EXECUTION VERSION

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AGREEMENT AND PLAN OF MERGER

 

by and among

 

THE STEAK N SHAKE COMPANY,

 

GRILL ACQUISITION CORPORATION

 

and

 

WESTERN SIZZLIN CORPORATION

 

Dated as of October 22, 2009

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

Exhibit List

 

Exhibit A       Certificate of Merger

 

Exhibit B        Form of Debenture

 

Exhibit C        Form of Indenture

 

Exhibit D        Surviving Corporation Charter

 

Exhibit E         List of Company Stockholders Subject to Voting Agreements

 

Exhibit F         Form of Voting Agreement

 

Exhibit G         Form of Legal Opinion (Olshan)

 

Exhibit H         Form of Legal Opinion (Ice Miller)

 

AGREEMENT AND PLAN OF MERGER, dated as of October 22, 2009 (this “ Agreement ”), by and among The Steak n Shake Company, an Indiana corporation (“ Parent ”), Grill Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and Western Sizzlin Corporation, a Delaware corporation (the “ Company ”).

 

WITNESSETH

 

WHEREAS, the Company Board (as defined herein), acting upon the unanimous recommendation of the Company Special Committee (as defined herein), has approved this Agreement and declared that it is advisable and in the best interests of the Company and its stockholders (a) for the Company to effect the Parent Share Distribution (as defined herein) and (b) for Merger Sub to merge with and into the Company (the “ Merger ”), in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”) and upon the terms and subject to the conditions set forth herein, such that the Company would continue as the surviving corporation in the Merger and become a wholly owned subsidiary of Parent, and has resolved to recommend that this Agreement be adopted and the Merger be approved by the Company Stockholders (as defined herein);

 

WHEREAS, the Board of Directors of Parent, acting upon the unanimous recommendation of the Parent Special Committee (as defined herein), and the Board of Directors of Merger Sub have each determined that it is in the best interests of Parent and Merger Sub, respectively, and in the best interests of the stockholders of Parent and Merger Sub, respectively, to consummate the Merger upon the terms and subject to the conditions set forth herein, and have approved this Agreement and the Merger;

 

WHEREAS, subject to the satisfaction (or waiver) of all conditions to the Merger set forth in this Agreement, Merger Sub and the Company shall execute a Certificate of Merger substantially in the form attached hereto as Exhibit A (the “ Certificate of Merger ”) and effectuate the Merger by filing the Certificate of Merger in accordance with the DGCL;

 

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and the transactions contemplated by this Agreement and also to prescribe various conditions to the Merger as specified herein; and

 

WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition to the willingness of Parent and Merger Sub to enter into this Agreement, the Company Stockholders (as defined herein) listed on Exhibit E attached hereto are entering into voting agreements (the “ Voting Agreements ”) with Parent in the form attached hereto as Exhibit F , pursuant to which, among other things, such Company Stockholders will agree in accordance with the terms of the Voting Agreements to vote all of their shares of Common Stock in favor of adopting and approving this Agreement at the Stockholders’ Meeting (as defined herein) or any postponement or adjournment thereof.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and subject to the conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows:

 

 

ARTICLE I.

DEFINITIONS

 

SECTION 1.01.      Definitions .

 

(a)       For purposes of this Agreement:

 

“ 1940 Act ” shall mean the Investment Company Act of 1940, as amended.

 

“ Acquisition Proposal ” means any bona fide inquiry, proposal or offer from any Person or group of Persons (other than as contemplated by this Agreement) relating to, or that would reasonably be expected to lead to, (i) any direct or indirect acquisition or purchase, in one transaction or a series of transactions, of (A) assets or businesses of the Company or its Subsidiaries that constitute 15% or more of the revenues, net income or assets of the Company and its Subsidiaries, taken as a whole, or (B) securities representing 15% or more of any class of equity securities of the Company or any of its Subsidiaries; (ii) any tender offer or exchange offer that, if consummated, would result in any Person beneficially owning 15% or more of any class of equity securities of the Company or any of its Subsidiaries; or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving the Company or any of its Subsidiaries pursuant to which any Person or the stockholders or other equity holders of any Person would own 15% or more of any class of equity securities of the Company or any of its Subsidiaries or of any resulting parent company of the Company.

 

“ Advisers Act ” shall mean the Investment Advisers Act of 1940, as amended.

 

“ Affiliate ”  of a specified Person means a Person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.

 

“ Business Day ” means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day (other than a Saturday or Sunday) on which banks are not required or authorized to close in the City of New York.

 

“ CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.).

 

“ Client ” means any person to which the Company or any of its Subsidiaries provides investment management or investment advisory services, including any sub-advisory services, pursuant to an Investment Advisory Agreement.

 

“ Company Material Adverse Effect ” means, when used in connection with the Company, any event, state of facts, circumstance, change, development, action, omission or effect (any such item an “ Effect ”) that, individually or in the aggregate, is or is reasonably likely to be (i) materially adverse to the business, operations, properties, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, or (ii) materially adverse to the ability of the Company to perform its obligations hereunder or to consummate the transactions contemplated by this Agreement, except in each case for any such Effect resulting from, arising out of or relating to (a) the taking of any action or incurring of any expense in connection with this Agreement or any of the other transactions contemplated by this Agreement, (b) the entry into or announcement of this Agreement and the transactions contemplated thereby, (c) any change in or interpretations of (i) United States generally accepted accounting principles (“ GAAP ”) or (ii) any Law, (d) any change in interest rates or general economic conditions in the industries or markets in which the Company or any of its Subsidiaries operates, including the restaurant industry generally, or affecting the United States or foreign economies in general or in the United States or foreign financial, banking or securities markets (which changes do not affect the Company and its Subsidiaries to a materially disproportionate degree), (e) any action taken by Parent, Merger Sub, or any of their respective directors, officers, stockholders or Affiliates, (f) the Parent Share Distribution; or (g) changes in the share price or trading volume of the Common Stock.  Company Material Adverse Effect does not include any changes, events, conditions or effects relating solely to Parent or its Subsidiaries’ financial condition, results of operations or business.

 

“ Common Stock ” means the common stock of the Company, $0.01 par value per share.

 

“ Company Board ” means the Board of Directors of the Company.

 

“ Company Charter ” means the Restated Certificate of Incorporation of the Company, dated December 1, 1995, as amended.

 

“ Company Special Committee ” means the special committee of disinterested directors of the Company with authority delegated by the Company Board to evaluate a possible business combination involving the Company and its Subsidiaries and Parent.

