EXHIBIT 2.1
MERGER AGREEMENT
BETWEEN AND AMONG
CROWN CRAFTS, INC. AND
CC ACQUISITION CORP.
AND
NEAL FOHRMAN
AND
STANLEY GLICKMAN
AND
THE RED CALLIOPE AND ASSOCIATES, INC.
AS OF OCTOBER 8, 1995
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.1. Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.2. Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.3. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.4. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.5. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.6. Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3 CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.1. Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.2. Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.3. Closing of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.4. Exchange of Red Calliope Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.5. Closing Balance Sheet; Disputed Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.2. Capitalization and Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.3. Authority and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.4. Validity of Contemplated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.5. Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.6. Third-Party Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.8. Books of Account; Returns and Reports; Taxes . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.9. Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.10. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.11. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.12. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.13. Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.14. Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.15. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.17. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.18. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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SECTION 4.19. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.20. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.21. Compliance with Regulations and Court Orders . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.22. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.23. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.24. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.25. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.26. Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.27. Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.28. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.29. No Material Adverse Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.30. Material Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.31. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.32. Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.33. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.34. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.35. Limitation on Representations and Warranties Due to Tax Status . . . . . . . . . . . . . . . 28
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF CROWN CRAFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.2. Authority and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.3. Validity of Contemplated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.4. Business and Liabilities of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 6 CERTAIN ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.1. Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.2. HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.3. Medical Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.5. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.6. Intentionally Left Blank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.7. Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.8. Nonsolicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.9. Hiring of the Surviving Corporation's Employees . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.10. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.11. Conduct of Merger Sub's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.12. Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.13. Asbestos Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.14 Conduct of Title and Merger Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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SECTION 7.1. Indemnification Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.2. Method of Asserting Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.3. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.4. Survival of Representations and Warranties, etc. . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.5. Limitations as to Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.6. Status of Indemnifying Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.7. Sole Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF CROWN CRAFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.1. Representations True at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.2. Performance by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.3. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.4. Form and Content of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.5. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.6. Litigation Affecting Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.7. Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.8. Regulatory Compliance and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.9. HSR Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.11. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.12. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.13. Tax Reporting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.14. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.15. Disbursement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.1. Representations of Crown Crafts True at Closing . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.2. Performance by Crown Crafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.3. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.4. Incumbency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.5. Form and Content of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.6. Litigation Affecting Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.7. Regulatory Compliance and Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.8. HSR Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.9. Intentionally Left Blank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.10. Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.11. Release of Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 10.1. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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SECTION 10.2. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 10.3. Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.4. Termination for Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.5. Intentionally Left Blank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.6. Other Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10.7. Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 10.8. Assignment and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 10.9. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 10.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 10.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.12. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.13. No Benefit to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.14. Contents of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.15. Section Headings and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.16. Disclosure Schedule and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.17. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.18. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 10.19. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.20. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.21. Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.22. Costs and Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.23. Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
EXHIBITS: EXHIBIT A - Carol Glickman Consulting Agreement
EXHIBIT B - Neal Fohrman Employment Agreement
EXHIBIT C - Nanci Freeman Employment Agreement
EXHIBIT D - Tax Reporting Agreement
EXHIBIT E - Disbursement Agreement
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MERGER AGREEMENT
THIS MERGER AGREEMENT, dated as of October 8, 1995
(this "Agreement"), by and among CROWN CRAFTS, INC., a Georgia
corporation ("Crown Crafts"), CC ACQUISITION CORP., a California
corporation and a wholly owned subsidiary of Crown Crafts
("Merger Sub"), THE RED CALLIOPE AND ASSOCIATES, INC., a
California corporation ("Red Calliope" or the "Company"), STANLEY
GLICKMAN, an individual resident of the State of California ("Mr.
Glickman"), and NEAL FOHRMAN, an individual resident of the State
of California ("Mr. Fohrman").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Crown
Crafts, Merger Sub and Red Calliope have approved this Agreement
and the merger (the "Merger") of Merger Sub with and into Red
Calliope upon the terms and conditions contained herein and in
accordance with the California General Corporation Law (the
"CGCL");
WHEREAS, the respective Boards of Directors of Crown
Crafts, Merger Sub and Red Calliope have determined that it is in
the best interests of their respective shareholders to consummate
the Merger;
WHEREAS, Crown Crafts, as the sole shareholder of
Merger Sub, has approved this Agreement, the Merger and the
transactions contemplated hereby pursuant to action taken by
unanimous written consent in accordance with the requirements of
the CBCC and the Articles of Incorporation and the Bylaws of
Merger Sub;
WHEREAS, the shareholders of Red Calliope have approved
this Agreement, the Merger and the transactions contemplated
hereby pursuant to action by written consent in accordance with
the requirements of the CGCL and the Articles of Incorporation
and Bylaws of Red Calliope; and
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in
connection with the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants and agreements set forth herein, the parties
hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following words and terms as used herein shall have
the following meanings. Whenever used in this Agreement, any
noun or pronoun shall be deemed to include both the singular and
plural and to cover all genders. The name assigned this
Agreement and the section captions used herein are for
convenience of reference only and shall not affect the
interpretation or construction hereof. Unless otherwise
specified, the terms "hereof," "herein" and similar terms refer
to this Agreement as a whole, and references herein to Articles
or Sections refer to Articles or Sections of this Agreement.
"Adjustment Amount" means an amount equal to the sum of
X and Y where X equals (i) $2,000,000, (ii) plus (a) the amount
by which Closing Retained Earnings are greater than the Target
Amount or minus (b) the amount by which Closing Retained Earnings
are less than the Target Amount, as the case may be, minus
(iii) 50% of the costs and expenses of the Arbitrator incurred by
Crown Crafts pursuant to the last sentence of Section 3.5(B),
minus (iv) an amount equal to the sum of all costs and expenses
(including, without limitation, interest, penalties, costs of
investigation and defense and reasonable attorneys' and other
professional fees and expenses), payments pursuant to any
settlement or judgment, and payments under Chapter 13 of the CGCL
incurred or made by Crown Crafts or incurred or made after the
Effective Time by the Surviving Corporation in any litigation
(other than Title Litigation) or appraisal proceedings arising
out of or relating to the Merger (the "Merger Litigation"), net
of any such Merger Litigation costs, expenses and payments
reimbursed to Crown Crafts pursuant to Section 7.1(A) or
reimbursed to Crown Crafts by any other party to the Merger
Litigation, plus (v) if there is a Dissenting Shareholder,
(a) the amount set forth in the "Closing Payment" column opposite
the name of such Dissenting Shareholder on Schedule 3.1 hereto if
the Extension Grant Date has not occurred prior to the Closing or
(b) the amount set forth in the "Adjusted Closing Payment" column
opposite such Dissenting Shareholder's name on Schedule 3.1
hereto if the Extension Grant Date has occurred prior to the
Closing, minus (vi) an amount equal to the sum of all costs and
expenses (including, without limitation, costs of investigation
and reasonable attorneys' and other professional fees and
expenses) incurred by Crown Crafts in the defense of any Title
Litigation, but (except as otherwise provided in clause (ix)
below) excluding any amounts paid in settlement of or as a
judgment, penalty or interest awarded in any Title Litigation,
net of any Title Litigation costs and expenses reimbursed
pursuant to the Disbursement Agreement or reimbursed by any other
party to the Title Litigation, minus (vii) any amounts paid by
the Surviving Corporation pursuant to Section 6.14 hereof, minus
(viii) any amounts paid by the Surviving Corporation pursuant to
Section 2.3 of the Tax Reporting Agreement, minus (ix) the lesser
of (a) any amount that Crown Crafts is required to pay in any
Title Litigation to any Person due to the payment by Crown Crafts
to Trust A (as that term is defined in the Disbursement
Agreement) and/or the estate of Elliot R. Fine pursuant to the
Disbursement Agreement or (b) $130,000, net of any such amount
that is reimbursed to Crown Crafts by any other Person; and Y
equals the amount of simple interest that would accrue at the
rate of 7.0% per annum on an amount equal to X from and including
the Closing Date to the date of payment of the Adjustment Amount
pursuant to Section 3.4(A)(ii); provided that in no event shall
the Adjustment Amount be less than zero.
"Adjustment Amount Release Date" means the later of
(i) the preparation of the Closing Balance Sheet and the final
resolution of all Disputed Matters pursuant to Section 3.5(B)
(the "Closing Balance Sheet Resolution Date"), (ii) the final,
non-appealable resolution of all Merger Litigation, (iii) the
final, non-appealable resolution of all Title Litigation, or
(iv) the filing with the IRS of all pre-Closing tax returns
pursuant to Section 2 of the Tax Reporting Agreement (the
"Required Tax Returns"), provided that if there is no Merger
Litigation and Title Litigation pending or threatened as of the
later of (1) the Closing Balance Sheet Resolution Date or (2) the
date of filing of the last of the Required Tax Returns, then the
later of such filing date or the Closing Balance Sheet Resolution
Date shall be the Adjustment Amount Release Date.
2
"Agreement" means this Merger Agreement.
"Ancillary Agreements" means the Employment Agreements
(as defined in Sections 8.12) and the Tax Reporting Agreement.
"Arbitrator" has the meaning set forth in Section
3.5(B).
"Assets" means all of the Company's assets, properties,
business, goodwill and rights of every kind and description, real
and personal, tangible and intangible, wherever situated and
whether or not reflected on the Closing Balance Sheet.
"Benefit Plan" has the meaning set forth in Section
4.25(A).
"Business" means the existing business, operations,
facilities and other Assets, financial condition, results of
operations, finances, markets, products, competitive position,
raw materials and other supplies, customers and customer
relations and personnel of the Company.
"Business Day" means any calendar day which is not a
Saturday, Sunday or public holiday under the Laws of California.
"CERCLA" has the meaning set forth in the definition of
"Environmental Laws."
"Certificate" means a stock certificate that
immediately prior to the Effective Time evidenced shares of Red
Calliope Stock.
"Certificate of Merger" has the meaning set forth in
Section 2.6.
"CGCL" has the meaning set froth in the first recital
hereto.
"Claim" means any action, administrative or other
proceeding, arbitration, cause of action, claim, complaint,
demand, criminal prosecution, inquiry, hearing, investigation
(governmental or otherwise), litigation, notice (written or oral)
by any Person alleging potential liability relating to or
affecting the Company, the Business, the Assets (including,
without limitation, Contracts relating to the Company), the
Leased Real Property or the transactions contemplated by this
Agreement.
"Claim Notice" has the meaning set forth in
Section 7.2(A)(i).
"Closing" has the meaning set forth in Section 2.6.
"Closing Balance Sheet" has the meaning set forth in
Section 3.5(A).
"Closing Date" has the meaning set forth in Section
2.6.
"Closing Retained Earnings" means an amount equal to
the excess of (i) total assets of the Company as of the close of
business on the Closing Date, over (ii) total liabilities and
paid-in capital of the Company as of the close of business on the
Closing Date. As used in this
3
paragraph, the terms "total assets" and "total liabilities" mean
the aggregate amount of all assets and liabilities, respectively,
of the Company (whether classifiable in accordance with GAAP as
current or long-term) and the term "paid-in capital" means the
total par value of the Shares plus additional paid-in capital of
the Company, all as determined in accordance with GAAP and
applied on a basis consistent with the Latest Year-End Balance
Sheet, except that Closing Retained Earnings shall not include
any income attributable to the repayment (or deemed repayment) of
any Shareholder Obligations.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company" has the meaning set forth in the Preamble
hereto.
"Contract" means any written or oral contract,
agreement, lease, plan, instrument, purchase order or other
document, commitment, arrangement, undertaking, practice or
authorization that is binding on any Person or its property under
applicable Law.
"Copyrights" means registered copyrights, copyright
applications and unregistered copyrights.
"Court Order" means any judgment, decree, injunction,
order or ruling of any federal, state or local court or
governmental or regulatory body or authority that is binding on
any Person or its property under applicable Law.
"Crown Crafts" has the meaning set forth in the
Preamble hereto.
"Default" means (i) a breach of or default under any
Contract, (ii) the occurrence of an event that with the passage
of time or the giving of notice or both would constitute a breach
of or default under any Contract, or (iii) the occurrence of an
event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"Disbursement Agreement" has the meaning set forth in
Section 8.15.
"Disclosure Schedule" means the Disclosure Schedule
dated as of the date hereof delivered by the Company to Crown
Crafts setting forth the information called for by Section 4
hereof.
"Disputed Matters" has the meaning set forth in Section
3.5(B).
"Dissenting Shareholder" has the meaning set forth in
Section 3.2.
"Dissenting Shares" means any shares of Red Calliope
Stock with respect to which the holder thereof has perfected
appraisal rights under Chapter 13 of the CGCL prior to the
Closing Date.
"Effective Time" has the meaning set forth in Section
2.6.
4
"Environmental Claim" means any Claim against the
Company, the Business or the Assets (including, without
limitation, notice or other communication written or oral by any
Person alleging potential liability for investigatory costs,
cleanup costs, private or governmental response or remedial
costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based upon, or resulting
from (i) any Environmental Matter or (ii) any circumstances or
state of facts forming the basis of any Liability or alleged
Liability under, or violation or alleged violation of, any
Environmental Law.
"Environmental Laws" means all Laws relating to
pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including,
without limitation, the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 41 U.S.C. 9601 et
seq. ("CERCLA"), the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating
to emissions, discharges, releases or threatened releases of any
Hazardous Substance, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Substances.
"Environmental Matter" means any matter or
circumstances related in any manner whatsoever to (i) the
emission, discharge, disposal, release or threatened release of
any Hazardous Substance into the environment, or (ii) the
transportation, treatment, storage, recycling or other handling
of any Hazardous Substance or (iii) the placement of structures
or materials into waters of the United States, or (iv) the
presence of any Hazardous Substance, including, but not limited
to, asbestos, in any building, structure or workplace or on any
of the Leased Real Property.
"Environmental Reserve" means an amount equal to
(i) $75,000 minus (ii) the costs incurred prior to June 1, 1996
by the Surviving Corporation pursuant to Section 6.13, provided
that the Environmental Reserve shall not be less than zero.
"ERISA" has the meaning set forth in Section 4.25(A).
"Extension Grant Date" means the date, if any, on which
the IRS (i) grants to the Company an extension of time to file
consents to an election on Form 2553 pursuant to Treas. Reg.
Section 1.1362-6(b)(3)(iii) and (ii) accepts such consents to
election signed by Mr. Glickman, Mrs. Glickman, and Elliot Fine.
"GAAP" means generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state,
county, local, foreign or other governmental or public agency,
instrumentality, commission, authority, board or body.
"Hazardous Substance" means (i) any hazardous
substance, hazardous material, hazardous waste, regulated
substance or toxic substance (as those terms are defined by any
applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products, or oil.
"Intellectual Property" means copyrights, graphic
designs, Patents, Trademarks, technology rights and licenses,
computer software (including without limitation any source or
object codes
5
therefor or documentation relating thereto), trade secrets,
franchises, know-how, product specifications, inventions and
intellectual property rights.
"Interested Party" means any of Mr. Fohrman,
Mr. Glickman, Mrs. Glickman, Robert Mann, as executor of the
estate of Elliot Fine, Edward Tannenbaum, R. Todd Neilson, as
Resolution Agent for Reorganized Property Mortgage Co., Inc., and
the legal successor of any of the foregoing.
