consent, is named in the registration
statement as a person to become a director of the Company), to each officer of
the Company who has signed the registration statement, and to each person, if
any, who controls the Company or a Selling Holder within the meaning of the
Securities Act or the Exchange Act.
(e) Indemnification Payment. The indemnification required by
this Section 5 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
6. Holdbacks.
(a) During the period commencing (x) with respect to any
Demand Registration on the date the Company receives the Demand Notice or (y)
with respect to any Piggyback Registration on the date any Holder first gives
notice to participate in a Piggyback Registration or (z) on the date the
registration statement is filed with respect to an offering described in any
Piggyback Notice if no Holder gives notice to participate in such offering, and
ending thirty (30) days thereafter ("Holdback Period"), no Holder shall
(regardless of their participation in any such offering) and, except as may be
disclosed in the prospectus to accompany the reoffering of Registrable Shares,
no Holder shall announce or disclose any intention to, Transfer any shares of
Common Stock; provided that, in the event the registration statement described
in clause (x) or (y) or any registration statement with respect to a Qualified
Public Offering is declared effective within such 30-day period, then the
Holdback Period shall be extended to ninety (90) days after the date of the
final prospectus relating to such public offering (or such greater or lesser
period which is reflected in any "lock-up" provisions which the managing
underwriter of such offering, if any, may require of any selling shareholders).
Unless restricted by such underwriter lock-up provisions, the foregoing sentence
shall not apply to (A) the transfer of shares of Common Stock or other
securities by the undersigned as a gift or gifts, (B) the transfer of shares of
Common Stock or other securities of the Company by the undersigned to its
Affiliates, and (C) the sale of shares of Common Stock by Selling Holders
pursuant to the registration statement relating to any Demand Registration or
Piggyback Registration; provided, that, in the case of clause (A) or (B) above,
the recipient(s), donee(s) or transferee(s), respectively, agree(s) in writing
as a condition precedent to such issuance, gift or transfer to be bound by the
terms of this paragraph. For purposes of this Agreement, a "Qualified Public
Offering" is defined as the an underwritten public offering of Common Stock at
Registration Rights Agreement -- Page 13
<PAGE>
an aggregate gross offering price of $200 million or more, whether made pursuant
to Section 1 hereof or otherwise, where the gross offering price per share is
$40 or more and which commences prior to the first anniversary of the closing on
the Merger Agreement.
(b) [Reserved]
7. Rules 144 and 144A. The Company agrees to file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder, and will use its
reasonable efforts to take such further action as any Holder of Registrable
Shares may reasonably deem to be necessary, all to the extent required from time
to time to enable such Holder to sell Registrable Shares without registration
under the Securities Act within the limitation of the exemptions provided by (i)
Rule 144 and Rule 144A under the Securities Act, as such Rule may be amended
from time to time or (ii) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Shares, the
Company (i) will deliver to such Holder a written statement as to whether it has
complied with such information and requirements and (ii) will remove restrictive
legends on certificates and stop-order on its transfer books if, in the
reasonable judgment of Company's counsel, such legend is no longer necessitated
under the Securities Act.
8. Amendments and Waivers. Subject to Section 11, this Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of Holders of a majority of the Registrable Shares.
9. Notices. Any notice from one party to the other shall be in writing
and either delivered personally or by certified or registered mail, postage
prepaid, or by telegram, telecopier, or by overnight mail delivery by a
nationally recognized courier, and shall be deemed given when so delivered
personally or, if mailed or given by telegram or telecopier or overnight mail,
upon receipt thereof by the addressees, as follows:
If to the Company:
Dollar Tree Stores, Inc.
Attention: Mr. Frederick C. Coble
500 Volvo Parkway
Chesapeake, Virginia 23320
Telephone: (757) 321-5000
Telecopy: (757) 321-5111
Registration Rights Agreement -- Page 14
<PAGE>
with a copy to:
William A. Old, Jr., Esq.
Hofheimer Nusbaum, P.C.
1700 Dominion Tower
999 Waterside Drive
Norfolk, Virginia 23510
Telephone: (757) 622-3366
Telecopy: (757) 629-0660
If to any Holder, in care of the address stated on Schedule 1.