 

“ Company Stockholders ” means all beneficial owners of Common Stock.

 

“ Debentures ” means the debentures to be issued by Parent under the Indenture to Company Stockholders pursuant to Section 2.06(a) and in the form attached hereto as Exhibit B .

 

“ Environmental Laws ” means all applicable foreign, federal, state and local laws, rules and regulations, orders, judgments, decrees, policies and other legal requirements, including common law, relating to or establishing standards of conduct for the regulation and protection of human health and safety, Hazardous Material or injury to or pollution or protection of the environment or natural resources, including, but not limited to, CERCLA; the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.); the Toxic Substances Control Act, as amended (42 U.S.C. Section 7401 et seq.); the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f et seq.); and their implementing regulations and state and local counterparts or equivalents and any transfer of ownership notification or approval statute and any requirements or standards applicable to the voluntary cleanup of environmental contamination.

 

“ Environmental Liabilities ” means any and all liabilities, claims, actions, damages, losses, costs, expenses, fees (including reasonable attorneys’ and consultants’ fees), obligations, fines, penalties, awards, amounts paid in settlement, Taxes, Liens, demands, notices of violation or non-compliance, directives, proceedings, investigations, orders, decrees or judgments relating to any Environmental Law, any Company or Subsidiary Environmental Permit or Hazardous Material, as the case may be.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

 

“ Excluded Party ” means any Person, group of related Persons, or group that includes any Person or group of related Persons from whom the Company has received a written Acquisition Proposal before 12:01 a.m. (Eastern time) on the No-Shop Period Start Date and with whom the Company Special Committee is having ongoing discussions or negotiations as of the No-Shop Period Start Date with respect to an Acquisition Proposal which is, or the Company Special Committee believes is reasonably likely to lead to, a Superior Proposal.

 

“ Franchisee ” shall mean a Person other than the Company or its Subsidiaries that is granted a right (whether directly by the Company or one of its Subsidiaries or by another Franchisee) to establish or operate or license others to establish or operate a business under any of the Brands or under the Western Sizzlin franchise system.

 

“ Franchise Agreements ” shall mean the franchise agreements (including franchise agreements, license agreements, satellite agreements, franchise development agreements, co-branding agreements, area development agreements, development incentive agreements together with all ancillary agreements) under which the Company or any of its Subsidiaries has or may grant any person the right to establish and operate a business under any of the Brands or under the Western Sizzlin franchise system.

 

“ Fund ” means any pooled investment vehicle (including each portfolio or series thereof, if any) for which the Company or any of its Subsidiaries acts as investment adviser, investment sub-adviser, manager, general partner or sponsor, whether or not registered or qualified for offer and sale to members of the public generally with any Governmental Authority.

 

“ Governmental Authority ” means collectively the SEC, state franchise authorities and all other federal, state, county, local or other governmental or regulatory courts, agencies, authorities (including taxing and self regulatory authorities), instrumentalities, commissions, boards or bodies having jurisdiction over the parties and any of their respective Subsidiaries.

 

“ Hazardous Material ” means all substances, pollutants, chemicals, compounds and wastes regulated by, or may form the basis of liability under, any Environmental Laws and includes the meanings of all such terms in or under any Environmental Laws, including those defined as “pollutants,” “toxic substances,” “contaminants,” “hazardous substances,” “regulated wastes,” “special wastes,” or “hazardous wastes” under Environmental Laws and petroleum and any fraction thereof or substances otherwise potentially injurious to human health and the environment, including, without limitation, polychlorinated biphenyls (“ PCBs ”) and PCB-containing equipment, asbestos, urea formaldehyde, mold or other toxic growth.

 

 

“ Indenture ” means that certain Indenture, to be entered into by and between Parent and Wells Fargo Bank, N.A., as trustee, in the form attached hereto as Exhibit C .

 

“ Intellectual Property ” means (i) all United States and international patents, patent applications and statutory invention registrations, all letters patent or equivalent rights and applications, including any reissue, extension, division, continuation or continuation-in-part applications throughout the world; (ii) trademarks, service marks, Internet domain names, trade dress, logos, trade names, corporate names, general use e-mail addresses and other source identifiers, together with (1) all national, foreign and state registrations, applications for registration and renewals and extensions thereof, (2) all common law rights related thereto, (3) all goodwill associated therewith, and (4) and all benefits, privileges, causes of action and remedies relating to any of the foregoing; and registrations and applications for registration thereof; (iii) all copyrights and copyright registrations and applications for registration thereof, certificates of copyright and copyrighted interests throughout the world, and all rights in mask works; (iv) computer software, programs and databases; and (v) trade secrets under all applicable Law, including know-how and confidential and proprietary information.

 

“ Investment Advisory Agreement ” means an agreement under which the Company or any of its Subsidiaries acts as an investment adviser or sub-adviser to, or manages any investment or trading account of, any Client.

 

“ IRS ” means the Internal Revenue Service of the United States.

 

“ Knowledge of the Company ” or “ Company’s Knowledge ” (or words of similar import) means the actual knowledge, or awareness of the existence or absence of a fact or circumstance that would cause a reasonable person to make an inquiry with respect thereto, of the Company’s or any of its Subsidiaries' directors or executive officers.

 

“ Knowledge of Parent ” or “ Parent’s Knowledge ” (or words of similar import) means the actual knowledge, or awareness of the existence or absence of a fact or circumstance that would cause a reasonable person to make an inquiry with respect thereto, of Parent's directors or executive officers.

 

“ Liens ” means any mortgages, deeds of trust, hypothecations, liens (statutory or other), leases, subleases, encumbrances, conditional or installment sale agreements, security interests, pledges, deeds to secure debt, charges, options or any easement, right of way, license or other claims of third parties of any kind or encumbrance to title.

 

“ Ordinary Course ” means, with respect to a specified Person, the ordinary course of business of such Person and/or any of its Subsidiaries, consistent with past practice.

 

 

“ Parent Expenses ” means an amount equal to all documented out-of-pocket expenses and fees of Parent (including, without limitation, the Parent Special Committee) or Merger Sub (including, without limitation, all reasonable fees of counsel, accountants, experts and consultants, and all printing expenses), actually incurred or accrued by any of them or on their behalf in connection with the Merger and the transactions contemplated by this Agreement in an aggregate amount not to exceed One Million Dollars ($1,000,000.00).