"IRS" means the Internal Revenue Service.
"Latest Year-End Balance Sheet" has the meaning set
forth in Section 4.7.
"Law" means the common law of any applicable
jurisdiction and any code, law, order, ordinance, regulation,
rule or statute of any Governmental Authority.
"Leased Real Property" means the real property leased
or subleased by the Company, as tenant, together with, to the
extent leased by the Company, all buildings and other structures,
facilities or improvements currently located thereon, all
fixtures, systems, equipment and items of personal property of
the Company attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Leases" means the leases or subleases for the Leased
Real Property, copies of which have been made available by the
Company to Crown Crafts.
"Liability" means any direct or indirect liability,
indebtedness, obligation, expense, Claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of
notes, bills and checks presented to banks for collection or
deposit) of any type, whether accrued, absolute, contingent,
matured, unmatured or other.
"Licenses" means licenses, franchises, permits,
easements, rights and other authorizations.
"Lien" means any mortgage, lien, security interest,
pledge, encumbrance, restriction on transferability, defect of
title, charge or Claim of any nature whatsoever on any property
or property interest.
"Lienholder" means the holder of or other Person
entitled to any benefits arising under any Lien.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting the
Company, the Business, the Assets or any Contracts to which the
Company is a party or by which it or any of the Assets or the
Business may be bound or affected.
"Losses" has the meaning set forth in Section 7.1.
6
"Material Adverse Effect" means any change or effect
that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business or
operations of the Company, the Business or the Assets taken as a
whole.
"Merger" has the meaning set froth in the first recital
hereto.
"Merger Litigation" has the meaning set forth in the
definition of "Adjustment Amount."
"Merger Sub" has the meaning set forth in the Preamble
hereto.
"Mr. Fohrman" has the meaning set forth in the Preamble
hereto.
"Mr. Glickman" has the meaning set forth in the
Preamble hereto.
"Mrs. Glickman" means Carol Glickman.
"Ms. Freeman" has the meaning set forth in
Section 8.12.
"Noncompete Period" has the meaning set forth in
Section 6.7.
"Note" means a promissory note made by Crown Crafts and
delivered pursuant to Section 3.4(A)(i) or 3.4(A)(ii) providing
for (i) simple interest on the principal amount thereof at the
annual rate of 6.25%, (ii) all principal and accrued interest to
be due and payable by wire transfer of immediately available
funds on January 10, 1996, and (iii) such other terms as Crown
Crafts and Red Calliope may agree upon prior to the Closing Date.
"Notice Period" has the meaning set forth in Section
7.2(A)(i).
"Patents" means all patents and patent applications.
"Pension Benefit Plan" has the meaning set forth in
Section 4.25(B).
"Permitted Liens" means (i) statutory liens to secure
the performance of obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature
(including, without limitation, mechanic's, worker's, material
provider's and maritime liens) (exclusive of obligations in
respect of the payment of borrowed money), or for taxes,
assessments or governmental charges or claims, provided that in
each case the obligations are not yet delinquent or are being
contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and any reserve or other
appropriate provision for accounting purposes as shall be
required in conformity with GAAP shall have been made therefor,
(ii) leases in respect of the real property on which facilities
owned or leased by the Company are located, (iii) Liens arising
from Uniform Commercial Code financing statements regarding
property leased by the Company, (iv) easements, rights-of-way,
navigational servitudes, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances
that do not interfere in any material respect with the ordinary
conduct of the business of the Company, and (v) Liens granted by
third party lessors or fee owners with respect to real property
as to which the Company has a leasehold interest.
7
"Person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization or
other entity, as well as any other syndicate or group that would
be deemed to be a person under Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
"RCRA" has the meaning set forth in the definition of
"Environmental Laws."
"Red Calliope" has the meaning set forth in the
Preamble hereto.
"Red Calliope Stock" means the capital stock of Red
Calliope.
"Regulation" means any statute, Law, ordinance,
regulation, order or rule of any Governmental Authority,
including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping,
zoning, antidiscrimination, antitrust, wage and hour, and price
and wage control matters.
"Shareholder" means any Person who immediately prior to
the Effective Time holds record title to shares of Red Calliope
Stock.
"Shareholder Obligations" means all loans made by the
Company to any of its shareholders (whether or not any such loan
has been reserved against on any balance sheet of the Company)
and the accrued interest thereon.
"Shares" has the meaning set forth in Section 4.2.
"Surviving Corporation" has the meaning set forth in
Section 2.1.
"Target Amount" means an amount equal to (i)
$4,682,000, plus (ii) an amount equal to (x) $125,000 multiplied
by (y) the number of full calendar months between June 30, 1995,
and the Closing Date, plus (iii) if the Closing Date is any day
during a calendar month other than the last day of such calendar
month, an amount equal to (x) $125,000 multiplied by (y) a
fraction (1) the numerator of which will be the number of days
from and including the first day of such calendar month to and
including the Closing Date and (2) the denominator of which will
be the total number of days in such calendar month.
"Tax Benefit" means any Tax (as defined in the Tax
Reporting Agreement) refund that is received by Crown Crafts or
the Surviving Corporation, or any amount credited against Tax to
which Crown Crafts or the Surviving Corporation becomes entitled,
that relates to taxable periods or portions thereof ending on or
before the Closing Date.
"Tax Dispute Reserve" means an amount equal to the sum
of X and Y where X equals (i) $100,000, minus (ii) any amounts
paid or payable by the Surviving Corporation pursuant to
Section 4.5 of the Tax Reporting Agreement, and Y equals the
amount of simple interest that would accrue at the Variable Rate
on an amount equal to the positive balance (if any) of X from
time to time from and including the Closing Date to the date of
payment of the Tax Dispute Reserve pursuant to Section 3.4(A);
provided that in no event shall the Tax Dispute Reserve be less
than zero.
8
"Tax Dispute Reserve Release Date" means the first date
on which either the Designated Date (as defined below) has
occurred or the IRS has completed its audit with respect to each
of fiscal years 1992, 1993, 1994 and 1995. For purposes of this
Agreement, the Designated Date for fiscal years 1992, 1993, 1994
and 1995 shall be March 15, 1996, 1997, 1998 and 1999,
respectively.
"Tax Reporting Agreement" has the meaning set forth in
Section 8.13.
"Tax Reserves" means the 1992 Tax Reserve, the 1993 Tax
Reserve, the 1994 Tax Reserve and the 1995 Tax Reserve,
collectively.
"Third Party" has the meaning set forth in Section
7.2(A)(i).
"Third Party Transaction" means an acquisition of the
Company pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar
transaction.
"Title Litigation" means any Litigation relating to the
payment of Merger proceeds to or on behalf of Mr. Glickman or any
of his creditors or affiliates, including, without limitation,
any payments made pursuant to the Disbursement Agreement.
"Trademarks" means registered trademarks, registered
service marks, trademark and service mark applications and
unregistered trademarks and service marks.
"Variable Rate" means (i) the "prime rate" as reported
from time to time by Wachovia Bank of Georgia, N.A. minus
(ii) 200 basis points.
"1992 Tax Reserve" means an amount equal to the sum of
X and Y where X equals (i) $538,000, minus (ii) all taxes
(including interest, penalties and additions to taxes) paid or
payable after the Closing Date by the Surviving Corporation to
the IRS and the California Franchise Tax Board with respect to
the income tax liability of Red Calliope for the fiscal year
ended June 30, 1992, and Y equals the amount of simple interest
that would accrue at the Variable Rate on an amount equal to the
positive balance (if any) of X from time to time from and
including the Closing Date to the date of payment of the 1992 Tax
Reserve pursuant to Section 3.4(A); provided that in no event
shall the 1992 Tax Reserve be less than zero and, provided
further, that if the Extension Grant Date occurs prior to the
Closing, the 1992 Tax Reserve shall equal zero.
"1993 Tax Reserve" means an amount equal to the sum of
X and Y where X equals (i) $702,000, minus (ii) all taxes
(including interest, penalties and additions to taxes) paid or
payable after the Closing Date by the Surviving Corporation to
the IRS and the California Franchise Tax Board with respect to
the income tax liability of Red Calliope for the fiscal year
ended June 30, 1993, and Y equals the amount of simple interest
that would accrue at the Variable Rate on an amount equal to the
positive balance (if any) of X from time to time from and
including the Closing Date to the date of payment of the 1993 Tax
Reserve pursuant to
9
Section 3.4(A); provided that in no event shall the 1993 Tax
Reserve be less than zero and, provided further, that if the
Extension Grant Date occurs prior to the Closing, the 1993 Tax
Reserve shall equal zero.
"1994 Tax Reserve" means an amount equal to the sum of
X and Y where X equals (i) $764,000, minus (ii) all taxes
(including interest, penalties and additions to taxes) paid or
payable after the Closing Date by the Surviving Corporation to
the IRS and the California Franchise Tax Board with respect to
the income tax liability of Red Calliope for the fiscal year
ended June 30, 1994, and Y equals the amount of simple interest
that would accrue at the Variable Rate on an amount equal to the
positive balance (if any) of X from time to time from and
including the Closing Date to the date of payment of the 1994 Tax
Reserve pursuant to Section 3.4(A); provided that in no event
shall the 1994 Tax Reserve be less than zero and, provided
further, that if the Extension Grant Date occurs prior to the
Closing, the 1994 Tax Reserve shall equal zero.
"1995 Tax Reserve" means an amount equal to the sum of
X and Y where X equals (i) $829,000, minus (ii) all taxes
(including interest, penalties and additions to taxes) paid or
payable after the Closing Date by the Surviving Corporation to
the IRS and the California Franchise Tax Board with respect to
the income tax liability of Red Calliope for the fiscal year
ended June 30, 1995, and Y equals the amount of simple interest
that would accrue at the Variable Rate on an amount equal to the
positive balance (if any) of X from time to time from and
including the Closing Date to the date of payment of the 1995 Tax
Reserve pursuant to Section 3.4(A); provided that in no event
shall the 1995 Tax Reserve be less than zero and, provided
further, that if the Extension Grant Date occurs prior to the
Closing, the 1995 Tax Reserve shall equal zero.
ARTICLE 2
THE MERGER
SECTION 2.1. Surviving Corporation. Subject to the
provisions of this Agreement, the CGCL, at the Effective Time,
Merger Sub shall be merged with and into Red Calliope and the
separate corporate existence of Merger Sub shall cease. Red
Calliope shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the Laws of the
State of California. The Merger shall have the effects set forth
in Section 1107 of the CGCL.
SECTION 2.2. Articles of Incorporation. The Articles
of Incorporation of Red Calliope as in effect immediately prior
to the Effective Time shall be the Articles of Incorporation of
the Surviving Corporation until thereafter duly amended in
accordance with their terms and the CGCL.
SECTION 2.3. Bylaws. The Bylaws of Red Calliope as in
effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter duly amended
in accordance with their terms and the CGCL.
10
SECTION 2.4. Directors. The directors of the
Surviving Corporation shall consist of the directors of Merger
Sub immediately prior to the Effective Time, such directors to
hold office from the Effective Time until their respective
successors are duly elected and qualified.
SECTION 2.5. Officers. The officers of the Surviving
Corporation shall consist of the officers of Merger Sub
immediately prior to the Effective Time, such officers to hold
office from the Effective Time until their respective successors
are duly elected and qualified.
SECTION 2.6. Closing; Effective Time. The closing of
the Merger (the "Closing") shall, unless another date, time or
place is agreed to in writing by all parties hereto, take place
at the offices of Gibson, Dunn & Crutcher, 333 South Grand
Avenue, Los Angeles, California 90071 at 8:00 a.m., Los Angeles
time, on October 31, 1995 (the "Closing Date"). If, on or before
the Closing Date, all the conditions set forth in Articles 8 and
9 shall have been fulfilled or waived in accordance with the
terms hereof and this Agreement shall not have been terminated in
accordance with Section 10.3, 10.4 or 10.6, then the parties
hereto shall cause a Certificate of Merger meeting the
requirements of the CGCL (the "Certificate of Merger") to be
properly executed and filed on the Closing Date with the
Secretary of State of the State of California. The Merger shall
become effective as of the time of filing of the properly
executed Certificate of Merger. The date and time when the
Merger becomes effective is herein referred to as the "Effective
Time."
ARTICLE 3
CONVERSION OF SHARES
SECTION 3.1. Effect of Merger. As of the Effective
Time, by virtue of the Merger and without any action on the part
of any holder thereof:
(i) The shares of Red Calliope Stock of each
Shareholder that are issued and outstanding immediately
prior to the Effective Time (other than any Dissenting
Shares) shall be converted into the right to receive
(x)(1) cash in the amount set forth in the "Closing
Payment" column opposite such Shareholder's name on
Schedule 3.1 hereto if the Extension Grant Date has not
occurred prior to the Closing or (2) cash in the amount
set forth in the "Adjusted Closing Payment" column
opposite such Shareholder's name on Schedule 3.1 hereto
if the Extension Grant Date has occurred prior to the
Closing, and (y) cash in an amount equal to (a) the sum
of the Adjustment Amount plus the Environmental Reserve
plus the Tax Reserves plus the Tax Dispute Reserve plus
all Tax Benefits, multiplied by (b) a fraction
(expressed as a percentage carried out four (4) decimal
places), (1) the numerator of which is the number of
shares of Red Calliope Stock of such Shareholder issued
and outstanding immediately prior to the Effective Time
and (2) the denominator of which is the aggregate
number of shares (other than Dissenting Shares) of Red
Calliope Stock issued and outstanding immediately prior
to the Effective Time;
(ii) Each share of common stock of Merger Sub
that is issued and outstanding immediately prior to the
Effective Time shall be converted into one (1) share of
common stock of the Surviving Corporation;
11
(iii) Each share of Red Calliope Stock issued
and outstanding immediately prior to the Effective Time
that is then held in the treasury of Red Calliope shall
be canceled and retired and all rights in respect
thereof shall cease to exist, without any conversion
thereof or payment of any consideration therefor;
(iv) Each warrant, stock option or other
right, if any, to purchase shares of Red Calliope Stock
issued and outstanding immediately prior to the
Effective Time shall be canceled (whether or not such
warrant, option or other right is then exercisable) and
all rights in respect thereof shall cease to exist,
without any conversion thereof or payment of any
consideration therefor; and
(v) Each Shareholder Obligation shall be
deemed to have been repaid in full.