With a copy to:
Cary S. Levinson, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, Pennsylvania 19103-2799
Telephone: (215) 981-4000
Telecopy: (215) 981-4750
and:
Ramon R. Obod, Esq.
Fox, Rothschild, O'Brien & Frankel, LLP
2000 Market Street, 10th Floor
Philadelphia, PA 19103-3291
Telephone: (215) 299-2036
Telecopy: (215) 299-2150
10. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns as hereinafter set forth in this Section 10.
Provided an express written assumption of the Holder's obligations hereunder and
certain representations in a form acceptable to Company is made, the provisions
of this Agreement which are for the benefit of the Holders shall also be for the
benefit of and enforceable by any subsequent holder to whom a Holder has
Transferred Registrable Shares ("Subsequent Holder"). Notwithstanding the
foregoing, if such transfer is subject to covenants, agreements or other
undertakings restricting transferability thereof the registration rights under
this Agreement shall not be transferred in connection with such transfer unless
such transfer complies with all such covenants, agreements and other
undertakings. In all cases, no registration rights shall be transferred separate
and apart from Registrable Shares and the transferee must execute a
Registration Rights Agreement -- Page 15
<PAGE>
counterpart to this Agreement in the form attached hereto as Exhibit A
("Counterpart"). If any Holder transfers Registrable Shares to a Subsequent
Holder and such Subsequent Holder executes a Counterpart, such Subsequent Holder
shall be deemed a Holder for all purposes hereof.
11. Option Holders. The Company and the Holders shall execute an
amendment to this Agreement at the time of the closing on the Merger to add as
Holders any owner of options for the purchase of Dollar Express common stock who
has exercised such option and thereby become a stockholder of Dollar Express at
the time of the Merger ("Optionee"). The Holders constitute and appoint Bernard
Spain, his, her or its true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him, her or it and in his, her, or
its name, place and stead, in any and all capacities, to sign and file any
amendment to this Agreement contemplated by this Section 11 and other documents
in connection therewith, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he, she, or it might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
12. Escrow. To the extent that any Registrable Shares beneficially
owned by the Holders are owned of record by an escrow agent ("Escrow Agent")
under an Escrow Agreement entered into by the Holders and the Company in
connection with the closing on the Merger, the Escrow Agent shall be deemed a
Holder for all purposes hereof with respect to such Registrable Shares, subject,
in all cases, to the Escrow Agent's duties and obligations under the Escrow
Agreement, including, without limitation, its obligations to act at the
direction of the Shareholder Representative(s).
13. Other Indemnification. In addition to any other indemnification
contained herein, the Company agrees to indemnify the Holders, and the Holders,
severally and not jointly, shall indemnify the Company, against any actual loss,
damage, or expense, (including but not limited to reasonable attorneys' fees)
("Damages") incurred or sustained by the Holders as a result of any breach of
this Agreement by Company, on the one hand, and by the Company as a result of
any breach of this Agreement by the Holders. The party seeking indemnification
hereunder ("Indemnified Party") agrees to give prompt notification to the party
from whom indemnification is sought ("Indemnifying Party") of any claims for
Damages or potential claims for Damages; provided, however, that failure of the
Indemnified Party to give such notification shall not relieve the Indemnifying
Party of its indemnity obligations hereunder unless such failure in fact
materially prejudiced the defense of any such claim.
14. Irreparable Harm. The Company acknowledges that the Holders will
suffer irreparable injury in the event Company violates or breaches its
obligations under this Agreement and that any Damages which would be suffered by
the Holders would be severe and difficult to ascertain. The Holders acknowledge
that the Company will suffer irreparable injury in the event Holders violates or
breaches any of their obligations under this Agreement and that any Damages
which would be suffered by the Company would be severe and
Registration Rights Agreement -- Page 16
<PAGE>
difficult to ascertain. All parties hereby waive the claim or defense that an
adequate remedy at law for such breach exists or that irreparable injury shall
not occur. Therefore, it is hereby agreed that upon any breach or threatened
breach of any of the covenants or agreements contained herein, the aggrieved
party shall be entitled, in addition to any other remedies available, to an
order for specific performance or a temporary restraining order or preliminary
or permanent injunction, as the case may be, to compel compliance with or
restrain the violation, breach or threatened breach of any of the terms of such
covenants or agreements. The foregoing remedies for breach of this Agreement are
cumulative and not exclusive of any other remedies the parties may have at law
or in equity in the event of breach.