 

“ Parent Material Adverse Effect ” means, when used in connection with Parent, any Effect that, individually or in the aggregate, is or is reasonably likely to be (i) materially adverse to the business, operations, properties, assets, liabilities, condition (financial or otherwise) or results of operations of Parent and its Subsidiaries taken as a whole, or (ii) materially adverse to the ability of Parent to perform its obligations hereunder or under the Debentures or to consummate the transactions contemplated by this Agreement, except in each case for any such Effect resulting from, arising out of or relating to (a) the taking of any action or incurring of any expense in connection with this Agreement or any of the other transactions contemplated by this Agreement, (b) the entry into or announcement of this Agreement and the transactions contemplated thereby, (c) any change in or interpretations of (i) GAAP or (ii) any Law, (d) any change in interest rates or general economic conditions in the industries or markets in which the Company or any of its Subsidiaries operates, including the restaurant industry generally, or affecting the United States or foreign economies in general or in the United States or foreign financial, banking or securities markets (which changes do not affect Parent and its Subsidiaries to a materially disproportionate degree), (e) any action taken by the Company, any of its Subsidiaries or any of their respective directors, officers, stockholders or Affiliates, or (f) changes in the share price or trading volume of the common stock of Parent.  Parent Material Adverse Effect does not include any changes, events, conditions or effects relating solely to the Company or its Subsidiaries’ financial condition, results of operations or business.

 

“ Parent Shares ”  means the 1,322,806 shares of common stock of Parent, par value $0.50 per share, in the aggregate, beneficially owned by the Company and/or its Subsidiaries.

 

“ Parent Special Committee ” means the special committee of disinterested directors of Parent with authority delegated by the Board of Directors of Parent to evaluate a possible business combination involving the Company and its Subsidiaries and Parent.

 

“ Permitted Liens ” means (i) Liens for Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves or accruals have been made, (ii) inchoate materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens and other liens created by Law, in each case arising in the Ordinary Course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings and for which adequate reserves or accruals have been made, (iii) with respect to the Leased Properties only, liens, security interests or encumbrances that have been placed on the fee estate in real property which do not terminate the Company's or applicable Subsidiary's rights under the applicable lease, sublease or other agreement in the event such liens, security interests or encumbrances are foreclosed or other statutory or contractual remedies related thereto are enforced, (iv) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations and for which the Company or Parent has made adequate accruals in the Company Financial Statements or Parent Financial Statements, as applicable, in accordance with GAAP, (v) zoning, entitlement and other land use regulations by Governmental Authorities, (vi) easements, survey exceptions, leases, subleases and other occupancy contracts, reciprocal easements, restrictions and other encumbrances on title to real property that do not (A) with respect to Leased Property, prevent or materially interfere with the use and operation of such real property as presently used and operated, contain any rights of forfeiture or reverter, grant any third parties the right to acquire all or any part of such real property or require the removal, alteration or relocation of any building, structures or improvements that are located on such real property and are material to the use and operation of such real property as presently used and operated, (B) with respect to Company Property, prevent or materially interfere with the Company's or any of its Subsidiaries' intended use and operation of such real property, materially impact the fair market value of such real property, contain any rights of forfeiture or reverter or grant any third parties the right to acquire all or any part of such real property or require the removal, alteration or relocation of any building, structures or improvements that are located on such real property and are material to the Company’s or any of its Subsidiaries’ intended use and operation or fair market value of such real property, or (vii) Liens described in Section 3.12(a)(i) of the Company Disclosure Schedule.

 

 

“ Person ” means an individual, corporation, partnership, limited partnership, limited liability company, firm, joint venture, syndicate, person, trust, association or entity or government, political subdivision, agency or instrumentality of a government.

 

“ Purchase Price Adjustment ” means an amount equal to (i) $0.00, if the average of the low and high prices as reported in the Wall Street Journal of a Parent Share on the date of the Parent Share Distribution (such average, the “ Parent Share FMV ”) is equal to or less than $12.00 per share, or (ii) if the Parent Share FMV is greater than $12.00 per share, the product of thirty-eight percent (38.0%) multiplied by the difference of (A) the amount of income recognized for federal income Tax purposes by the Company as a result of the Parent Share Distribution less (B) the amount of income that would have been recognized for federal income Tax purposes by the Company as a result of the Parent Share Distribution if the Parent Share FMV were $12.00 per share.

 

“ Release ” means the spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment.

 

“ SEC ” means the United States Securities and Exchange Commission.

 

“ Securities Act ” means the United States Securities Act of 1933, as amended.

 

“ Stockholder Approval ” means the affirmative approval of the Merger by at least a majority of all the votes entitled to be cast on the matter by the holders of all outstanding shares of Common Stock as of the record date for the Stockholders’ Meeting.

 

“ Subsidiary ” or “ Subsidiaries ” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, fifty percent (50%) or more of the equity interests of which) is owned directly or indirectly by such first Person.

 

 

“ Superior Proposal ” means an Acquisition Proposal that constitutes a written proposal or offer, except the references therein to “15%” shall be replaced by “51%”, which was not obtained in violation of Section 6.04 , if and only if, the Company Board, upon the recommendation of the Company Special Committee, determines in good faith (after consultation with its financial advisor and outside legal counsel), taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal and the Person making the proposal, that the proposal (i) if consummated, would result in a transaction that is more favorable from a financial point of view to the Company Stockholders than the Merger and the other transactions contemplated hereby (taking into account any break-up fees, expense reimbursement provisions and conditions to consummation), and (ii) is reasonably capable of being completed without undue delay (based upon, among other things, the availability of financing, the expectation of obtaining required regulatory approvals, the identity and background of the Person making the proposal and the timing and conditions of closing).

 

“ Tax Returns ” shall mean any report, return, document, declaration or any other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any document with respect to or accompanying payments or estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return document, declaration or other information.

 

“ Tax Subsidiary ” means any entity in which the Company owns a direct or indirect equity interest for federal income tax purposes of at least 10%, determined by either voting power or value.

 

“ Taxes ”   means (i) all net income, gross income, gross receipts, value-added, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever imposed by any Governmental Authority, together with any interest, any penalties or additions to tax with respect thereto, and including any fees or penalties imposed on a Person in respect of any information Tax Return made to a Governmental Authority; (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of Law; and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other Person.

 

“ WARN ” means the Workers Adjustment and Retraining Notification Act, 29 U.S.C. Sec. 2101 et. seq., as amended, and any other similar state, local or government regulation or ordinance.