SECTION 3.2. Dissenter's Rights. Notwithstanding
anything in this Agreement to the contrary, shares of Red
Calliope Stock that are issued and outstanding immediately prior
to the Effective Time that are held by any Shareholder (a
"Dissenting Shareholder") who has delivered a written demand for
appraisal of such shares in the manner provided in, and has
otherwise complied with, Chapter 13 of the CGCL shall not be
converted into the right to receive the consideration provided in
Section 3.1 and shall not receive any payment under Section 3.4,
unless and until such Dissenting Shareholder shall have failed to
perfect or shall have effectively withdrawn or lost his right to
appraisal and payment under the CGCL, as the case may be. If
such Dissenting Shareholder shall have so failed to have
perfected or shall have effectively withdrawn or lost such right,
his shares shall no longer be Dissenting Shares and shall
thereupon be deemed to have been converted into, at the Effective
Time, the right to receive the consideration provided in Section
3.1. Red Calliope shall give Crown Crafts notice of any such
demand made by or on behalf of any such Dissenting Shareholder,
as provided in Chapter 13 of the CGCL. After the Effective Time,
Crown Crafts and the Surviving Corporation shall conduct and
direct all negotiations, proceedings and ultimate disposition
with respect to any such demands in any manner that Crown Crafts
and the Surviving Corporation may elect, provided that such
negotiations, proceedings and disposition shall be conducted by
Crown Crafts and the Surviving Corporation in good faith and in a
manner reasonably calculated to maximize the Adjustment Amount,
and provided further that counsel for Crown Crafts and the
Surviving Corporation in connection with such negotiations,
proceedings and disposition shall have been approved by Red
Calliope prior to the Effective Time.
SECTION 3.3. Closing of Transfer Books. At the
Effective Time, the transfer books for Red Calliope Stock shall
be closed, and no transfers of shares of Red Calliope Stock shall
thereafter be made on such books.
SECTION 3.4. Exchange of Red Calliope Stock.
(A) From and after the Effective Time, each Shareholder
(other than a Dissenting Shareholder) shall be entitled to
receive, in exchange for a Certificate or Certificates, the
following:
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(i) upon (A) surrender to Crown Crafts of
such Certificate or Certificates duly endorsed in
blank, which shall forthwith be canceled, and (B)(1) in
the case of any Shareholder, other than a Shareholder
holding a Certificate or Certificates for the benefit
of Mr. Glickman, delivery of a duly executed letter, in
form and substance reasonably acceptable to Crown
Crafts, to the effect that such Shareholder has good
title to the Shares represented by such Certificate or
Certificates with full power and authority to surrender
the same, free and clear of all Liens, (or, if such
letter identifies any Lien, delivery of a release by
the Lienholder of such Lien, such release to be in form
and substance reasonably acceptable to Crown Crafts),
or (2) in the case of a Shareholder holding a
Certificate or Certificates for the benefit of
Mr. Glickman, delivery of a duly executed letter, in
form and substance reasonably acceptable to Crown
Crafts, to the effect that such Shareholder has good
title to the Shares represented by such Certificate or
Certificates with full power and authority to surrender
the same, free and clear of all Liens other than Liens
disclosed in the Disbursement Agreement, a Note
(subject to the proviso to this clause (i)) in a
principal amount equal to (x)(1) the amount set forth
in the "Closing Payment" column opposite such
Shareholder's name on Schedule 3.1 hereto if the
Extension Grant Date has not occurred prior to the
Closing or (2) cash in the amount set forth in the
"Adjusted Closing Payment" column opposite such
Shareholder's name on Schedule 3.1 hereto if the
Extension Grant Date has occurred prior to the Closing,
multiplied by (y) a fraction (expressed as a percentage
carried out four (4) decimal places) (1) the numerator
of which is the number of shares of Red Calliope Stock
evidenced by such Certificate or Certificates and
(2) the denominator of which is the total number of
shares of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time and owned by
such Shareholder; provided, however, that, in lieu of a
Note, such Shareholder shall receive cash in
immediately available funds in an amount equal to the
amount payable under this clause (i) if such
Shareholder, at the time he approved the Merger,
elected to receive such amount in cash rather than a
Note;
(ii) within three Business Days after the
Adjustment Amount Release Date, a Note (subject to the
proviso to this clause (ii)) in a principal amount
equal to (x) the Adjustment Amount multiplied by (y) a
fraction (expressed as a percentage carried out four
(4) decimal places), (1) the numerator of which is the
number of shares of Red Calliope Stock that immediately
prior to the Effective Time were represented by such
Certificate or Certificates and (2) the denominator of
which is the aggregate number of shares (other than
Dissenting Shares) of Red Calliope Stock issued and
outstanding immediately prior to the Effective Time;
provided, however, that, in lieu of a Note, such
Shareholder shall receive cash in immediately available
funds in an amount equal to the amount payable under
this clause (ii) if either (A) such Shareholder, at the
time he approved the Merger, elected to receive such
amount in cash rather than a Note or (B) the Adjustment
Amount Release Date occurs on or after January 1, 1996;
(iii) on June 5, 1996, a check equal to (x) the
Environmental Reserve multiplied by (y) a fraction
(expressed as a percentage carried out four (4) decimal
places), (1) the numerator of which is the number of
shares of Red Calliope Stock that immediately prior to
the Effective Time were represented by such Certificate
or Certificates and (2) the denominator of which is the
aggregate number of shares (other than Dissenting
Shares) of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time;
13
(iv) within five Business Days after the
Extension Grant Date (unless the Extension Grant Date
shall have occurred prior to the Closing), cash in
immediately available funds in an amount equal to (x)
the Tax Reserves (minus any amounts paid pursuant to
clause (v) through (viii) below) multiplied by (y) a
fraction (expressed as a percentage carried out to four
(4) decimal places), (1) the numerator of which is the
number of shares of Red Calliope Stock that immediately
prior to the Effective Time were represented by such
Certificate or Certificates and (2) the denominator of
which is the aggregate number of shares (other than
Dissenting Shares) of Red Calliope Stock issued and
outstanding immediately prior to the Effective Time;
(v) on March 15, 1996, cash in immediately
available funds in an amount equal to (x) the 1992 Tax
Reserve multiplied by (y) a fraction (expressed as a
percentage carried out four (4) decimal places),
(1) the numerator of which is the number of shares of
Red Calliope Stock that immediately prior to the
Effective Time were represented by such Certificate or
Certificates and (2) the denominator of which is the
aggregate number of shares (other than Dissenting
Shares) of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time;
(vi) on March 15, 1997, cash in immediately
available funds in an amount equal to (x) the 1993 Tax
Reserve multiplied by (y) a fraction (expressed as a
percentage carried out four (4) decimal places),
(1) the numerator of which is the number of shares of
Red Calliope Stock that immediately prior to the
Effective Time were represented by such Certificate or
Certificates and (2) the denominator of which is the
aggregate number of shares (other than Dissenting
Shares) of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time;
(vii) on March 15, 1998, cash in immediately
available funds in an amount equal to (x) the 1994 Tax
Reserve multiplied by (y) a fraction (expressed as a
percentage carried out four (4) decimal places),
(1) the numerator of which is the number of shares of
Red Calliope Stock that immediately prior to the
Effective Time were represented by such Certificate or
Certificates and (2) the denominator of which is the
aggregate number of shares (other than Dissenting
Shares) of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time;
(viii) on March 15, 1999, cash in immediately
available funds in an amount equal to (x) the 1995 Tax
Reserve multiplied by (y) a fraction (expressed as a
percentage carried out four (4) decimal places),
(1) the numerator of which is the number of shares of
Red Calliope Stock that immediately prior to the
Effective Time were represented by such Certificate or
Certificates and (2) the denominator of which is the
aggregate number of shares (other than Dissenting
Shares) of Red Calliope Stock issued and outstanding
immediately prior to the Effective Time;
14
(ix) promptly after Crown Crafts or the
Surviving Corporation becomes aware that it is entitled
to a Tax Benefit, a check equal to (x) such Tax Benefit
multiplied by (y) a fraction (expressed as a percentage
carried out four (4) decimal places), (1) the numerator
of which is the number of shares of Red Calliope Stock
that immediately prior to the Effective Time were
represented by such Certificate or Certificates and (2)
the denominator of which is the aggregate number of
shares (other than Dissenting Shares) of Red Calliope
Stock issued and outstanding immediately prior to the
Effective Time; and
(x) on the Tax Dispute Reserve Release Date,
a check equal to (x) the Tax Dispute Reserve multiplied
by (y) a fraction (expressed as a percentage carried
out four (4) decimal places), (1) the numerator of
which is the number of shares of Red Calliope Stock
that immediately prior to the Effective Time were
represented by such Certificate or Certificates and (2)
the denominator of which is the aggregate number of
shares (other than Dissenting Shares) of Red Calliope
Stock issued and outstanding immediately prior to the
Effective Time.
Except as otherwise provided herein, no interest will be paid or
accrued on the cash payable upon the surrender of any
Certificate. If any portion of the consideration to be received
pursuant to Section 3.1 upon exchange of a Certificate 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
person requesting such exchange shall pay in advance any transfer
or other taxes required by reason thereof or establish to the
satisfaction of Crown Crafts that such tax has been paid or that
such tax is not applicable. If the surrendering Shareholder is
not identified on Schedule 3.1 hereto, such Shareholder shall
furnish to Crown Crafts an opinion of counsel in form and
substance reasonably acceptable to Crown Crafts to the effect
that such surrendering Shareholder acquired his or her Shares in
compliance with all applicable securities Laws. From the
Effective Time until surrender in accordance with the provisions
of this Section 3.4, the Certificates shall represent for all
purposes only the right to receive the consideration provided in
Section 3.1. All payments in respect of shares of Red Calliope
Stock that are made in accordance with the terms hereof shall be
deemed to have been made in full satisfaction of all rights
pertaining to such securities.
(B) In the case of any lost, mislaid, stolen or
destroyed Certificate, the record holder thereof may be required,
as a condition precedent to delivery to such holder of the
consideration described in Section 3.1, to deliver to Crown
Crafts a bond in such reasonable sum or a satisfactory indemnity
agreement as Crown Crafts may direct as indemnity against any
claim that may be made against Crown Crafts or the Surviving
Corporation with respect to the Certificate alleged to have been
lost, mislaid, stolen or destroyed.
(C) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving
Corporation of the shares of Red Calliope Stock 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, unless
representing Dissenting Shares, exchanged for the consideration
described in Section 3.1.
15
(D) Any cash due Shareholders pursuant to Section 3.1
hereof that remains unclaimed by such Shareholders for six months
after the same shall become due and payable hereunder shall be
held by Crown Crafts, and any Shareholder who has not theretofore
complied with Section 3.4 (a) shall thereafter look only to Crown
Crafts for the payment of any consideration to which such holder
has become entitled pursuant to the provisions of Section 3.1;
provided, however, that neither Crown Crafts nor any party hereto
shall be liable to a Shareholder for any amount required to be
paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(E) Notwithstanding anything to the contrary herein,
Crown Crafts shall disburse all cash otherwise payable to or for
the account of Mr. Glickman or his creditors or affiliates in
accordance with the terms of the Disbursement Agreement.
SECTION 3.5. Closing Balance Sheet; Disputed Matters.
(A) As soon as practicable (but in no event later
than forty-five (45) days following the Closing Date), (i) the
Surviving Corporation shall prepare a balance sheet for the
Company as of the close of business on the Closing Date (the
"Closing Balance Sheet"). The Closing Balance Sheet shall be
prepared in accordance with GAAP, using the same methods and
criteria employed by the Company in connection with its
preparation of its Latest Year-End Balance Sheet to the extent
such methods are consistent with GAAP, and shall present fairly
the Company's financial position as of the close of business on
the day immediately preceding the Closing Date. Without limiting
the generality of the foregoing, the Closing Balance Sheet shall
include an accrual for C corporation taxes for the period from
and including July 28, 1995 to and including the Closing Date.
Upon completion of the Closing Balance Sheet, copies thereof
shall promptly be provided to each Interested Party.
(B) If, within fifteen (15) days after receipt of the
Closing Balance Sheet, any Interested Party shall notify Crown
Crafts or Crown Crafts shall notify each of the Interested
Parties that he or it disputes any matter with respect to the
Closing Balance Sheet, then any such matters (the "Disputed
Matters") shall be submitted to arbitration in Los Angeles,
California, within fifteen (15) days after such notice unless the
parties agree in writing to extend such fifteen (15) day period
in an attempt to negotiate a settlement of such Disputed Matters.
The arbitrator (the "Arbitrator") shall be any one of the
nationally recognized independent accounting firms which is on
the date hereof among the six largest such firms (the "Big Six
accounting firms") mutually agreed to by a majority of the
Interested Parties and Crown Crafts. Any reference herein to the
Big Six accounting firms shall be deemed to include a reference
to any member or employee thereof (who is a certified public
accountant) which any such firm may designate as the Arbitrator
on its behalf. If within ten (10) days following the expiration
of the fifteen (15) day period referred to above or any extension
thereof a majority of the Interested Parties and Crown Crafts
shall have failed to agree upon the selection of the Arbitrator
or any such Arbitrator selected by them shall not have agreed to
perform the services called for hereunder, the Arbitrator shall
thereupon be selected in accordance with the rules of the
American Arbitration Association, with preference being given to
any one of the Big Six accounting firms or any member or employee
thereof (who is a certified public accountant) which or who may
be willing to perform such services, other than any such firm
which is then employed by the Surviving Corporation or Crown
Crafts or any affiliate thereof. The Arbitrator shall consider
only the Disputed Matters
16
and the arbitration shall be conducted in accordance with the
rules of the American Arbitration Association then in effect.
The Arbitrator shall act promptly to resolve all Disputed Matters
and its decision with respect to all Disputed Matters shall be
final and binding upon the parties hereto and shall not be
appealable to any court. The costs and expenses of the
Arbitrator shall be paid by Crown Crafts.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Section 4.35 and except as set forth on a
DISCLOSURE SCHEDULE, each of which exceptions shall be deemed to
be representations and warranties as if made hereunder, the
Company hereby represents and warrants to Crown Crafts as
follows:
SECTION 4.1. Organization and Standing. The Company
is a corporation duly organized, validly existing and in good
standing under the Laws of California, having full power and
authority to carry on the Business as it has been and is now
being conducted and to own, lease and operate the Assets. The
Company is duly qualified to do business and is in good standing
in every jurisdiction in which the Business or the character of
the Assets requires such qualification, except where the failure
to be so qualified would not have a Material Adverse Effect. All
jurisdictions in which the Company is qualified to do business.
are disclosed in the DISCLOSURE SCHEDULE. The Company does not
have, nor has it ever had, any predecessors or subsidiaries or
any stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership,
joint venture or other entity.
SECTION 4.2. Capitalization and Share Ownership. The
Company's authorized capital stock consists of 2,500 shares of
Common Stock. There are 1,433 shares of the Company's Common
Stock presently outstanding (the "Shares"), all of which have
been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any
Contract binding upon the Company, and were issued in compliance
with all applicable charter documents of the Company and all
applicable federal and state securities or "blue sky" Laws and
regulations. No equity securities of the Company, other than the
Shares, are issued or outstanding. There are, and have been, no
preemptive rights with respect to the issuance of the Shares.
There are (i) no existing Contracts, subscriptions, options,
warrants, calls, commitments or rights of any character to
purchase or otherwise acquire any capital shares or other
securities of the Company, whether or not presently issued or
outstanding, from the Company, at any time, or upon the happening
of any stated event and (ii) no Contracts, subscriptions,
options, warrants, calls, commitments or rights to purchase or
otherwise acquire from the Company any such convertible or
exchangeable securities.