15. No Defense. The covenants set forth herein are of the essence of
this Agreement. They shall be construed as independent of any other provisions
of this Agreement. The existence of any claim or cause of action of any Holder
against Company or Company against any Holder whether predicated on this
Agreement or not, shall not constitute a defense to the enforcement by a party
of the covenants and agreements contained herein.
16. Parties Benefitted. Except with respect to Subsequent Holders,
nothing in this Agreement, express or implied, is intended, except as set forth
herein, to confer upon any third party any rights, remedies, obligations or
liabilities.
17. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
18. Future Changes in Registration Statements. In the event that the
registration requirements under the Securities Act are amended or eliminated to
accommodate a "Company registration" or similar approach, this Agreement shall
be deemed amended to the extent necessary to reflect such changes and the intent
of the parties hereto with respect to the benefits and obligations of the
parties, and in such connection, the Company shall use reasonable efforts to
provide Holders of Registrable Shares equivalent benefits to those provided
under this Agreement.
19. Governing Law. The validity of this Agreement and all matters
relating to its interpretation and performance shall be interpreted in
accordance with the laws of the State of Delaware applicable to contracts made
and fully performed therein, but without regard to principles of conflicts of
law.
20. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
21. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions,
Registration Rights Agreement -- Page 17
<PAGE>
promises, representations, warranties, covenants or undertakings other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties. The parties make no
representations or warranties to each other, except as contained in this
Agreement, and any and all prior representations, warranties, assurances and
promises made by any party or its representatives, whether verbally or in
writing, are deemed to have been merged into this Agreement, it being intended
that no such prior representations, warranties, assurances and promises shall
survive the execution and delivery of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered as of the date first above written.
[Execution Pages Follow]
[Remainder of Page Left Intentionally Blank]
Registration Rights Agreement -- Page 18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered as of the date first above written.
COMPANY: DOLLAR TREE STORES, INC.
By: /s/ Macon F. Brock
-----------------------
Name: Macon F. Brock, Jr.
Title: President & Chief Executive Officer
HOLDERS:
/s/ Bernard Spain
------------------------------------------
BERNARD SPAIN
/s/ Murray Spain
------------------------------------------
MURRAY SPAIN
Registration Rights Agreement -- Signature Page
<PAGE>
BERNARD SPAIN FAMILY LIMITED PARTNERSHIP
By: Murray Spain, its General Partner
/s/ Murray Spain
-----------------------------------------
Murray Spain
MURRAY SPAIN FAMILY LIMITED PARTNERSHIP
By: Stephen Greenfield, its General Partner
/s/ Stephen Greenfield
-----------------------------------------
Stephen Greenfield
GLOBAL PRIVATE EQUITY III LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
its General Partner
By: Advent International Corporation, its
General Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
Registration Rights Agreement -- Signature Page
<PAGE>
ADVENT PGGM GLOBAL LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
its General Partner
By: Advent International Corporation, its
General Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
ADVENT PARTNERS GPE III LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
ADVENT PARTNERS (NA) GPE III LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
Registration Rights Agreement -- Signature Page
<PAGE>
ADVENT PARTNERS LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By: /s/ David M. Mussafer
-------------------------
Name: David M. Mussafer
Title: Senior Vice President
GUAYACAN PRIVATE EQUITY FUND
LIMITED PARTNERSHIP
By: Advent-Morro Equity Partners, Inc., its
General Partner
By:/s/ Cyril L. Meduna_
-----------------------
Name: Cyril L. Meduna
Title: President
DOLLAR EXPRESS INVESTMENT, LLC
By: /s/ John T. Johnston III
-----------------------------
Name: John T. Johnston III
Title: Managing Director
Registration Rights Agreement -- Signature Page
Dollar Tree Stores, Inc. Signs Merger Agreement With Dollar Express, Inc.