 

“ Working Capital ” means the aggregate of all consolidated inventory, accounts receivable, prepaid expenses and other current assets (including cash on hand or in deposit) of the Company and its Subsidiaries minus consolidated accounts payable, accrued expenses and other current liabilities (excluding current maturities of debt) of the Company and its Subsidiaries.

 

 

(b)      The following terms have the meaning set forth in the Sections set forth below:

 

 

 

ARTICLE II.

MERGER

 

SECTION 2.01.      The Merger .  Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, Merger Sub shall be merged with and into the Company in accordance with the DGCL.

 

SECTION 2.02.      Closing; Effective Time .

 

(a)       Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 8.01 and subject to the satisfaction or waiver (where applicable) of the conditions set forth in Article VII , the closing of the Merger (the “ Closing ”) shall take place (a) remotely via the electronic exchange of documents and signatures on such date as the Company and Parent shall mutually agree following the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that, by their nature, are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), or if the parties do not so agree, on the second Business Day following satisfaction or waiver of such conditions or (b) at such other place, date or time as may be mutually agreed in writing by the Company and Parent.  The date of the Closing is referred to herein as the “ Closing Date .”  The parties hereto acknowledge and agree that (i) all proceedings at the Closing shall be deemed to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed or delivered, and (ii) that the Closing shall be deemed to have taken place at the offices of Ice Miller LLP, One American Square, Suite 2900, Indianapolis, Indiana 46282-0200, at 10:00 a.m., Eastern time, on the Closing Date.

 

(b)       Subject to the terms hereof, at the Closing, the parties hereto shall cause the Certificate of Merger to be executed, acknowledged and filed with, delivered in the manner required by the DGCL to, and accepted for recording by, the Secretary of State of the State of Delaware and shall make all other filings and recordings required under the DGCL.  The “ Effective Time ” shall be the later of (i) the date and time of the acceptance for recording of the Certificate of Merger with the Secretary of State of the State of Delaware or (ii) such later time as may be agreed by Merger Sub and the Company in writing and specified in the Certificate of Merger.

 

SECTION 2.03.      Effect of the Merger .  As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the “ Surviving Corporation ”).  From and after the Effective Time, the Surviving Corporation shall be a wholly-owned Subsidiary of Parent.  At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL.

 

SECTION 2.04.      Charter; Bylaws .

 

(a)       At the Effective Time, the Company Charter, as in effect immediately prior to the Effective Time, shall be amended in its entirety to be in the form of Exhibit D hereto, and as so amended, shall be the Certificate of Incorporation of the Surviving Corporation (the “ Surviving Corporation Charter ”) until thereafter amended as provided by Law and such Certificate of Incorporation.

 

(b)       At the Effective Time, the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation (the “ Surviving Corporation Bylaws ”) until thereafter amended as provided by Law, the Surviving Corporation Charter and such Bylaws.

 

SECTION 2.05.      Directors and Officers .   The directors of Merger Sub immediately prior to the Effective Time and such others as Parent shall have designated, if any, shall, from and after the Effective Time, be the directors of the Surviving Corporation, each to hold office in accordance with the Surviving Corporation Charter and the Surviving Corporation Bylaws, and the officers of the Company immediately prior to the Effective Time shall continue to be the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal.

 

SECTION 2.06.      Conversion of Securities .  At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities:

 

(a)      Each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares or any shares of Common Stock to be canceled pursuant to Section 2.06(b) ) shall be canceled and shall be converted automatically (subject to Section 2.07 ) into the right to receive an amount per share in principal amount of Debentures at the rate determined by dividing (i) an amount equal to the difference of $22,959,000.00 less the Purchase Price Adjustment by (ii) the number of shares of Common Stock outstanding immediately prior to the Effective Time (the “ Exchange Ratio ”) or, if applicable, cash as set forth in Section 2.07 in lieu of such principal amount of Debentures, or such Debentures and such cash (together, such Debentures and such cash, the “ Merger Consideration ”);

 

(b)      Each share of Common Stock held in the treasury of the Company and each share of Common Stock owned by Merger Sub, Parent or any direct or indirect wholly-owned Subsidiary of Parent or of the Company immediately prior to the Effective Time shall automatically be canceled and retired without any conversion thereof, and no payment or distribution shall be made hereunder with respect thereto; and

 

(c)      Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, which shall constitute all of the issued and outstanding equity interests of the Surviving Corporation after the Effective Time of the Merger.

 

SECTION 2.07.      Merger Consideration Payable in Cash .  The Debentures to be issued by Parent to Company Stockholders pursuant to Section 2.06(a) are solely issuable in whole multiples of $1,000.  In the event that a Debenture to be issued to a Company Stockholder following the application of the Exchange Ratio set forth in Section 2.06(a) is not evenly divisible by 1,000, the amount in excess of the $1,000 principal amount of the Debenture or the next whole multiple thereof shall be paid to such Company Stockholder in cash as set forth in Section 2.09 .  In the event that any Company Stockholder's portion of the Merger Consideration is less than $1,000 following the application of the Exchange Ratio set forth in Section 2.06(a) , such Company Stockholder shall only be entitled to receive such Company Stockholder's portion of the Merger Consideration in cash, and such Company Stockholder shall not be entitled to receive a Debenture.

 

SECTION 2.08.      Appraisal Rights .  Notwithstanding anything in this Agreement to the contrary, shares of Common Stock issued and outstanding immediately prior to the Effective Time that are held by any Company Stockholder who has neither voted in favor of the adoption of this Agreement nor consented thereto in writing, is entitled to demand and properly demands appraisal of such shares in accordance with the provisions of Section 262 of the DGCL (“ Section 262 ”), and who complies in all respects and has otherwise perfected and not withdrawn or lost his or her rights in accordance with Section 262 (the “ Dissenting Shares ”), shall not be converted into the right to receive the Merger Consideration as provided in Section 2.06(a) but instead, at the Effective Time, all Dissenting Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each Company Stockholder holding Dissenting Shares shall cease to have any rights with respect thereto, except the right to receive payment of the fair value of such shares in accordance with the provisions of Section 262.  Notwithstanding the foregoing, if any such Company Stockholder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 or a court of competent jurisdiction shall determine that such Company Stockholder is not entitled to the relief provided by Section 262, then the right of such Company Stockholder to be paid the fair value of such Company Stockholder’s Dissenting Shares under Section 262 shall cease, such Dissenting Shares shall no longer be deemed Dissenting Shares and each such Dissenting Share shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive the portion of the Merger Consideration to which such Company Stockholder would otherwise be entitled under Section 2.06(a) .  The Company shall serve prompt notice to Parent of any demands for appraisal of any shares of Common Stock, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands.  Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.  For the avoidance of doubt, holders of Dissenting Shares shall be entitled to receive the Per Share Distribution Amount with respect to shares of Common Stock held of record immediately prior to the Effective Time, irrespective of the exercise of appraisal rights pursuant to Section 262.