SECTION 4.3. Authority and Binding Effect. The
Company, Mr. Fohrman and Mr. Glickman have the full power and
authority to execute, deliver and perform this Agreement, to
perform fully their respective obligations hereunder and to
consummate the transactions contemplated hereby and, except for
approval by the requisite vote of the holders of the outstanding
shares of Red Calliope stock entitled to vote thereon and filings
by the Company required by Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
have taken all actions necessary to secure all approvals required
in connection herewith. The execution and delivery by the
Company of this Agreement and the consummation
17
of the transactions herein contemplated have been duly authorized
by all corporate action of the Company. The Company, Mr. Fohrman
and Mr. Glickman have duly executed and delivered this Agreement,
and it constitutes the legal, valid and binding obligation of the
Company, Mr. Fohrman and Mr. Glickman, enforceable against each
of them in accordance with its terms.
SECTION 4.4. Validity of Contemplated Transactions.
Neither the execution and delivery of this Agreement by Mr.
Fohrman, Mr. Glickman or the Company nor the consummation of the
transactions contemplated hereby will contravene or violate the
Articles of Incorporation or Bylaws of the Company or any
Regulation or Court Order which is applicable to the Company, Mr.
Fohrman or Mr. Glickman, or will result in a Default under, or
require the consent or approval of any party to, any Contract
relating to the Business or the Assets or to or by which the
Company, Mr. Fohrman or Mr. Glickman is a party or otherwise
bound or affected, or require the Company or Mr. Fohrman or
Mr. Glickman to notify or obtain any License from any federal,
state, local or other court or governmental agency or body or
from any other regulatory authority, except as required by the
HSR Act.
SECTION 4.5. Restrictions. Neither the Company, Mr.
Fohrman, nor Mr. Glickman is a party to any Contract or subject
to any restriction or any Court Order or Regulation which
(i) adversely affects the Company, the Assets or the Business,
except for any of the foregoing generally applicable to a Person
conducting a business similar to the Business, or (ii) affects or
restricts the ability of the Company to consummate the Merger.
SECTION 4.6. Third-Party Options. There are no
existing Contracts, options, commitments or rights with, to or in
any Person to acquire the Company, any of the Assets or any
interest therein or in the Business, other than Contracts to
acquire Assets in the ordinary course of business and other than
Liens on Shares.
SECTION 4.7. Financial Statements. The Company has
delivered to Crown Crafts (i) the Company's year-end balance
sheets at June 30, 1993, 1994 and 1995, (ii) its related
statements of income, retained earnings and cash flows for the
fiscal years then ended, and (iii) all related notes and
schedules, each of which has been audited by Lederman, Zeidler &
Co. All Liabilities of the Company at June 30, 1995 required to
be reflected or reserved for by GAAP are fully reflected or
reserved for in the Company's balance sheet at June 30, 1995 (the
"Latest Year-End Balance Sheet"). June 30, 1995 is referred to
as the "Latest Year-End Balance Sheet Date" in other parts of
this Agreement. All of the financial statements referred to in
this Section 4.7 were prepared in accordance with GAAP and,
subject to any qualifications set forth in the applicable notes
and schedules, fairly present the financial position and results
of operations of the Company at the dates and for the periods
covered and include all adjustments that are necessary for a fair
presentation of the information shown.
SECTION 4.8. Books of Account; Returns and Reports;
Taxes. The books of account of the Company fairly reflect
(i) all transactions relating to the Company and (ii) all items
of income and expense, assets and liabilities and accruals
relating to the Company. The Company has not engaged in any
transaction, maintained any bank account or used any corporate
funds except for transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and
records of the Company. From and including July 1, 1982 to and
including July 27, 1995, the Company was continuously an "S"
corporation within the meaning
18
of Section 1361 of the Code and the equivalent provisions of all
applicable state income tax statutes. The Company has duly filed
all federal, state, local and foreign tax returns required to be
filed by it through the date hereof and has duly paid or made
adequate provision for the payment of all taxes which are due and
payable for taxable years ending on or before the Closing Date.
The liability for taxes reflected in the Latest Year-End Balance
Sheet (excluding any reserve for deferred taxes or portion
thereof which is attributable to differences between the timing
of income or deductions for tax and financial accounting
purposes) is sufficient for the payment of all accrued but unpaid
taxes, whether or not disputed, for the period ended June 30,
1995 and for all years and periods ended prior thereto. All
deficiencies asserted as a result of any examinations conducted
by the IRS or any other taxing authority prior to the date hereof
have been paid, fully settled or adequately provided for in the
Latest Year-End Balance Sheet. There are no pending claims
asserted for taxes of the Company or outstanding agreements or
waivers extending the statutory period of limitation applicable
to any tax return of the Company for any period. The Company has
made all estimated income tax deposits through the date hereof
and all other required tax payments or deposits and has complied
for all prior periods in all material respects with the tax
withholding provisions of all applicable federal, state, local,
foreign and other laws. The Company has made available to Crown
Crafts true, complete and correct copies of its federal income
tax returns for the last three (3) taxable years and made
available such other tax returns as have been requested by Crown
Crafts.
SECTION 4.9. Undisclosed Liabilities. The Company
has no Liabilities except for:
(i) those Liabilities adequately and
specifically set forth or reserved for on the Latest
Year-End Balance Sheet and not heretofore paid or
discharged;
(ii) those Liabilities arising in the
ordinary course of its business consistent with past
practice under any Contract specifically disclosed on
the DISCLOSURE SCHEDULE (or not required to be
disclosed because of the term or amount involved);
(iii) those Liabilities incurred, consistent
with past business practice, in the ordinary course of
its business since the Latest Year-End Balance Sheet
Date and not heretofore paid or discharged; and
(iv) Liabilities (other than those described
in clauses (i), (ii) and (iii) above) not exceeding
$10,000 in the aggregate.
SECTION 4.10. Accounts Receivable. All accounts
receivable as set forth on the list of accounts receivable
included in the Disclosure Schedule have arisen only in the
ordinary course of business consistent with past practice for
goods sold and delivered or services performed. All accounts
receivable of the Company reflected on the Closing Balance Sheet
shall be collectible in full at the recorded amounts thereof
(free of any, and subject to no, defenses, setoffs or
counterclaims) in the ordinary course of business (without resort
to Litigation or assignment to a collection agency), but in no
event later than ninety (90) days after the Closing Date, net of
any allowance for doubtful accounts reflected in the Closing
Balance Sheet.
19
SECTION 4.11. Inventory. All inventory of the Company
used in the conduct of the Business reflected on the Latest Year-
End Balance Sheet or arising since the Latest Year-End Balance
Sheet Date was acquired and has been maintained in accordance
with the regular business practices of the Company, consists of
new and unused items of a quality and quantity usable or saleable
in the ordinary course of business of the Company consistent with
past practice, and is valued at reasonable amounts based on the
ordinary course of business of the Company within the past six
(6) months at prices equal to the lower of cost or market valued
on a first-in-first-out basis. No material portion of such
inventory is subject to any write-down or write-off or is
obsolete, unusable, slow-moving, damaged or unsalable in the
ordinary course of the Company's business consistent with past
practice.
SECTION 4.12. Title to Assets. The Company owns
outright and has good and marketable title to all of the Assets,
including, without limitation, the assets and properties set
forth on the Latest Year-End Balance Sheet (except for such as
may have been disposed of in the ordinary course of business
since the Latest Year-End Balance Sheet Date), free and clear of
all Liens, except Permitted Liens.
SECTION 4.13. Tangible Assets. The DISCLOSURE
SCHEDULE sets forth accurate lists and summary descriptions of
all tangible Assets where the value of an individual item exceeds
$5,000, or where an aggregate of similar items exceeds $10,000,
and of all leases, Licenses and other Contracts to which the
Company is a party or is otherwise bound which relate in whole or
in part to such Assets. The Assets listed on the DISCLOSURE
SCHEDULE have been grouped by type and constitute substantially
all of the tangible assets used in or necessary to the conduct of
the Business.
SECTION 4.14. Condition of Assets. All tangible
assets and properties which are part of the Assets are in good
operating condition and repair, reasonable wear and tear
excepted, and are usable in the ordinary course of the Business
consistent with past practice and conform in all material
respects to all applicable Regulations relating to their
construction, use and operation. There are no developments
materially affecting any such Asset which reasonably could be
expected to curtail the present or future use thereof for the
purpose for which it was acquired. Except pursuant to leases
described on the DISCLOSURE SCHEDULE, no Person other than the
Company owns any vehicles, equipment or other tangible Assets
situated on the facilities used by the Company in the Business
(other than immaterial items of personal property owned by the
Company's employees and other than fixtures and improvements on
the Real Property) or necessary to the operation of the Business.
SECTION 4.15. Real Property.
(A) The Company does not own, nor has it at any time
owned, any real property.
(B) The Disclosure Schedule lists each parcel of
Leased Real Property. As of the date of this Agreement, (i) the
Company has a valid and subsisting leasehold interest in each
Lease; (ii) the Company is in undisturbed possession of all space
that it is currently entitled to possess
20
under each such Lease and no rights adverse to the rights of the
Company have, to the best of the Company's knowledge, been
asserted by any third Persons; (iii) the Company has not
subleased or assigned any interest in any such Lease; (iv) the
Company has not received any written notice of material default
under any such Lease which is still in effect; (v) each Lease is
valid, binding and enforceable in accordance with its terms with
respect to the Company and, to the best of the Company's
knowledge, with respect to each of the other parties thereto;
(vi) there is no existing material default or breach of a
material covenant by the Company under any Lease or any
condition, event or act that with notice or the lapse of time (or
both) would constitute a material default by the Company; and
(vii) there is not under any Lease any non-material default or
breach of a non-material covenant by the Company that gives the
other party to such Lease the right to terminate or cancel such
Lease without first providing the Company with notice thereof and
an opportunity to cure such default or breach of covenant.
(C) Each of the Leased Premises and equipment used or
operated by the Company is in good condition and repair,
reasonable wear and tear excepted, and the present use and
occupation thereof conforms in all material respects with all
Laws, and the Company has not received notice of any breach or
violation of such Laws.
SECTION 4.16. Environmental Matters.
(A) There are no Environmental Claims (or any Claim
against any Person whose Liability, or any portion thereof, for
Environmental Matters or under any Environmental Laws the Company
has or may have retained or assumed contractually or by operation
of Law) pending or, to the best of the Company's knowledge,
threatened with respect to (i) the ownership, use, condition or
operation of the Business, the Assets, the Leased Real Property
or any asset formerly held for use or sale by the Company, or
(ii) any violation or alleged violation of or liability or
alleged liability under any Environmental Law or any Court Order
related to Environmental Matters. There are no existing
violations by the Company or, to the Company's best knowledge,
any other Person, of (i) any Environmental Law, or (ii) any Order
related to Environmental Matters, with respect to the ownership,
use, condition or operation of the Business, the Assets, the
Leased Real Property or any asset formerly held for use or sale
by the Company. There are no past or present actions,
activities, circumstances, conditions, events or incidents,
including, without limitation, any Environmental Matter, with
respect to the Company or, to the best of the Company's
knowledge, any other Person, that reasonably could be expected to
form the basis of any Environmental Claim against the Company,
the Assets or any asset formerly held for use or sale by the
Company. There are no past or present actions, activities,
circumstances, conditions, events or incidents, including,
without limitation, any Environmental Matter, with respect to the
Company or, to the best of the Company's knowledge, any other
Person, that reasonably could be expected to form the basis of
(i) any Environmental Claim against the Company, or (ii) any
Claim against any Person whose Liability (or any portion thereof)
for Environmental Matters or under any Environmental Laws the
Company has or may have retained or assumed contractually or by
operation of Law.
21
(B) Neither the Company nor, to the best of the
Company's knowledge, any other Person has used any Assets or
Leased Real Property of the Company or any part thereof for the
handling, treatment, storage, or disposal of any Hazardous
Substances except for handling, treatment, storage, or disposal
of Hazardous Substances in accordance with applicable
Environmental Laws.
(C) No material release, discharge, spillage or
disposal of any Hazardous Substances has occurred or is occurring
at any Assets or Leased Real Property of the Company or any part
thereof while or, to the best of the Company's knowledge, before
such Assets or Leased Real Property were owned, leased, operated,
or managed, directly or indirectly, by the Company.
(D) No material amount of soil or water in, under or,
to the best of the Company's knowledge, adjacent to any Assets or
Leased Real Property of the Company or assets formerly held for
use or sale by the Company has been contaminated by any Hazardous
Substance while or, to the best of the Company's knowledge,
before such assets or premises were owned, leased, operated or
managed, directly or indirectly, by the Company.
(E) No material amount of waste containing any
Hazardous Substances has been generated, used, handled, stored,
treated or disposed of, directly or indirectly, by the Company
except for waste generated, used, handled, stored, treated and
disposed of in accordance with applicable Environmental Laws.
(F) There are no underground tanks or other
underground storage facilities presently or, to the best of the
Company's knowledge, previously located at any Leased Real
Property.
(G) All material amount of waste, hazardous or
otherwise, has been removed from all Leased Real Property.
(H) The Company has complied with all applicable
reporting requirements under all Environmental Laws concerning
the disposal or release of Hazardous Substances and has not been
required under such Environmental Laws to make any reports
concerning any Leased Real Property or concerning the operations
or activities of the Company.
(I) No Leased Real Property contains any asbestos-
containing materials that, based on their present condition or
location, are required to be removed under applicable
Environmental Laws.
(J) Without limiting the generality of any of the
foregoing, the Company has not stored, disposed or arranged for
the disposal of any material amount of Hazardous Substances
except for storage or disposal of Hazardous Substances in
accordance with applicable Environmental Laws.
(K) The Company is not aware of any environmental
site assessment or other study relating to the investigation of
the possibility of the presence or existence of any Environmental
Matter with respect to the Business, the Assets or any of the
Leased Real Property.
(L) The Company has delivered to Crown Crafts copies
of all Licenses issued to the Company pursuant to any
Environmental Law and all written communications between the
22
Company or its representatives and any Governmental Authority
concerning any Environmental Matter.
SECTION 4.17. Contracts.
(A) The DISCLOSURE SCHEDULE sets forth complete and
accurate lists or descriptions of (i) all Benefit Plans and (ii)
all consents or approvals required under any Contracts to which
the Company is a party that are necessary for the Company to
complete the Merger or to avoid a Default under such Contracts.
(B) None of the Assets is leased by the Company from
any Person, whether affiliated or unaffiliated with the Company.
(C) The Company is not a party to any:
(i) Contract with any present or former
employee or consultant;
(ii) Contract for the future purchase of, or
payment for, supplies or products or services except
for purchase orders placed with vendors in the ordinary
course of business and except for Contracts for
services not in excess of $5,000;
(iii) Contract to sell or supply products or
to perform services except for purchase orders accepted
from vendees in the ordinary course of business;
(iv) representative or sales agency Contract;
(v) Contract limiting or restraining it from
engaging or competing in any lines or business with any
Person;
(vi) license, franchise, distributorship or
other agreement, including those which relate in whole
or in part to any ideas, technical assistance or other
know-how of or used by the Company; or
(vii) material Contract not otherwise
disclosed herein.