Dollar Tree also announces $291.6 million in first quarter sales
CHESAPEAKE, Virginia -- (BUSINESS WIRE) -- April 5, 2000 -- Dollar Tree
Stores, Inc. (Nasdaq: DLTR), the nation's largest $1.00 discount variety store
chain, announced today that it has signed a definitive merger agreement with
Philadelphia-based Dollar Express, Inc.
Dollar Express, a privately-held corporation in operation since 1959,
owns and operates over 100 single-price point stores under the name "Dollar
Expres$". These stores offer variety merchandise at a fixed price of $1.00 or
less and are located in six states in the Mid-Atlantic region. Dollar Express
also operates 25 Spain's Cards and Gifts stores in the Philadelphia metropolitan
area. During 1999, Dollar Express generated combined net sales of $155.5
million.
The acquisition is expected to be accretive to Dollar Tree's current
year earnings, before one-time merger costs. Dollar Tree expects to cover a
substantial portion of one-time merger-associated costs with anticipated
synergies in 2000.
Dollar Tree does not intend to revise its 2000 store opening plans as a
result of the merger. Current plans continue to target 23% to 25% square footage
growth for the year, on a pre-pooled basis.
Commenting on the merger, Macon Brock, President and CEO of Dollar
Tree, stated, "This is a strategic fit for Dollar Tree because of Dollar
Express's significant position in the Delaware Valley region, especially
Philadelphia. The Dollar Expres$ stores are well-run, attractive and the ideal
size to complement our larger store initiative. The merchandise focus of these
stores is similar to Dollar Tree's variety-store mix. The proposed merger
creates a stronger presence in the Mid-Atlantic region and supports our ongoing
growth strategy."
Under the terms of the agreement, Dollar Tree will issue or reserve
6,000,000 shares for Dollar Express outstanding stock and assume all
liabilities. The stock-for-stock transaction will be accounted for as a
pooling-of-interests. This transaction is expected to close by April 30, 2000,
subject to customary conditions.
Bernie and Murray Spain, principals at Dollar Express, stated "Over the
past year, we have considered numerous options regarding our long-term plans.
Although we had considered a public offering, we believe this transaction better
meets our long-term goals and plans. This merger represents a unique opportunity
for Dollar Express to continue to grow, as a part of Dollar Tree Stores."
In other news, Dollar Tree also reported net sales of $291.6 million
for the quarter ended March 31, 2000, on a pre-pooled basis. This represents an
increase of 28.4% over net sales of $227.0 million for the same period last
year. In spite of the shift in timing of the Easter selling season, comparable
store net sales increased 4.6% for the quarter. Management believes that this
comparable store net sales increase is due in part to a wider offering of
consumer basic goods, as well as Dollar Tree's impressive selection of variety
merchandise.
Dollar Tree Stores, Inc. is the nation's largest $1.00 discount variety
store chain. Its stores offer a wide assortment of quality everyday general
merchandise, in many traditional variety store categories. Dollar Tree Stores
operates 1,434 stores in 35 states as of March 31, 2000, having added 52 new
stores and closed one store during the quarter.
Dollar Express, Inc. is also a leading operator of fixed $1.00 price
point stores in the United States. Dollar Express currently operates 106 Dollar
Express stores in six states, and 25 Spain's Cards & Gifts Stores in the greater
Philadelphia region.
This news release contains forward-looking statements regarding Dollar Tree and
the combined company after the merger, including, among others, statements
relating to accretion to reported earnings and growth prospects that may be
realized from the merger, and the effect of one-time costs related to the
merger. Such forward-looking statements are subject to certain risks and
uncertainties, including a variety of factors that may cause the combined
company's actual results to differ materially from anticipated results or other
expectations described in such statements. Such factors include failure of the
merger to be consummated and the failure of the combined company to integrate
successfully. Additionally, forward-looking statements are subject to, but not
limited to, the risks indicated in the Company's filings with the Securities and
Exchange Commission.
CONTACT: Dollar Tree Stores, Inc., Chesapeake
Eric Coble or Erica Robb, 757 / 321-5000
http://www.DollarTree.com