 

SECTION 2.09.      Surrender of Shares; Stock Transfer Books .

 

(a)      Prior to the Closing, Merger Sub shall designate a bank or trust company to act as exchange and paying agent (the “ Exchange Agent ”) for the payment or exchange, as applicable, of the Merger Consideration and the Option Merger Consideration (as defined below).

 

(b)      Promptly after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail or deliver to each Person who was, at the Effective Time, a holder of record of shares of Common Stock entitled to receive Merger Consideration pursuant to Section 2.06(a) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing such shares of Common Stock (the “ Certificates ”) shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for effecting the surrender of the Certificates.  Upon surrender to the Exchange Agent of one or more Certificates, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration which such holder has the right to receive pursuant to the provisions of this Article II , and such Certificate shall then be canceled.  Until surrendered as contemplated by this Section 2.09(b) , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive (i) the Merger Consideration, which the holder thereof has the right to receive in respect of such Certificate pursuant to this Article II and (ii) the Per Share Distribution Amount, which the holder thereof has the right to receive with respect of such Certificate pursuant to Section 6.12 .  If delivery of any portion of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate is registered on the stock transfer books of the Company, it shall be a condition of exchange that the Certificate so surrendered be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such transfer shall have paid all transfer and other Taxes required by reason of the delivery of the Merger Consideration to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of Parent that such Taxes either have been paid or are not applicable.

 

(c)      If any holder of shares of Common Stock is unable to surrender such holder’s Certificates because such Certificates have been lost, mutilated or destroyed, such holder may deliver in lieu thereof an affidavit in form and substance and with surety as may be reasonably required by the Surviving Corporation.

 

(d)      Each of Parent, Merger Sub and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Common Stock or Company Stock Options (as defined below) such Taxes and other amounts as it reasonably determines is required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended through the date hereof (the “ Code ”), and the rules and regulations promulgated thereunder, or analogous provision of state or local Tax Law.  To the extent that amounts are so deducted, withheld and paid to the applicable taxing authority by the Surviving Corporation, Merger Sub or Parent, as the case may be, such deducted, withheld and paid amounts shall be treated for purposes of this Agreement as having been paid to the holder of the shares of Common Stock or the holder of the Company Stock Option in respect of which such deduction, withholding and payment was made by the Surviving Corporation, Merger Sub or Parent.  Each Company Stockholder and any other Person who may receive payments from Parent pursuant to this Agreement, simultaneously with the surrender to the Exchange Agent of its Certificates pursuant to Section 2.09(b) , shall provide the Exchange Agent or the Parent, as applicable, any IRS Forms W-4, W-9 or other certificates or forms as may be specified in the form of Letter of Transmittal mailed to Company Stockholders by the Exchange Agent, if required, for the Exchange Agent, Parent, Merger Sub or the Surviving Corporation to meet its withholding obligations under any applicable Tax Law.  If appropriate forms are not submitted to Parent or the Exchange Agent, as applicable, the withholding to be made will be the maximum amount provided by applicable Tax Laws.

 

(e)            At the close of business on the day of the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Common Stock on the records of the Company.  From and after the Effective Time, the holders of shares of Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Common Stock except the right to receive the Per Share Distribution Amount pursuant to Section 6.12 and as otherwise provided herein or by applicable Law.  If, after the Effective Time, Certificates are presented to the Surviving Corporation for transfer, they shall be cancelled and exchanged as provided in this Article II .

 

SECTION 2.10.      Treatment of Options .

 

(a)      A list identifying each of the Company’s stock option plans, programs and arrangements (collectively, the “ Company Option Plans ”) and outstanding options to acquire shares of Common Stock under the Company Option Plans or any other outstanding stock option agreement (the “ Company Stock Options ”) is set forth in Section 2.10(a) of the Company Disclosure Schedule (such list to include the name of the Company Option Plan under which such options were issued, the holders thereof, the number of shares subject thereto and the exercise prices thereof).

 

(b)      No Company Option Plan nor any Company Stock Option shall be assumed by Parent or Merger Sub in connection with the Merger.

 

(c)      The Company shall take all necessary and appropriate actions so that, at the Effective Time, each outstanding Company Stock Option shall be fully vested and exercisable in accordance with its terms, and to the extent not theretofore exercised, the Company shall cause any Company Stock Option that is not exchanged as provided in Section 2.10(d) to be canceled at the Effective Time and no further Company Stock Options shall be granted.

 

(d)      Each Company Stock Option that is outstanding and unexercised as of the Effective Time and with respect to which the Merger Consideration is greater than the applicable exercise price per share of such Company Stock Option shall be cancelled in exchange for the right to receive a single lump sum cash payment, less any applicable withholding taxes, equal to the product of (i) the number of shares of Common Stock subject to such Company Stock Option immediately prior to the Effective Time and (ii) the difference of the Merger Consideration minus the applicable exercise price per share of such Company Stock Option (the “ Option Merger Consideration ”).

 

(e)      On or before the Effective Time, Parent shall deposit with the Exchange Agent the Option Merger Consideration for the benefit of the holders of Company Stock Options (the “ Option Exchange Fund ”).  Parent shall cause the Exchange Agent to make, and the Exchange Agent shall make payments of the Option Merger Consideration out of the Option Exchange Fund in accordance with this Agreement and the Certificate of Merger.  The Option Exchange Fund shall not be used for any other purpose.  Any and all interest earned on cash deposited in the Option Exchange Fund shall be paid to the Surviving Corporation.  The Option Merger Consideration paid with respect to Company Stock Options in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights and privileges pertaining to the canceled Company Stock Options, and on and after the Effective Time the holder of a Company Stock Option shall have no further rights with respect to any Company Stock Option, other than the right to receive the Option Merger Consideration as provided in this Section 2.10(d) .  Any portion of the Option Exchange Fund which remains undistributed to the holders of Company Stock Options for twelve (12) months after the Effective Time shall be delivered to the Surviving Corporation, and any holders of Company Stock Options prior to the Merger who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation for payment of the Option Merger Consideration.  None of Parent, Merger Sub, the Surviving Corporation, the Company or the Exchange Agent, or any employee, officer, director, stockholder, partner, member, agent of Affiliate thereof, shall be liable to any Person in respect of the Option Merger Consideration if the Option Exchange Fund has been delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