(D) All of the Contracts to which the
Company is party or by which it or any of the Assets is
bound or affected are valid, binding and enforceable in
accordance with their terms with respect to the Company
and, to the best of the Company's knowledge, with
respect to each of the other parties thereto. The
Company has fulfilled, or taken all action necessary to
enable it to fulfill when due, all of its material
obligations under each of such Contracts. The Company
and, to the Company's best knowledge, all other parties
to such Contracts have complied in all material
respects with the provisions thereof, and no notice of
any Claim (other than any Claim of the type identified
in Section 4.26) or Default has been given to the
Company. There are no developments materially developing
materials affecting any such Contract which reasonably could be
expected to prevent the Company from realizing the
benefits thereof whether before or after the completion
of the Merger.
23
SECTION 4.18. Employees. The DISCLOSURE SCHEDULE sets
forth the names and current annual salary rates or current hourly
wages of all present employees of the Company, together with the
average number of hours worked per week, the date of the last
salary increase, the date of commencement of employment of each
employee with the Company, and a summary of salary, bonuses and
other compensation, if any, paid or payable to each of such
Persons for or in respect of that portion of the 1995 calendar
year ending on August 31, 1995, and a list of all insurance
premiums paid on their behalf. The DISCLOSURE SCHEDULE also sets
forth the earnings for each of such employees as reflected on
Form W-2 for the 1994 calendar year.
SECTION 4.19. Licenses. The DISCLOSURE SCHEDULE sets
forth a complete list of all Licenses used in the operation of
the Business or otherwise held by the Company. The Company owns,
possesses or lawfully uses in the operation of its Business all
Licenses which are necessary to conduct the Business as now
conducted or to the ownership of the Assets, free and clear of
all Liens except for Permitted Liens and Liens for the benefit of
the licensor of any such License. The Company is not in Default,
nor has it received any notice of any Claim of Default, with
respect to any such License. Except as otherwise governed by
Law, all such Licenses are renewable by their terms or in the
ordinary course of business without the need to comply with any
special qualification procedures or to pay any amounts other than
routine filing fees and will not be adversely affected by the
completion of the Merger.
SECTION 4.20. Intellectual Property.
(A) No employee of the Company is, or is now expected
to be, in default under any term of any employment contract,
agreement or arrangement relating to any Intellectual Property or
noncompetition arrangement, or any other Contract or restrictive
covenant relating to the right of any such officer or employee to
be employed by the Company because of the nature of the Business
or relating to the use of any Intellectual Property of others,
and the continued employment of the Company's officers and
employees does not subject the Company to any liability resulting
from such a violation. The Intellectual Property owned by the
Company was developed entirely by its employees during the time
they were employees only of the Company, and such Intellectual
Property does not include any inventions of the employees made
prior to the time such employees became employees of the Company
nor any Intellectual Property of any previous employer of such
employee.
(B) The Company owns or has a valid right to use the
Intellectual Property being used to conduct the business of the
Company, and the conduct of its business as now operated does not
conflict with valid Intellectual Property rights of others. The
Company has not received any written communication alleging that
the Company has violated or, by conducting its business as
proposed, would violate any of the Intellectual Property rights
of any other Person. The Company does not have any obligation to
compensate any Person for the use of any such Intellectual
Property rights nor has the Company granted to any Person any
license, option or other rights to use in any manner any of the
Intellectual Property of the Company, whether requiring the
payment of royalties or not.
(C) All Patents, Copyrights, Trademarks and computer
software used in the Business or owned by the Company are listed
in the DISCLOSURE SCHEDULE.
24
(D) The computer software of the Company included in
the Intellectual Property functions as intended, is in machine-
readable form, is fully licensed, and is the only software used
by the Company in the conduct of the Business.
SECTION 4.21. Compliance with Regulations and Court
Orders. The Company is not in violation of any Court Order or
Regulation, and the Assets have not been used or operated by the
Company or any other Person in violation of any Regulation or
Court Order except for violations that reasonably could not be
expected to have a Material Adverse Effect. All Court Orders to
which the Company is a party or subject are listed in the
DISCLOSURE SCHEDULE. The Company has made all filings or
notifications required to be made by it under any Regulations
applicable to the Company, the Business or the Assets. The
Company and all products sold by it, presently or at any time in
the past, and their respective packaging, markings, and
registrations, if any, were and are in full compliance with all
consumer protection Laws and Regulations applicable thereto at
the time of such sales, including, without limitation, California
Proposition 65 and the Consumer Product Safety Act. Neither the
Company nor any officer, employee or agent of, or consultant to,
the Company, while acting in his or her capacity as such officer,
employee, agent or consultant, has unlawfully offered, paid, or
agreed to pay, directly or indirectly, any money or anything of
value to, or for the benefit of, any individual who is or was a
candidate for public office, or an official or employee of any
Governmental Authority.
SECTION 4.22. Claims. There is no Litigation pending
or, to the best of the Company's knowledge, threatened against
the Company, the Business or the Assets. No Claim has been
asserted and no event has occurred that reasonably could be
expected to result in Litigation against the Company, the
Business or the Assets. To the best of the Company's knowledge,
there is no reasonable basis for any such Claim. All pending or
threatened Litigation against the Company, the Business or the
Assets of which the Company is aware, if any, is fully covered by
insurance.
SECTION 4.23. Insurance. The DISCLOSURE SCHEDULE
contains a true and complete description of the current insurance
coverage applicable to the Company, the Business and the Assets,
including amounts and lines of coverage, loss experience history
by line of coverage for the past three (3) years, and a
description of all Claims in excess of $10,000 for the past three
(3) years. To the best of the Company's knowledge, all insurance
coverage applicable to the Company, the Business and the Assets
is in full force and effect and is valid, binding and enforceable
in accordance with its terms against the respective insurers.
All insurance coverage applicable to the Company, the Business
and the Assets insures the Company in reasonably sufficient
amounts against all risks usually insured against by Persons
operating similar businesses or properties in the localities
where such businesses or properties are located and has been
issued by insurers of recognized responsibility. There is no
Default under any such coverage nor has there been any failure to
give notice or present any Claim under any such coverage in a due
and timely fashion. There are no outstanding unpaid premiums
except in the ordinary course of business and no notice of
cancellation or nonrenewal of any such coverage has been
received. There are no provisions in such insurance policies for
retroactive or retrospective premium adjustments. To the best of
the Company's knowledge, no event has occurred that reasonably
could be expected to form the basis of a bona fide Claim against
the Company, the Business or the Assets or which reasonably could
be expected to materially increase the insurance premiums payable
for any such coverage. All products liability and general
liability insurance policies ever
25
maintained by the Company have been occurrence policies and not
claims made policies. There are no outstanding performance bonds
covering or issued for the benefit of the Company. At no time
since it commenced operations has the Company been without
general liability insurance or workers compensation insurance.
SECTION 4.24. Labor Matters. The Company has no
collective bargaining agreement with any labor union or other
representative of employees. No strike, slowdown, picketing or
work stoppage by any union or other group of employees against
the Company or the Assets wherever located, and no secondary
boycott with respect to their products, lockout by them of any of
their employees or any other labor trouble or other occurrence,
event or condition of a similar character, has occurred or been
threatened. Neither the Company nor, to the best of the
Company's knowledge, any Person that manufactures or produces any
of the Company's products, employs any minors or any unauthorized
or illegal aliens.
SECTION 4.25. Employee Benefit Plans.
(A) The DISCLOSURE SCHEDULE sets forth a complete
list and description of each pension, retirement, deferred
compensation, bonus, stock purchase, stock option, profit
sharing, insurance or employee benefit or welfare plan,
agreement, arrangement or informal understanding for the benefit
of employees or former employees, their dependents, survivors or
beneficiaries, whether or not legally binding (collectively,
"Benefit Plans"), established or maintained, or contributed to,
by the Company. Each Benefit Plan that is subject to the
Employee Retirement and Income Security Act of 1974 ("ERISA") is
in substantial compliance therewith. No employee of the Company
is covered by any collective bargaining agreement.
(B) No employee pension benefit plans ("Pension
Benefit Plan"), within the meaning of Section 3(2) of ERISA, of
the Company nor any trust thereunder has been terminated, nor
have there been any "reportable events" as to any Pension Benefit
Plan of the Company (as that term is defined in Section 4043 of
ERISA) since the effective date of ERISA, and all reports
required to be filed by the Company pursuant to ERISA have been
filed and all notices required to be given by ERISA pursuant to
ERISA have been given.
(C) The Company has not maintained or contributed to
any "multi-employer plan," within the meaning of Section 3(37) of
ERISA. No liability under Title IV of ERISA has been or is
expected to be incurred by the Company attributable to the period
ending on the Closing Date with respect to any plan currently or
formerly maintained or contributed to it or any ERISA Affiliate
(as defined in Section 4001 of ERISA).
(D) Each Pension Benefit Plan of the Company meets
the requirements of Section 401(a) of the Code and the trust, if
any, forming part of such plan is exempt from federal income tax
under Section 501(a) of the Code.
SECTION 4.26. Returns. All Claims against the Company
demanding allowances or seeking to return to the Company
merchandise shipped on or prior to the Closing Date by reason of
alleged overshipments, defective merchandise, billing errors,
customer errors or otherwise shall be reflected on the Closing
Balance Sheet.
26
SECTION 4.27. Product Warranties. Except for
warranties under applicable Law, (i) the Company has made no
warranties, express or implied, written or oral, with respect to
the Business, and (ii) there is no Claim pending or, to the best
of the Company's knowledge, threatened against the Company under
any such warranty of the Company and, to the best of the
Company's knowledge, there is no basis for any such Claim, and
(iii) the Company has no Liability with respect to any such
warranty, whether known or unknown, absolute, accrued, contingent
or otherwise and whether due or to become due.
SECTION 4.28. Delivery of Documents. The Company has
delivered to Crown Crafts true, correct and complete copies of
the Company's Articles of Incorporation and By-Laws and all
material written Contracts and other documents (including,
without limitation, all amendments, supplements, modifications or
waivers currently in effect) described in this Agreement or in
the DISCLOSURE SCHEDULE.
SECTION 4.29. No Material Adverse Developments. Since
the Latest Year-End Balance Sheet Date, there has been no actual
or, to the best of the Company's knowledge, threatened change in
the Business or any event, condition or state of facts, in
either case that is or reasonably could be expected to be
material and adverse to the Company or the Assets.
SECTION 4.30. Material Transactions. Since the Latest
Year-End Balance Sheet Date, the Business has been operated in
the manner described in Section 6.1, and the Company has not
taken any action that would have been prohibited by Section 6.1
had that Section been effective since the Latest Year-End Balance
Sheet Date.
SECTION 4.31. Additional Information. The DISCLOSURE
SCHEDULE contains accurate lists and summary descriptions of the
following as of the date hereof:
(i) all accounts receivable of the Company
as of September 28, 1995 specifying the account debtor
and the face amount of each receivable;
(ii) all accounts payable and accrued
expenses of the Company reflected on the Latest Year-
End Balance Sheet, specifying the payee, the face
amount of each payable, the age of each payable
regardless of classification on the balance sheet
account, any defenses, setoffs or counterclaims that
may exist with respect thereto, and reconciling the
aggregate value of all accounts payable as of the
Latest Year-End Balance Sheet Date to the amount of
such category set forth on the Latest Year-End Balance
Sheet;
(iii) the names of all present officers and
directors of the Company;
(iv) the names and addresses of every bank
and other financial institution in which the Company
maintains an account (whether checking, savings or
otherwise), lock box or safe deposit box, and the
account numbers and names of Persons having signing
authority or other access thereto;
27
(v) the names of all Persons authorized to
borrow money or incur or guarantee indebtedness on
behalf of the Company;
(vi) the names of all Persons holding powers
of attorney from the Company and a summary statement of
the terms thereof; and
(vii) all names under which the Company has
ever conducted any Business or which it has otherwise
ever used.
SECTION 4.32. Corporate Records. The minute books of
the Company are current and contain correct and complete copies
of all charter documents of the Company, including all amendments
thereto and restatements thereof, and of all minutes of meetings,
resolutions and other actions and proceedings of its shareholders
and board of directors and all committees thereof, duly signed by
the Secretary or an Assistant Secretary, and the stock record
book of the Company is also current, correct and complete.
SECTION 4.33. Transactions with Affiliates. No
shareholder or director of the Company, or any Person with whom
any such shareholder or director has any direct or indirect
relation by blood, marriage or adoption, or any entity in which
any such person owns any beneficial interest (other than a
publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less
than 1% of the stock of which is beneficially owned by all such
Persons) has any interest in (i) any contract, arrangement or
understanding with, or relating to, the Business, (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.
SECTION 4.34. Full Disclosure. There are and will be
no material misstatements in any of the representations and
warranties made by the Company in this Agreement or in any of the
certificates and instruments delivered or to be delivered by the
Company pursuant to this Agreement, including, without
limitation, in the DISCLOSURE SCHEDULE, and the Company has not
omitted to state any fact necessary to make such representations
and warranties not materially misleading.
SECTION 4.35. Limitation on Representations and
Warranties Due to Tax Status. Notwithstanding the foregoing,
until the Extension Grant Date occurs the Company shall not be
deemed to have made any representations or warranties under this
Article IV to the extent, but only to the extent, that such
representations or warranties would be incorrect if the Company,
at any time during the period from July 1, 1982 to and including
July 27, 1995, were not an "S" corporation within the meaning of
Section 1361 of the Code and the equivalent provisions of all
applicable state income tax statutes. If the Extension Grant
Date occurs, then from and after the Extension Grant Date the
portions of the representations and warranties that are deemed to
have not been made pursuant to the first sentence of this Section
4.35 shall be deemed to have been made as of the date hereof.
28
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CROWN CRAFTS
Crown Crafts hereby represents and warrants to the
Company as follows:
SECTION 5.1. Organization and Standing. Crown Crafts
and Merger Sub are corporations duly organized, validly existing
and in good standing under the Laws of Georgia and California,
respectively, having all requisite corporate power and authority
to perform their obligations under this Agreement.
SECTION 5.2. Authority and Binding Effect. Crown
Crafts and Merger Sub have the corporate power and authority to
execute, deliver and perform this Agreement and, except for
filings required by the HSR Act, have taken all actions necessary
to secure all approvals required in connection therewith. The
execution, delivery and performance of this Agreement by Crown
Crafts and Merger Sub have been duly authorized by all necessary
corporate action on the part of Crown Crafts and Merger Sub.
This Agreement constitutes the legal, valid and binding
obligation of Crown Crafts and Merger Sub, enforceable against
each of Crown Crafts and Merger Sub in accordance with its terms.
SECTION 5.3. Validity of Contemplated Transactions.
Neither the execution and delivery of this Agreement by Crown
Crafts or Merger Sub nor the consummation of the transactions
contemplated hereby by Crown Crafts or Merger Sub will contravene
or violate any Regulation or Court Order which is applicable to
Crown Crafts or Merger Sub, or the Articles of Incorporation or
By-Laws of Crown Crafts or Merger Sub, or will result in a
Default under any Contract to which Crown Crafts or Merger Sub is
a party or by which it is otherwise bound.
SECTION 5.4. Business and Liabilities of Merger Sub.
Merger Sub has not conducted any business since its date of
incorporation and has not incurred any liabilities other than
minimum franchise tax liabilities.
ARTICLE 6
CERTAIN ADDITIONAL COVENANTS
SECTION 6.1. Conduct of Business Pending Closing.
Until the Closing Date, except as may be approved by Crown Crafts
in writing or as otherwise expressly provided in this Agreement,
the Company shall:
(i) operate the Business only in the
ordinary course and in substantially the same manner as
it has been operated in the past and not sell any of
the Assets except for sales in the ordinary course of
business, provided that the Company may take any action
not material to the Business whether or not such action
is in the ordinary course of business;
(ii) not issue, repurchase or redeem or
commit to issue, repurchase or redeem, any shares of
its capital stock, any options or other rights to
acquire such stock or any securities convertible into
or exchangeable for such stock;
29
(iii) not (a) incur any amount of long or
short-term debt for money borrowed, (b) guarantee or
agree to guarantee the obligations of others, (c)
indemnify or agree to indemnify others, or (d) incur
any other Liabilities other than those incurred in the
ordinary course of business consistent with past
practice, provided that the Company may incur any
Liability not material to the Business whether or not
such occurrence is in the ordinary course of business;
(iv) keep in full force and effect insurance
covering the Company, the Assets and the Business
comparable in amount and scope of coverage to that now
maintained;
(v) maintain the tangible Assets in good
condition and working order, ordinary wear and tear
excepted;
(vi) use its reasonable best efforts to
retain the Company's employees and maintain the
Business so that such employees will remain available
to the Company on the Closing Date and to maintain
existing relationships with suppliers, customers and
others having business dealings with the Company and
otherwise to preserve the goodwill of the Business so
that such relationships and goodwill will be preserved
on the Closing Date;
(vii) not amend its Articles of Incorporation
or By-Laws;
(viii) not merge with or into any other Person
or sell, assign, transfer, pledge or encumber any
material part of the Assets outside the ordinary course
of business or agree to do any of the foregoing;
(ix) not enter into any Contract that is
material, nor amend or terminate any material Contract;
(x) not waive any rights of value or rights
that would otherwise accrue to the Company after the
Closing Date;
(xi) not increase the salaries of, or make
any bonus or similar payments to or establish any
Benefit Plans for, any of the Company's directors,
officers or employees or enter into or modify any
employment, consulting or similar Contracts with any
such Persons or agree to do any of the foregoing;
(xii) continue to maintain all Benefit Plans
in accordance with applicable Regulations and ensure
that no Benefit Plan, nor any trust related thereto,
shall be amended or terminated prior to the Closing
Date, except for any amendment as may be required to
comply with applicable Regulations;
(xiii) collect its accounts receivable in the
ordinary course of business consistent with past
practice;
30
(xiv) pay its accounts payable in the ordinary course
of business consistent with past practice and not fail to pay
or discharge when due any Liabilities except where any such
account payable or Liability is the subject of a good faith
dispute;
(xv) use its reasonable best efforts to
complete the Merger and obtain the satisfaction of the
conditions specified in Article 8;
(xvi) promptly notify Crown Crafts of any
Default, the threat or commencement of any Litigation,
or any development that occurs before the Closing that
could have a Material Adverse Effect;
(xvii) use its reasonable best efforts to
obtain any consents or approvals required under any
Contracts or otherwise that are necessary to complete
the Merger or to avoid a Default under any such
Contract, provided that Red Calliope shall not be
required to make payments in excess of an aggregate of
$125,000 in order to obtain such consents and
approvals;
(xviii) comply with all Regulations applicable
to it and to the conduct of the Business, except where
the failure to so comply could not have a Material
Adverse Effect;
(xix) provide Crown Crafts with such financial
and other reports of the Business as may be reasonably
requested;
(xx) not make, or commit itself to make, any
capital expenditures in excess of $5,000;
(xxi) (a) give to Crown Crafts' officers,
employees, counsel, accountants and other
representatives free and full access to and the right
to inspect, during normal business hours, all of the
Assets, records, Contracts and other documents relating
to the Business, (b) permit them to consult with the
officers, employees, accountants, counsel and agents of
the Company for the purpose of making such
investigation of the Company, the Business and the
Assets as Crown Crafts shall desire to make, provided
that such investigation shall not unreasonably
interfere with the Company's operational business, and
(c) furnish to Crown Crafts all such documents and
copies of documents and records and information with
respect to the Company's affairs and copies of any
working papers relating thereto as Crown Crafts shall
from time to time reasonably request; and
(xxii) promptly disclose to Crown Crafts in
writing any information set forth in the DISCLOSURE
SCHEDULE hereto which no longer is correct and any
information of the nature of that set forth in the
DISCLOSURE SCHEDULE which arises after the date hereof
and which would have been required to be included in
the DISCLOSURE SCHEDULE if such information had
obtained on the date hereof.
SECTION 6.2. HSR Act. Each of Crown Crafts, Merger
Sub and the Company has prepared and filed with the Federal Trade
Commission ("FTC") and the Antitrust Division of the Department
of Justice ("DOJ") all notifications required by the HSR Act, and
each of them agrees hereafter to file, as promptly as
practicable, all responses to requests for information required
by the HSR Act. Crown Crafts, Merger Sub and the Company will
cooperate as required to prepare
31
each separate filing, and to supply any additional information
which may be submitted to the FTC or the DOJ relating to the
status of the transactions contemplated hereby under the
antitrust laws, whether or not such additional information is
requested or required under the HSR Act. Crown Crafts, Merger
Sub and the Company shall each request early termination of the
waiting period under the HSR Act.
SECTION 6.3. Medical Benefits. Crown Crafts agrees
that immediately following the Closing all employees of the
Company (other than Mr. and Mrs. Glickman) to whom the Company
has provided medical benefits (the "Company Plan") as of the
Closing Date shall either (i) continue to be covered under the
Company Plan, or (ii) be covered under Crown Crafts' medical plan
(the "Crown Crafts Plan") and not be subject to any exclusion in
the Crown Crafts Plan regarding pre-existing conditions to the
extent that such exclusion exceeds in nature or duration any
exclusion to which such employees are subject immediately prior
to the Closing under the Company Plan. Nothing in this Section
6.3 shall be construed (i) as giving any employee of the Company
the right to be employed by the Company or Crown Crafts for any
period after the Closing or restrict the right of the Company or
Crown Crafts to discharge any such person or an employee at any
time, (ii) as restricting the right of Crown Crafts to change or
modify the Company Plan or Crown Crafts' Plan in any respect, or
(iii) as obligating Crown Crafts to continue to provide any
medical insurance or benefits to the Company's employees.
SECTION 6.4. Confidentiality. Subject to the
requirements of applicable Law, Crown Crafts and Merger Sub will
keep confidential, and will cause their representatives to keep
confidential, all information and documents obtained by them from
the Company in connection herewith except as otherwise consented
to by the Company; provided, however, that neither Crown Crafts
nor Merger Sub shall be precluded from making any disclosure
which (based on advice of counsel) it deems required by Law in
connection with the transactions contemplated by this Agreement.
In the event Crown Crafts or Merger Sub is required to disclose
any information or documents pursuant to the immediately
preceding sentence, it shall promptly give written notice of such
disclosure that is proposed to be made to the Company so that the
parties can work together to limit the disclosure to the greatest
extent possible and, in the event that Crown Crafts or Merger Sub
is legally compelled to disclose any information, to seek a
protective order or other appropriate remedy or both. Upon any
termination of this Agreement, Crown Crafts and Merger Sub will
collect and deliver to the Company all documents obtained
pursuant to this Agreement or otherwise from the Company by them
or its representatives then in their possession and any copies
thereof.
SECTION 6.5. Best Efforts. Each of Crown Crafts and
Merger Sub shall use its reasonable best efforts to accomplish
the Merger and obtain the satisfaction of the conditions
specified in Section 9.
SECTION 6.6. Intentionally Left Blank.
SECTION 6.7. Noncompetition. Mr. Fohrman agrees
that, from the Closing Date until the fifth anniversary of the
termination for any reason whatsoever of his employment (the
"Noncompete Period"), unless acting in accordance with Crown
Crafts' prior written consent and except as an employee or
director of the Company or Crown Crafts, he will not (directly or
indirectly), (i) own, manage, operate, join, control, finance or
participate in the ownership,
32
management, operation, control or financing of, or (ii) be
connected as an officer, director, employee, principal, agent,
representative, consultant, investor, owner, partner, manager,
venturer or otherwise with, or permit his name to be used by or
in connection with, any Person engaged in (or that proposes to
engage in) the business of designing, manufacturing,
distributing, selling, importing, sourcing, marketing or
producing any type of infant bedding product, textile crib
accessory or house furnishing for infant bedrooms in any county
in the State of California or any other state of the United
States; provided, however, that the provisions of this Section
6.7 shall not be deemed to prohibit the ownership by Mr. Fohrman
of not more than one percent (1%) of any class of securities of
any corporation having a class of securities registered pursuant
to the Securities Exchange Act of 1934, as amended. Mr. Fohrman
acknowledges that (i) he has intimate knowledge of the Business
which, if exploited by him, in contravention of this Agreement,
would seriously adversely and irreparably affect the value of the
Surviving Company to Crown Crafts and the ability of Crown Crafts
to continue to operate the Business following the Closing,
(ii) the provisions of this Section 6.7 and Sections 6.8 and 6.9
are reasonable and necessary to protect the legitimate interests
of Crown Crafts, (iii) the provisions of this Section 6.7 and
Sections 6.8 and 6.9 are reasonable and necessary to protect the
goodwill of the Business and the other Assets acquired by Crown
Crafts hereunder, (iv) any violation of this Section 6.7 or
Sections 6.8 and 6.9 will result in irreparable injury to Crown
Crafts and the Surviving Corporation and that damages at Law
would not be reasonable or adequate compensation to Crown Crafts
and the Surviving Corporation for a violation of this Section 6.7
or Sections 6.8 or 6.9, and (v) Crown Crafts and the Surviving
Corporation shall be entitled to have the provisions of this
Section 6.7 and Sections 6.8 and 6.9 specifically enforced by
preliminary and permanent injunctive relief without the necessity
of proving actual damages and without posting bond or other
security as well as to an equitable accounting of all earnings,
profits and other benefits arising out of any such violation,
including, without limitation, future earnings estimated upon a
basis of seven (7) years as the anticipated average tenure of a
customer with the Surviving Corporation. In the event that the
provisions of this Section 6.7 or Sections 6.8 or 6.9 should ever
be deemed to exceed the time, geographic, product or any other
limitations permitted by applicable Law, then such provisions
shall be deemed reformed to the maximum extent permitted by
applicable Law.
SECTION 6.8. Nonsolicitation. Mr. Fohrman agrees
that, for the Noncompete Period, he will not (directly or
indirectly) call on or solicit for the purpose of providing any
goods or services competitive with those offered by the Surviving
Corporation to, or divert or take away from the Surviving
Corporation the business of (including, without limitation, by
divulging to any competitor or potential competitor of the
Surviving Corporation or Crown Crafts the name of), any Person
who or which at the Closing Date was, or at any time during the
three (3) years preceding the Closing Date had been, a customer
of the Company or whose identity is known to Mr. Fohrman at the
Closing Date as one whom the Surviving Corporation intends to
solicit within the succeeding year. Nothing contained in this
Section 6.8 shall be deemed to affect in any manner any other
provision of this Agreement.
SECTION 6.9. Hiring of the Surviving Corporation's
Employees. During the Noncompete Period, Mr. Fohrman will not
(directly or indirectly) hire or offer employment to, or assist
any other Person in employing, any employee of the Surviving
Corporation (whether or not such employment is full time or is
pursuant to a written contract with the Surviving Corporation)
unless the Surviving Corporation or Crown Crafts first terminates
the employment
33
of such employee. Nothing contained in this Section 6.9 shall
affect or be deemed to affect in any manner any other provision
of this Agreement.
SECTION 6.10. No Solicitation of Transactions. The
Company shall not, directly or indirectly, through any officer,
director, agent or otherwise, (i) initiate or solicit or
knowingly encourage (including by way of furnishing non-public
information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any
Third Party Transaction, or (ii) enter into or maintain or
continue discussions or negotiate with, or furnish any non-public
information or assistance to, any Person in connection with any
Third Party Transaction, or (iii) agree to or endorse any Third
Party Transaction, or (iv) authorize or permit any of its
officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative
retained by the Company to take any action described in clause
(i), (ii) or (iii) above. The Company shall notify Crown Crafts
orally (within two (2) Business Days) and in writing (as promptly
as practicable) of all relevant details relating to all inquiries
and proposals which it or any other such officer, director,
employee, investment banker, financial advisor, attorney,
accountant or other representative may receive relating to any of
such matters and if such inquiry or proposal is in writing, the
Company shall forthwith deliver to Crown Crafts a copy of such
inquiry or proposal.
SECTION 6.11. Conduct of Merger Sub's Business. Prior
to the Closing, Merger Sub shall not engage in any activities
other than activities directly related to the consummation of the
Merger.
SECTION 6.12. Consulting Agreement. At the Closing,
the Company shall execute and deliver to Mrs. Glickman a
consulting agreement in substantially the form of Exhibit A
hereto.
SECTION 6.13. Asbestos Remediation. If between the
Effective Time and June 1, 1996 the Surviving Corporation shall
be required under Environmental Laws to remove any asbestos from
buildings or tenant improvements located on either of the parcels
of Leased Real Property occupied by the Company as of the date
hereof, such removal shall be conducted in a manner intended to
minimize the cost thereof to the greatest extent reasonably
possible under the circumstances while still complying with
Environmental Laws relating to such removal.
SECTION 6.14 Conduct of Title and Merger Litigation.
All Title Litigation and, from and after the Closing Date, all
Merger Litigation shall be conducted by Crown Crafts, subject to
the terms of the Disbursement Agreement in the case of Title
Litigation, and shall be conducted in good faith and in a manner
reasonably calculated to maximize the Adjustment Amount.
Mr. Fohrman shall have the right, but not the obligation, to
participate in, but not control, any such Title Litigation or
Merger Litigation; provided, however, that Mr. Fohrman shall not
have the right to participate in Title Litigation during any time
that any party to the Disbursement Agreement, other than Crown
Crafts, is controlling such Title Litigation pursuant to the
terms of the Disbursement Agreement. During any period that
Mr. Fohrman does not have the right to participate in Title
Litigation due to the proviso to the preceding sentence, Crown
Crafts shall keep Mr. Fohrman informed of the status of such
Title Litigation and shall share with him all information
relating thereto that is not protected by the attorney-client
privilege or
34
attorney work product privilege. All fees and expenses
(including attorneys' fees) incurred by Mr. Fohrman in connection
with this Section 6.14 shall be paid by Red Calliope. Legal
counsel utilized by Crown Crafts in connection with the Title
Litigation and Merger Litigation shall be reasonably acceptable
to Mr. Fohrman. In the event of any conflict between this
Section 6.14 and the terms of the Disbursement Agreement, the
terms of the Disbursement Agreement shall control.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1. Indemnification Obligations.