 

SECTION 2.11.      Supplementary Action .  If at any time after the Effective Time, any further assignments or assurances in Law or any other things are necessary or desirable to vest or to perfect or confirm of record in the Surviving Corporation the title to any property or rights of either Merger Sub or the Company, or otherwise to carry out the provisions of this Agreement, the officers and directors of the Surviving Corporation are hereby authorized and empowered, in the name of and on behalf of either or both of Merger Sub or the Company, as appropriate, to execute and deliver any and all things necessary or proper to vest or to perfect or confirm title to such property or rights in the Surviving Corporation, and otherwise to carry out the purposes and provisions of this Agreement.

 

SECTION 2.12.      Aggregate Merger Consideration .   Notwithstanding anything to the contrary contained herein, by virtue of the Merger and the other transactions contemplated by this Agreement, the Company Stockholders, in the aggregate and to the extent eligible under the terms of this Agreement, shall be entitled to receive no more than an amount equal to the difference of $22,959,000.00 less the Purchase Price Adjustment in cash and principal amount of Debentures.

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the disclosure schedule that has been prepared by the Company and delivered by the Company to Parent in connection with the execution and delivery of this Agreement (the “ Company Disclosure Schedule ”), the Company hereby represents and warrants to Parent and Merger Sub that:

 

SECTION 3.01.      Organization and Qualification; Subsidiaries .

 

(a)      Except as set forth in Section 3.01(a) of the Company Disclosure Schedule, each of the Company and each Subsidiary of the Company is an entity duly organized, validly existing and, in good standing (to the extent such concept is legally recognized) under the Laws of the jurisdiction of its incorporation or organization and, except for such failures that would not reasonably be expected to have a Company Material Adverse Effect: (i) the Company and each of its Subsidiaries has the requisite corporate, partnership or limited liability company power and corporate, partnership or limited liability company authority to own, lease and operate its properties and to carry on its business as it is now being conducted; and (ii) the Company and each of its Subsidiaries is duly qualified or licensed as a foreign corporation, limited liability company or partnership, as the case may be, to do business, and is in good standing (to the extent such concept is legally recognized) in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary.

 

(b)      A complete and correct listing of each Subsidiary of the Company, together with the jurisdiction of incorporation or organization of such Subsidiary, each jurisdiction where such Subsidiary is licensed or qualified to do business and the percentage of the outstanding capital stock or other equity interests of such Subsidiary owned directly or indirectly by the Company is set forth on Section 3.01(b) of the Company Disclosure Schedule.  All outstanding shares of capital stock of, or other equity interests in, each such Subsidiary (i) have been duly authorized, validly issued and are fully paid and nonassessable; (ii) are owned directly or indirectly by the Company, free and clear of all Liens except as set forth on Section 3.01(b) of the Company Disclosure Schedule; (iii) are free of all other restrictions (including restrictions on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests) that would prevent the operation by the Surviving Corporation of such Subsidiary’s business as presently conducted; and (iv) were not issued in violation of any preemptive or similar rights.  Except as set forth in Section 3.01(b) of the Company Disclosure Schedule, as of the date of this Agreement, the Company does not directly or indirectly own any equity, voting or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any Person, other than marketable securities held directly or indirectly by Mustang Capital Management, LLC or Western Investments, Inc. in the Ordinary Course that do not exceed one percent (1%) of the voting power of the issuer of such securities.

 

SECTION 3.02.      Certificate of Incorporation and Bylaws .  The Company has heretofore made available to Parent a complete and correct copy of the Company Charter and the Company’s Bylaws and the Certificate of Incorporation and the Bylaws or equivalent organizational documents, each as amended to date, of each Subsidiary of the Company.  Such Company Charter, Company’s Bylaws and Certificate of Incorporation, Bylaws or equivalent organizational documents of each Subsidiary are in full force and effect.  Neither the Company nor any Subsidiary is in violation of any of the provisions of the Company Charter, its Certificate of Incorporation, Bylaws or equivalent organizational documents.

 

SECTION 3.03.      Capitalization .

 

(a)      The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock.  As of the date hereof, (i) 2,840,384 shares of Common Stock are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable, and all of which were not issued in violation of and are not subject to any preemptive or similar rights; (ii) 9,099 shares of Common Stock are held in the treasury of the Company; (iii) no shares of Common Stock are held by any of the Company's Subsidiaries; (iv) 4,000 shares of Common Stock are subject to outstanding options, all of which are vested and exercisable in accordance with their terms; and (v) 40,000 shares of Common Stock remain available and are reserved for future issuance pursuant to employee stock options or stock incentive rights under the Company Option Plans.  The information contained in Section 2.10(a) of the Company Disclosure Schedule with respect to the Company Option Plans and Company Stock Options is true, correct and complete.  With respect to the Company Stock Options, (A) each grant of a Company Stock Option was duly authorized no later than the date on which the grant of such Company Stock Option was by its terms to be effective (the “ Grant Date ”) by all necessary corporate action, including, as applicable, approval by the Company Board (or a duly constituted and authorized committee thereof), or a duly authorized delegate thereof, and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (B) each such grant was made in accordance with the terms of all applicable Laws, including the rules of the Company Option Plans and any exchange on which Company securities are traded, (C) the per share exercise price of each Company Stock Option was not less than the fair market value of a share of Common Stock on the applicable Grant Date, and (D) no Company Stock Option is an "incentive stock option" under Section 422 of the Code.

 

(b)      Except as set forth in Section 3.03(a) , no shares of capital stock of, or other equity or voting interests in, the Company, or options, warrants, shares of deferred stock, restricted stock awards, stock appreciation rights, phantom stock awards or other rights to acquire any such stock or securities, or other similar rights issued by the Company that are linked to the value of the Common Stock or the value of the Company, any of its Subsidiaries, or any part thereof, are issued, reserved for issuance or outstanding.