(A) Prior to the Closing Date, the Company shall
indemnify and hold harmless Crown Crafts, and each Person who
controls Crown Crafts, within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), and each officer and
director of Crown Crafts and any such controlling Person (each an
"indemnified party") from, against and in respect of any and all
damages (including special and consequential), losses, demands,
claims, actions, causes of action, assessments, deficiencies,
Liabilities, costs and expenses, including, without limitation,
interest, penalties, cost of investigation and defense and
reasonable attorneys' and other professional fees and expenses
(collectively, "Losses") resulting from, relating to or arising
out of any Merger Litigation.
(B) From and after the Closing Date, Mr. Fohrman and
Mr. Glickman (the "indemnifying parties"), jointly and severally,
shall indemnify and hold harmless each indemnified party from,
against and in respect of any and all Losses resulting from,
relating to or arising out of (i) any inaccuracy, untruth or
incompleteness of any representation or warranty of the Company
contained in or made pursuant to this Agreement, regardless of
whether the same was deliberate, reckless, innocent or
unintentional, or (ii) any taxes, interest or penalties imposed
by the IRS or the California Franchise Tax Board or any other
governmental authority against the Surviving Corporation with
respect to periods prior to and including the Closing Date to the
extent that such taxes, interest and penalties are not offset
against the Tax Reserves; provided, however, that in the case of
Sections 4.3, 4.4 and 4.5, an indemnifying party shall have no
liability hereunder for any Losses to the extent that such Losses
result from, relate to or arise out of any inaccuracy, untruth or
incompleteness of any representation or warranty as to the other
indemnifying party.
SECTION 7.2. Method of Asserting Claims, Etc.
(A) All Claims for indemnification under this Article
7 shall be asserted and resolved as follows:
(i) In the event that any Claim for which
the indemnifying parties would be liable to an
indemnified party hereunder is asserted or sought to be
collected by any Person other than an indemnified party
(a "Third Party"), such indemnified party shall
promptly notify the indemnifying parties of such Claim,
specifying the nature of such Claim and the amount or
the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the
final amount of such Claim) (the "Claim Notice").
35
The indemnifying parties shall have ten (10) days from
their receipt of the Claim Notice (the "Notice Period")
to notify such indemnified party (x) whether or not
they dispute their Liability to such indemnified party
hereunder with respect to such Claim, and (y) if the
indemnifying parties do not dispute such Liability,
whether or not they desire, at their sole cost and
expense, to defend such indemnified party against such
Claim; provided, however, that such indemnified party
is hereby authorized prior to and during the Notice
Period to file any motion, answer or other pleading
which such indemnified party shall reasonably deem
necessary or appropriate to protect its interests so
long as such pleading does not admit any liability or
otherwise compromise the possible defenses to such
Claim. In the event that either or both of the
indemnifying parties notifies such indemnified party
within the Notice Period that such indemnifying party
does not dispute such Liability and desires to defend
against such Claim, then, except as hereinafter
provided, such indemnifying party shall have the right
to defend by appropriate proceedings, which proceedings
shall be conducted in such manner as such indemnifying
party shall determine in his reasonable discretion,
taking into consideration, among other things, the
desire of the indemnified party to minimize the risk of
such indemnified party becoming subject to Liability
for any other matter. If such indemnified party
desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and
expense. If, in the reasonable opinion of such
indemnified party, any such Claim involves an issue or
matter which is likely to have a material adverse
effect on the business, operations, assets, properties
or prospects of the Business, Crown Crafts shall have
the right to control the defense or settlement of any
such Claim, and such indemnified party's reasonable
costs and expenses thereof shall be included as part of
the indemnification obligations of the indemnifying
parties; provided, however, if Crown Crafts elects to
control the defense or settlement of any Claim pursuant
to this sentence, (1) the indemnifying parties shall
have the right to participate in, but not control, such
defense, (2) Crown Crafts may not settle any such Claim
without the prior written consent of the indemnifying
parties, which consent may not be unreasonably
withheld, and (3) if Crown Crafts receives a settlement
proposal from the Person asserting such Claim and is
notified by either of the indemnifying parties that
such indemnifying party wants to accept such settlement
proposal, the Liability, if any, of the indemnifying
parties with respect to such Claim shall equal the
lesser of (x) the amount offered in such settlement
proposal or (y) the amount of the actual Losses of the
indemnified parties with respect to such Claim. If
both of the indemnifying parties dispute their
Liability with respect to such Claim or demand or elect
not to defend against such Claim, whether by not giving
timely notice as provided above or otherwise, then the
amount of any such Claim, or, if the same be contested
by either of the indemnifying parties or by such
indemnified party (but such indemnified party shall not
have any obligation to contest any such Claim), then
that portion thereof as to which such defense is
unsuccessful, shall be conclusively deemed to be a
Liability of the indemnifying parties hereunder
subject, if either of the indemnifying parties has
timely disputed liability, to a final adjudication that
the disputed liability is covered by these
indemnification provisions.
(ii) In the event that an indemnified party
should have a Claim against the indemnifying parties
hereunder which does not involve a Claim being asserted
against or sought to be collected from such indemnified
party by a Third Party, such indemnified party shall
promptly send a Claim Notice with respect to such Claim
to the indemnifying
36
parties. If the indemnifying parties do not notify
such indemnified party within the Notice Period that
they dispute such Claim, the amount of such Claim shall
be conclusively deemed a liability of the indemnifying
parties.
(iii) Nothing herein shall be deemed to
prevent any indemnified party from making a Claim
hereunder for potential or contingent Claims or demands
provided the Claim Notice sets forth the specific basis
for any such potential or contingent Claim or demand
and the estimated amount thereof to the extent then
feasible and the indemnified party has reasonable
grounds to believe that such a Claim or demand will be
made.
SECTION 7.3. Payment.
(A) In the event that either indemnifying party is
required to make any payment under this Article 7, such
indemnifying party shall promptly pay the indemnified party the
amount so determined. If there should be a dispute as to the
amount or manner of determination of any indemnity obligation
owed under this Article 7, the party from whom indemnification is
due shall nevertheless pay when due such portion, if any, of the
obligation as shall not be subject to dispute. The difference,
if any, between the amount of the obligation ultimately
determined as properly payable under this Article 7 and the
portion, if any, theretofore paid shall bear interest as provided
in Section 7.3(B). Upon the payment in full of any Claim, either
by setoff or otherwise, the party making payment shall be
subrogated to the rights of the indemnified party against any
Person with respect to the subject matter of such Claim.
(B) If all or part of any indemnification obligation
under this Agreement is not paid when due, then the indemnifying
party obligated to make such payment shall pay the indemnified
party or parties interest on the unpaid amount of the obligation
for each day from the date the amount became due until payment in
full, payable on demand, at the fluctuating rate per annum which
at all times shall be the lowest rate of interest generally
charged from time to time by Wachovia Bank of Georgia, N.A. and
publicly announced by such bank as its so-called "prime rate."
SECTION 7.4. Survival of Representations and
Warranties, etc. All of the representations, warranties,
covenants and agreements contained in this Agreement or in any
attachment, Exhibit, the DISCLOSURE SCHEDULE, certificate,
document or list delivered in connection with the Merger shall
survive the Closing, any examination by or on behalf of the
parties and the consummation of the transactions contemplated
herein, but only to the extent specified below:
(i) except as set forth in clauses (ii) and
(iii) below, the representations and warranties
contained in Article 4 hereof shall survive for a
period of one (1) year following the Closing Date;
(ii) the representations and warranties
contained in Sections 4.1 through and including 4.6,
Sections 4.8 and 4.27 and in Article 5 shall survive as
to any claim covered thereby for so long as any statute
of limitations for such claim remains open, in whole or
in part, including, without limitation, by reason of
waiver or extension of such statute of limitations; and
37
(iii) the representations and warranties
contained in Sections 4.16 and 4.25 shall survive for a
period of three (3) years following the Closing Date.
SECTION 7.5. Limitations as to Amount.
(A) The indemnifying parties shall not have any
liability with respect to the matters described in Section 7.1
(B) until the total of all Losses with respect thereto exceeds
$50,000 in which event the indemnifying parties shall be
obligated to indemnify the indemnified party as provided herein
for all such Losses, subject to Section 7.5(B).
(B) Except with respect to Claims based upon
intentional misrepresentation or intentional breach of warranty
by the Company, (i) the liability of an indemnifying party under
Section 7.1(B) shall in no event exceed the consideration paid to
such indemnifying party pursuant to Section 3.1 and (ii) the
collective liability of the indemnifying parties under
Section 7.1(B) shall in no event exceed $7,000,000.
(C) If the allowance for doubtful accounts set forth
on the Closing Balance Sheet exceeds the aggregate amount of
accounts receivable reflected on the Closing Balance Sheet that
ultimately are uncollectable, such excess allowance shall be
credited against any amount that the indemnifying parties would
otherwise be obligated to pay pursuant to Section 7.1(B).
SECTION 7.6. Status of Indemnifying Parties. The
indemnification obligations set forth in this Article 7 are the
direct and primary obligations of the indemnifying parties and do
not constitute a guaranty of any obligation of the Company or any
other Person.
SECTION 7.7. Sole Remedy. Except as otherwise
provided in this Agreement, this Article 7 is the sole remedy of
Crown Crafts with respect to Losses resulting from, relating to
or arising out of any inaccuracy, untruth or incompleteness of
any representation or warranty of the Company contained in or
made pursuant to this Agreement.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF CROWN CRAFTS
Subject to waiver as set forth in Section 10.9, the
obligations of Crown Crafts under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the
following conditions:
SECTION 8.1. Representations True at Closing. The
representations and warranties of the Company set forth in
Article 4 shall be true and correct on the Closing Date with the
same effect as if made at that time.
SECTION 8.2. Performance by the Company. The Company
shall have performed and satisfied all agreements and conditions
which it is required by this Agreement to perform or satisfy
prior to or on the Closing Date.
38
SECTION 8.3. Certificates. Crown Crafts shall have
received certificates from the Company dated the Closing Date
certifying in such detail as Crown Crafts may reasonably request
that each of the conditions described in Sections 8.1 and 8.2 has
been fulfilled.
SECTION 8.4. Form and Content of Documents. The form
and content of all documents, certificates and other instruments
to be delivered by the Company shall be reasonably satisfactory
to Crown Crafts.
SECTION 8.5. Opinions of Counsel.
(A) Crown Crafts shall have received the written
opinion, dated the Closing Date, of Gibson, Dunn & Crutcher,
counsel for the Company, in form and substance reasonably
satisfactory to Crown Crafts, to the effect that:
(i) The Company is validly organized,
existing and in good standing in the State of
California and has all requisite corporate power and
authority to own and operate its properties and to
carry on its business as currently conducted and is
duly qualified to do business in each other state in
which the failure to so qualify would have a material
adverse effect on its operations in such state.
(ii) The Company has full corporate power and
authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
(iii) The Company has taken all requisite
action to authorize, approve and carry out this
Agreement and the transactions on the part of the
Company contemplated hereby, and this Agreement
constitutes a legal, valid and binding agreement of the
Company enforceable against it in accordance with its
terms, except as such enforcement may be limited by (x)
bankruptcy, insolvency, reorganization, moratorium, and
other Laws and legal and equitable principles of
general application affecting the rights or remedies of
creditors, including, without limitation, statutory or
other laws regarding fraudulent conveyances or
preferential transfers, and (y) general principles of
equity upon the specific enforceability of any of the
remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive
relief or other equitable remedies and the application
of principles of equity (regardless of whether
enforcement is considered in proceedings at law or in
equity) as such principles relate to, limit or affect
the enforcement of creditors' rights generally.
(iv) The execution, delivery and performance
of this Agreement by the Company and the consummation
of the transactions on the part of the Company
contemplated hereby (x) will not result in any breach,
violation, default or acceleration of the obligations
of the Company under the Articles of Incorporation or
By-Laws of the Company or under any judgment, decree,
order, lease, license, contract or other agreement
which is applicable to the Company and of which such
counsel is aware, and (y) to the
39
best of such counsel's knowledge, violate any Law,
authorization, approval, judgment, decree, order or
Regulation applicable to the Company.
(v) The consummation of the transactions on
the part of the Company contemplated by this Agreement
does not require the consent, approval, authorization
or order, giving of notice to, or the registration
with, any court or any Governmental Authority or any
other Person of which such counsel is aware other than
any of the foregoing obtained or made on or prior to
the Closing Date.
(vi) To the best of such counsel's knowledge,
no action or proceeding against the Company is pending
before any court, or before or by any Governmental
Authority, to restrain, prohibit, invalidate or obtain
damages with respect to or otherwise question or attack
the transactions contemplated by this Agreement.
(vii) The Shares have been validly issued by
the Company and are fully paid and non-assessable and
represent all of the issued and outstanding Red
Calliope Stock.
(B) Crown Crafts shall have received the written
opinion, dated the Closing Date, of Jones, Day, Reavis & Pogue,
counsel for Mr. Fohrman, in a form reasonably to be negotiated,
and in any event subject to customary exceptions and to factual
representations by Mr. Fohrman to Jones, Day, Reavis & Pogue, to
the effect that Article VII (except for Section 7.6 thereof, as
to which no opinion need be given) is enforceable against Mr.
Fohrman in accordance with its terms.
SECTION 8.6. Litigation Affecting Closing. No Court
Order shall have been issued or entered which would be violated
by the completion of the Merger. No Person who or which is not a
party to this Agreement shall have commenced or threatened to
commence any Litigation seeking to restrain or prohibit, or to
obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement, and no
Litigation, the unfavorable resolution of which could reasonably
be expected to have a Material Adverse Effect shall be pending
against the Company.
SECTION 8.7. Material Adverse Changes. From the date
hereof to the Closing Date, there shall have been no event or
occurrence having a Material Adverse Effect, nor shall there be
any conditions existing or threatened that could reasonably be
expected to have a Material Adverse Effect.
SECTION 8.8. Regulatory Compliance and Approvals.
Crown Crafts shall be satisfied that all approvals required under
any Regulations to carry out the Merger shall have been obtained
and that the parties shall have complied with all Regulations
applicable to the Merger.
SECTION 8.9. HSR Filing. All filings required to be
made under the HSR Act shall have been made, and the waiting
period thereunder shall have expired or been terminated.
SECTION 8.10. Intentionally Left Blank.
40
SECTION 8.11. Consents. The Company shall have
delivered to Crown Crafts all consents required to be obtained in
connection with the Merger in order to avoid a Default under any
Contract to which the Company is a party or by which it may be
bound, except where the failure to obtain such consent would not
have a Material Adverse Effect. Each of the foregoing must be
free from burdensome restrictions and conditions not applicable
to the Company prior to the date of this Agreement, and all fees
payable in connection with obtaining any such consents shall have
been paid by the Company prior to the Closing Date.
SECTION 8.12. Employment Agreements. Neal Fohrman and
Nanci Freeman ("Ms. Freeman") shall have entered into Employment
Agreements substantially in the form of Exhibit B and C hereto,
respectively (the "Employment Agreements").
SECTION 8.13. Tax Reporting Agreement. A Tax
Reporting Agreement substantially in the form of Exhibit D hereto
(the "Tax Reporting Agreement") shall have been entered into by
all the parties thereto other than Crown Crafts.
SECTION 8.14. Dissenting Shares. Holders of not more
than fifteen percent (15%) of the Shares shall have elected and
perfected their appraisal rights under Chapter 13 of the CGCL
prior to the Closing.