 

(c)      All shares of Common Stock subject to issuance as set forth in Section 3.03(a) , upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, and when the exercise or conversion price thereof has been paid, fully paid and nonassessable.  Except as set forth in this Section 3.03 , there are no bonds, debentures, notes or other securities, instruments or obligations of the Company or any of its Subsidiaries, in each case, the value of which is based upon or derived from any capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or which has or which by its terms may have at any time (whether actual or contingent) the right to vote (or which is convertible into, or exchangeable for, securities having the right to vote) on any matters on which the Company Stockholders or the stockholders or other equity holders of any of the Company's Subsidiaries may vote.  Except as set forth in this Section 3.03 , there are no securities, options, warrants, calls, rights or contracts of any kind to which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries is bound, obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right or contract.

 

(d)      Except for the Voting Agreements, there are no outstanding contractual or other obligations of the Company or any of its Subsidiaries to (A) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries, or (B) vote or dispose of any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries.  Except for the Voting Agreements, the Company is not a party to any voting agreement with respect to any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries and, to the Knowledge of the Company, except as may be disclosed in filings with the SEC on Schedule 13D, as of the date of this Agreement there are no irrevocable proxies and no voting agreements with respect to any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to grant Company Stock Options prior to, or otherwise coordinate the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

SECTION 3.04.      Authority Relative to this Agreement .

 

(a)      The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, without limitation, the Parent Share Distribution. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the performance by the Company of its obligations hereunder or to consummate the transactions contemplated hereby (other than, with respect to the consummation of the Merger, the Stockholder Approval and the filing and recordation of appropriate merger documents as required by the DGCL).  This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency (including all Laws relating to fraudulent transfers), reorganization, moratorium or similar Laws affecting creditors’ rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).

 

(b)      The disinterested members of the Company Board, after receiving the unanimous recommendation of the Company Special Committee, at a meeting duly called and held at which all of the directors of the Company were present, (i) unanimously determined that this Agreement and the transactions contemplated hereby, including the Merger and the Parent Share Distribution, are advisable and fair to and in the best interests of the Company Stockholders, and approved this Agreement and the transactions contemplated hereby, including the Merger, and (ii) unanimously directed that this Agreement, the Merger and the other transactions contemplated hereby be submitted to the Company Stockholders for their approval and adoption and resolved to recommend that the Company Stockholders vote in favor of the adoption of this Agreement and the approval of the Merger and the other transactions contemplated hereby.  The Stockholder Approval is the only vote of the holders of any class or series of the Company's capital stock required by applicable Law, the Company Charter and the Company's Bylaws to duly effect the approval and adoption of this Agreement and the transactions contemplated hereby.

 

SECTION 3.05.     No Conflict; Required Filings and Consents .

 

(a)      The execution and delivery of this Agreement by the Company do not, and the performance of its obligations under this Agreement by the Company will not, and the consummation of the Merger and the other transactions contemplated hereby by the Company will not, (i) conflict with or violate the Company Charter or the Company's Bylaws or other equivalent organizational documents of the Company or any of its Subsidiaries, (ii) assuming that all consents, approvals and other authorizations described in Section 3.05(b) have been obtained and that all filings and other actions described in Section 3.05(b) have been made or taken, conflict with or violate any statute, law, regulation, ordinance, rule or Governmental Authority judgment, order or decree (“ Law ”) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or such Subsidiary is bound or affected, except for any conflicts or violations that would not reasonably be expected to have a Company Material Adverse Effect, or (iii) except as would not reasonably be expected to have a Company Material Adverse Effect, result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any property or asset of the Company or such Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any such Subsidiary is a party or by which the Company or such Subsidiary or any property or asset of the Company or such Subsidiary is bound or affected.

 

 

(b)      The execution and delivery of this Agreement by the Company do not, and the performance of its obligations under this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority or other third party, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act and state securities or “blue sky” laws (“ Blue Sky Laws ”), (ii) as specified in Section 3.05(b) of the Company Disclosure Schedule, (iii) for the filing and recordation of appropriate merger documents as required by the DGCL, and (iv) such other consents, approvals, authorizations, permits, filings or notifications where such failure to be obtained (A) would not prevent or materially delay consummation of the Merger or (B) would not reasonably be expected to have a Company Material Adverse Effect.

 

SECTION 3.06.      Permits; Compliance .

 

(a)      Each of the Company and its Subsidiaries is in possession and compliance with the terms of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, registrations, approvals and orders of, or filing with, any Governmental Authority necessary for each of the Company or such Subsidiary to lawfully own, lease and operate its properties or to carry on its business as it is now being conducted (the “ Permits ”), except where the failure to have, or the suspension or cancellation of, any of the Permits would not have a Company Material Adverse Effect.  None of the Company or any of its Subsidiaries has received any notice of any action pending or threatened by any Governmental Authority to revoke, withdraw or suspend any Permit and no event has occurred or will occur in connection with the consummation of the transactions contemplated by this Agreement which, with or without the giving of notice, the passage of time, or both, has resulted in or would reasonably be expected to result in a violation, order or deficiency with respect to or a revocation, withdrawal or suspension of any Permit, except for any such events that have not and would not reasonably be expected to have a Company Material Adverse Effect.  The consummation of the transactions contemplated by this Agreement do not require any consent, approval, license, authorization, registration, certification, permit or any other action of any Governmental Authority or other third party relating to any Permit, except where the failure to obtain any such consent, approval, license, authorization, registration, certification, permit or for any such other action to occur would not reasonably be expected to have a Company Material Adverse Effect.

 

(b)      The conduct by the Company and its Subsidiaries of their respective businesses has been and is in compliance with all applicable Laws, with such exceptions as have not and would not reasonably be expected to have a Company Material Adverse Effect.

 

 

SECTION 3.07.      SEC Filings; Financial Statements .

 

(a)      The Company has timely filed or furnished all forms, reports, schedules, statements and documents required to be filed or furnished by it with the SEC since January 1, 2006 (the “ Company SEC Reports ”).  As of their respective dates or, if amended, as of the date of such amendment, the Company SEC Reports (i) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder applicable to such Company SEC Reports and, to the extent applicable, SOX (as defined below), and (ii) did not, at the time they were filed, or, if amended, as of the date of such amendment, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  The Company has made available to Parent copies of all comment letters received by the Company from the SEC since January 1, 2006 relating to the Company SEC Reports, together with all written responses of the Company thereto.  Except as set forth in Section 3.07 of the Company Disclosure Schedule, as of the date of this Agreement, there are no outstanding or unresolved comments in such comment letters received by the Company from the SEC.  As of the date of this Agreement, to the Knowledge of the Company, none of the Company SEC Reports is the subject of any ongoing review by the SEC.  Except as set forth in Section 3.07 of the Company Disclosure Schedule, no Subsidiary of the Company is required to file or furnish any form, report or other document with the SEC.