SECTION 8.15. Disbursement Agreement. Each of the
parties to the Disbursement Agreement attached hereto as Exhibit
E (the "Disbursement Agreement") (with the exception of Crown
Crafts and Merger Sub) shall have performed and satisfied all
agreements and conditions which it is required thereby to perform
or satisfy prior to or on the Closing Date.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
Subject to waiver as set forth in Section 10.9, the
obligations of the Company under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the
following conditions:
SECTION 9.1. Representations of Crown Crafts True at
Closing. The representations and warranties of Crown Crafts set
forth in Article 4 shall be true and correct on the Closing Date
with the same effect as if made at that time.
SECTION 9.2. Performance by Crown Crafts. Crown
Crafts shall have performed and satisfied all agreements and
conditions which it is required by this Agreement to perform or
satisfy prior to or on the Closing Date.
SECTION 9.3. Officer's Certificate. The Company
shall have received a certificate from an appropriate officer of
Crown Crafts dated the Closing Date certifying in such detail as
the Company may reasonably request that each of the conditions
described in Sections 9.1 and 9.2 has been fulfilled.
SECTION 9.4. Incumbency Certificate. The Company
shall have received a certificate of the Secretary or an
Assistant Secretary of Crown Crafts dated the Closing Date
41
certifying to the incumbency of the officers of Crown Crafts
signing for it and as to the authenticity of their signatures.
SECTION 9.5. Form and Content of Documents. The form
and content of all documents, certificates and other instruments
to be delivered by Crown Crafts shall be reasonably satisfactory
to the Company.
SECTION 9.6. Litigation Affecting Closing. No Court
Order shall have been issued or entered which would be violated
by the completion of the Merger. No Person who or which is not a
party to this Agreement shall have commenced or threatened to
commence any Litigation seeking to restrain or prohibit, or to
obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
SECTION 9.7. Regulatory Compliance and Approval. The
Company shall be satisfied that all approvals required under any
Regulations to carry out the Merger shall have been obtained and
that the parties have complied with all Regulations applicable to
the Merger.
SECTION 9.8. HSR Filing. All filings required to be
made under the HSR Act shall have been made, and the waiting
period thereunder shall have expired or been terminated.
SECTION 9.9. Intentionally Left Blank.
SECTION 9.10. Ancillary Agreements. The Company shall
have entered into each of the Ancillary Agreements.
SECTION 9.11. Release of Guarantees. Mr. Fohrman
shall have been released from all personal guarantees with
respect to Liabilities of the Company, or Crown Crafts shall have
fully indemnified Mr. Fohrman with respect thereto.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Public Announcements. No party hereto
will, at any time, without the prior written consent of Crown
Crafts and the Company, make any announcement, issue any press
release or make any statement to any Third Party with respect to
this Agreement or any of the terms or conditions hereof except as
may be necessary to comply with any Law, Regulation or order and
then only after prior written notice to Crown Crafts of the
timing, context and content of such announcement, press release
or statement.
SECTION 10.2. Payment of Expenses. Each of the
Company, Mr. Fohrman, Mr. Glickman and Crown Crafts will pay all
legal, accounting and other fees and expenses which such party
incurs in connection with this Agreement and the transactions
contemplated hereby, and none of the expenses of Mr. Fohrman, Mr.
Glickman or any other shareholder of the Company shall be paid by
the Company or out of any of the Assets, provided that all such
fees and expenses of the Company (including, without limitation,
fees and expenses relating to professional services provided by
the Company's independent accountants, Lederman, Zeidler & Co.,
and the Company's legal counsel, Gibson, Dunn & Crutcher) shall
be paid by the Company
42
prior to Closing so that the entire amount thereof is reflected
on the Closing Balance Sheet. Notwithstanding the foregoing, if
(i) the Merger is not consummated by October 31, 1995 due to (x)
the breach by the Company, Mr. Glickman or Mr. Fohrman of any
covenant contained herein, (y) the failure of any condition to
Closing, other than any failure due to the action or inaction of
Crown Crafts or any failure due to the refusal of an independent
Third Party (other than any signatory to Exhibit E hereto, any
court with jurisdiction over, or any creditors committee acting
in connection with, the reorganization of Property Mortgage Co.,
Inc. or the personal bankruptcy of any shareholder of the
Company) to give any necessary consent, approval or clearance, or
(z) the action or inaction of the Company or any shareholder of
the Company or Mr. R. Todd Neilson (or his successor) as
Resolution Agent for Reorganized Property Mortgage Co., Inc. and
(ii) Crown Crafts is not then in breach of any of its covenants
contained herein, then the Company shall reimburse Crown Crafts
for (x) its actual, documented out-of-pocket expenses (including
attorneys fees and expenses) incurred in connection with the
Acquisition but not to exceed $125,000 and (y) the filing fee
paid by Crown Crafts with respect to any filing required under
the HSR Act in connection herewith.
SECTION 10.3. Termination by Mutual Consent. This
Agreement may be terminated at any time on or prior to the
Closing Date by mutual consent of the parties hereto.
SECTION 10.4. Termination for Breach. Crown Crafts
may terminate its obligations under this Agreement at any time on
or prior to the Closing Date if the Company shall have breached
any of its representations, warranties or other obligations under
this Agreement in any material respect and such breach shall not
have been cured within five (5) days after receipt of notice from
Crown Crafts of such breach. The Company may likewise terminate
its obligations under this Agreement at any time on or prior to
the Closing Date if Crown Crafts shall have breached any of its
representations, warranties or other obligations under this
Agreement in any material respect and such breach shall not have
been cured within five (5) days after receipt of notice from Red
Calliope of such breach. Such termination may be effected by
written notice from either Crown Crafts or the Company, as
appropriate, citing the reasons for termination and shall not
subject the terminating party to any liability for any valid
termination.
SECTION 10.5. Intentionally Left Blank.
SECTION 10.6. Other Events of Termination. This
Agreement may be terminated and the Merger may be abandoned by
(i) action of the Board of Directors of Crown Crafts if the
Merger shall not have been consummated by October 31, 1995 or
(ii) action of the Board of Directors of either the Company or
Crown Crafts (1) if the Merger shall not have been consummated
and this Agreement shall not have been terminated prior to
December 31, 1995, or (2) a United States federal or state court
of competent jurisdiction or Untied States federal or state
governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become
final and non-appealable and the party seeking to terminate this
Agreement pursuant to this clause (ii) shall have used all
reasonable efforts to remove such injunction, order or decree,
whereupon all of the rights and obligations of the parties under
this Agreement shall terminate without liability, except as
provided in Section 10.2 and except for
43
liability in the event the Closing does not occur and this
Agreement terminates by reason of a default or breach by any
party hereto.
SECTION 10.7. Brokers' and Finders' Fees. The Company
and Crown Crafts each to the other represents and warrants that
all negotiations relative to this Agreement have been carried on
by them directly without the intervention of any Person, firm,
corporation or other entity who or which may be entitled to any
brokerage fee or other commission in respect of the execution of
this Agreement or the consummation of the transactions
contemplated hereby, and each of them shall indemnify and hold
the other or any affiliate of them harmless against any and all
Claims, losses, liabilities or expenses which may be asserted
against any of them as a result of any dealings, arrangements or
agreements by the indemnifying party with any such Person, firm,
corporation or other entity.
SECTION 10.8. Assignment and Binding Effect. This
Agreement may not be assigned prior to the Closing by any party
hereto without the prior written consent of the other parties.
Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and
be enforceable by the successors and assigns of the Company and
Crown Crafts and by the heirs, executors, legal representatives,
successors and assigns of Mr. Fohrman and Ms. Freeman.
SECTION 10.9. Waiver. Any term or provision of this
Agreement may be waived at any time by the party entitled to the
benefit thereof by a written instrument executed by such party.
Notwithstanding the foregoing, Crown Crafts may not waive the
Company's compliance with Section 6.12 without the prior written
consent of Mrs. Glickman.
SECTION 10.10. Notices. Any notice, request, demand,
waiver, consent, approval or other communication which is
required or permitted hereunder shall be in writing and shall be
deemed given only if delivered personally to the address set
forth below (to the attention of the Person identified below) or
sent by telegram or by registered or certified mail, postage
prepaid, as follows:
If to Crown Crafts or Merger Sub, to:
Crown Crafts, Inc.
1600 River Edge Parkway
Suite 200
Atlanta, Georgia 30328
Attention: President
With required copies to:
Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Steven E. Fox, Esq.
44
If to the Company, to:
The Red Calliope & Associates, Inc.
1303 South Figueroa Street
Los Angeles, California 90601
Attention: President
With required copies to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Aulana Peters, Esq.
If to Mr. Fohrman:
Neal Fohrman
1536 Skylark Lane
Los Angeles, California 90069
With required copies to:
Jones, Day, Reavis & Pogue
2603 Main Street, 9th Floor
Irvine, California 92714
Attention: Leonard J. McGill, Esq.
If to Mr. Glickman
Mr. Stanley Glickman
132 South Spaulding, Apt. 216
Beverly Hills, California 90212
With required copies to:
Leonard, Dicker & Schreiber
9430 Olympic Boulevard, Suite 400
Beverly Hills, California 90212-4552
Attention: Lee T. Dicker, Esq.
or to such other address as the addressee may have specified in a
notice duly given to the sender and to counsel as provided
herein. Such notice, request, demand, waiver, consent, approval
or
45
other communication will be deemed to have given as of the date
so delivered or telegraphed or, if mailed, five (5) business days
after the date so mailed.
SECTION 10.11. Governing Law. This Agreement shall be
governed by and interpreted and enforced in accordance with the
Laws of California without reference to the conflict of laws
principles thereof.
SECTION 10.12. Remedies Not Exclusive. Except as
provided in Section 7.5, nothing in this Agreement shall be
deemed to limit or restrict in any manner other rights or
remedies that any party may have against any other party at law,
in equity or otherwise.
SECTION 10.13. No Benefit to Others. The
representations, warranties, covenants and agreements contained
in this Agreement are for the sole benefit of the parties hereto
and their respective heirs, executors, legal representatives,
successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other
Persons.
SECTION 10.14. Contents of Agreement. This Agreement,
together with any documents referred to herein, sets forth the
entire agreement of the parties hereto with respect to the
transactions contemplated hereby. This Agreement may not be
amended except by an instrument in writing signed by the parties
hereto, and no claimed amendment, modification, termination or
waiver shall be binding unless in writing and signed by the party
against whom or which such claimed amendment, modification,
termination or waiver is sought to be enforced.
SECTION 10.15. Section Headings and Gender. All
section headings and the use of a particular gender are for
convenience only and shall in no way modify or restrict any of
the terms or provisions hereof. Any reference in this Agreement
to a Section, Exhibit or the DISCLOSURE SCHEDULE shall be deemed
to be a reference to a Section, Exhibit or the DISCLOSURE
SCHEDULE of this Agreement unless the context otherwise expressly
requires.
SECTION 10.16. Disclosure Schedule and Exhibits. All
attachments, Exhibits and the DISCLOSURE SCHEDULE referred to
herein are intended to be and hereby are specifically made a part
of this Agreement. An item disclosed in the DISCLOSURE SCHEDULE
in response to one Section of this Agreement shall be deemed
disclosed in response to any other Section.
SECTION 10.17. Cooperation. Subject to the provisions
hereof, the parties hereto shall use their best efforts to take,
or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and
instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and
under applicable Law to consummate and make effective the
transactions contemplated by this Agreement.
SECTION 10.18. Severability. Any provision of this
Agreement which is invalid or unenforceable in any jurisdiction
shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
46
SECTION 10.19. Counterparts. This Agreement may be
executed in two or more counterparts, each of which is an
original and all of which together shall be deemed to be one and
the same instrument. This Agreement shall become binding when
one or more counterparts taken together shall have been executed
and delivered by all of the parties. It shall not be necessary
in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
SECTION 10.20. Knowledge. As used in this Agreement,
the terms "to the best of the Company's knowledge," "to the
Company's best knowledge," "known to the Company," "of which the
Company is aware," or words of similar import used herein shall
mean the actual knowledge or awareness of each officer and
director of the Company, together with the knowledge or awareness
a reasonable business person in the position of such officer or
director would have obtained after making reasonable inquiry of
all employees and directors of the Company and after exercising
reasonable diligence with respect to any knowledge so obtained.
SECTION 10.21. Incorporation by Reference. The
Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
SECTION 10.22. Costs and Attorneys' Fees. In the event
that any dispute among the parties hereto should result in
litigation, the prevailing party shall have and recover against
the other parties, in addition to all court costs, expert witness
fees and other disbursements, such sum as the court may determine
to be a reasonable attorney's fee, and such recovery may include
reasonable fees and costs incurred in connection with the matter
but prior to the commencement of the action.
SECTION 10.23. Equitable Remedies. The parties hereto
agree that any violation of this Agreement by Crown Crafts on the
one hand or Red Calliope on the other hand will result in
irreparable injury to the non-breaching party and that damages at
Law would not be reasonable or adequate compensation to such non-
breaching party for a violation of this Agreement, and the non-
breaching party shall be entitled to have the provisions of this
Agreement specifically enforced by preliminary and permanent
injunctive relief without the necessity of proving actual damages
and without posting bond or other security.
47
IN WITNESS WHEREOF, each of Mr. Glickman and Mr.
Fohrman has duly executed and delivered this Agreement, and each
of the Company, Merger Sub and Crown Crafts has caused this
Agreement to be duly executed and delivered on its behalf by an
officer thereunto duly authorized, all as of the date first
written above.
CROWN CRAFTS, INC.
By: /s/ Paul A. Criscillis, Jr.
-------------------------------------
Its: Vice President
---------------------------------
Attest: /s/ Roger D. Chittum
---------------------------------
Its: Secretary
---------------------------------
[CORPORATE SEAL]
CC ACQUISITION CORP.
By: /s/ Paul A. Criscillis, Jr.
-------------------------------------
Its: Vice President
---------------------------------
Attest: /s/ Roger D. Chittum
---------------------------------
Its: Secretary
---------------------------------
[CORPORATE SEAL]
48
THE RED CALLIOPE & ASSOCIATES, INC.
By: /s/ Neal Fohrman
-------------------------------------
Its: President
---------------------------------
Attest: /s/ Nanci Freeman
---------------------------------
Its: Secretary
---------------------------------
[CORPORATE SEAL]
/s/ Neal Fohrman
----------------------------------------
NEAL FOHRMAN, Individually
/s/ Stanley Glickman
----------------------------------------
STANLEY GLICKMAN, Individually
49
SCHEDULE 3.1
ADJUSTED
SHAREHOLDER CLOSING PAYMENT CLOSING PAYMENT
----------- --------------- ---------------
Neal Fohrman, as voting trustee under that certain Voting
Trust Agreement dated as of February 16, 1993 between
Mr. Fohrman as trustee and the Stanley and Carol Glickman
Family Trust as beneficiary $3,980,214 $5,136,741
Neal Fohrman, individually $4,033,997 $5,152,964
Robert Mann, as executor of the estate of Elliot Fine $1,625,179 $2,050,228
Edward Tannenbaum $ 493,910 $ 626,367
50