 

(b)      Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Reports (the “ Company Financial Statements ”) were prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and each fairly presents, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring year end adjustments, none of which are expected to be material).  Except to the extent disclosed or reserved against the Company’s most recent balance sheet (including the notes thereto) included in the Company SEC Reports (the “ Company Baseline Balance Sheet ”), neither the Company nor any of its Subsidiaries has any liability or obligation of any nature (whether accrued, absolute, contingent, determined, determinable or otherwise), except for liabilities incurred in the Ordinary Course that would not prevent or materially delay consummation of the Merger and would not reasonably be expected to have a Company Material Adverse Effect.

 

(c)      The Company is in compliance with the provisions of the Sarbanes Oxley Act of 2002 and the rules and regulations promulgated thereunder (collectively, “ SOX ”) applicable to it.

 

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(d)            The principal executive officer of the Company and the principal financial officer of the Company each has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of SOX, as applicable, with respect to the Company SEC Reports, and the statements contained in such certifications were accurate as of the date they were made.  For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in SOX.  Neither the Company nor any of its Subsidiaries has outstanding, or has arranged any outstanding, “extension of credit” to directors or executive officers in violation of Section 402 of SOX.

 

(e)            Neither the Company nor any of its Subsidiaries is a party to, or has any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC)), where the result, purpose or effect of such contract is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of its Subsidiaries in the Company’s or any of its Subsidiaries published financial statements or other SEC Documents.

 

(f)            The Company maintains “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) in compliance with the Exchange Act.  To the Knowledge of the Company, there are no significant deficiencies or material weaknesses in the Company's internal controls over financial reporting.

 

(g)            The Company maintains “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) in compliance with the Exchange Act.

 

SECTION 3.08.       Absence of Certain Changes or Events .  Since the date of the Company Baseline Balance Sheet, except as contemplated or permitted by this Agreement, each of the Company and its Subsidiaries has conducted its business in the Ordinary Course, and there has not been:

 

(a)            any Effect, including damage to, destruction or loss of any asset of the Company or any of its Subsidiaries (whether or not covered by insurance), constituting or that would reasonably be expect to have a Company Material Adverse Effect;

 

(b)            any change by the Company in its financial or tax accounting methods, principles or practices;

 

(c)            any revaluation by the Company of any material asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), other than in the Ordinary Course;

 

(d)            any acquisition, exclusive license, sale or transfer of any material asset of the Company, other than in the Ordinary Course;

 

(e)            any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of the Company, other than the Parent Share Distribution, or any redemption, purchase or other acquisition of any of its securities;

(f)            any material increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any officers or key employees of the Company or any of its Subsidiaries, except in the Ordinary Course; or

 

(g)           any negotiation or agreement by the Company to do any of the things described in this Section 3.08 .

 

SECTION 3.09.        Absence of Litigation .  Except as set forth in Section 3.09 of the Company Disclosure Schedule, there is no litigation, suit, claim, action, investigation or proceeding (an “ Action ”) pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, any property or asset of the Company or any of its Subsidiaries or involving any present or former directors or officers of the Company in their capacities as such, before any Governmental Authority that has had or would, if adversely decided against the Company or its Subsidiaries, reasonably be expected to have a Company Material Adverse Effect.  Neither the Company nor any of its Subsidiaries nor any property or asset of the Company or such Subsidiary nor any of their present or former directors or officers is subject to any continuing order of, or consent decree, settlement agreement or similar written agreement with, any Governmental Authority, or any order, judgment, injunction or decree of any Governmental Authority, in each case, that has had or would reasonably be expected to have a Company Material Adverse Effect.  Except as set forth in Section 3.09 of the Company Disclosure Schedule, the Company has no Knowledge of any indemnification, breach of contract or similar claims against the Company or any of its Subsidiaries which are pending, or to the Knowledge of the Company, threatened, in each case in excess of $50,000 in amount, with respect to any acquisition or disposition by the Company or such Subsidiary of any assets or businesses.

 

SECTION 3.10.       Employees and Employee Benefit Plans .

 

(a)             General .

 

(i)             Section 3.10(a)(i) of the Company Disclosure Schedule lists all employee benefit plans and employment or severance agreements or other similar arrangements maintained, sponsored or otherwise contributed to by the Company or any ERISA Affiliate, or have been maintained or contributed to in the last six (6) years by the Company or any ERISA Affiliate, or with respect to which the Company or any ERISA Affiliate has any liability or obligation for present or future payment of benefits for employees of the Company or any ERISA Affiliate, including any such employees who are employed outside the United States or with respect to which the Company or any ERISA Affiliate could have any liability (collectively, the “ Benefit Plans ”), including, without limitation, (A) any profit-sharing, deferred compensation, bonus, stock option, phantom stock, stock purchase, pension, retainer, consulting, retirement, severance, change of control, supplemental unemployment benefits, welfare or incentive plan, agreement or arrangement, (B) any plan, agreement or arrangement providing for “fringe benefits” or perquisites to employees, officers, directors or agents, (C) any hospitalization, health, welfare, dental, disability, life insurance, health or dependent care flexible spending account, or other benefit plan, or (D) any other “employee benefit plan” within the meaning of Section 3(3) of ERISA.

(ii)           The Company has delivered to Parent true, correct and complete copies of all Benefit Plans listed in Section 3.10(a)(i) of the Company Disclosure Schedule including (without limitation) (A) all amendments thereto and all related trust documents, benefits booklets, administrative service agreements, group annuity contracts, group insurance contracts, and policies pertaining to fiduciary liability insurance covering the fiduciaries for each Benefit Plan; (B) all IRS determination, opinion, notification and advisory letters, and any pending applications and correspondence to or from the IRS or the Department of Labor with respect to any such application or letter; (C) all material written communications by the Company or any ERISA Affiliate to any employee or employees (including, without limitation, summary plan descriptions and summary annual reports) or written communications received by the Company or any ERISA Affiliate from employees in the last two (2) years relating to any Benefit Plan and any proposed Benefit Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company or any ERISA Affiliate; (D) nondiscrimination test reports for each applicable Benefit Plan for the most recent plan year; (E) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Benefit Plan for the most recent plan year; and (F) all reports, forms and other documents required to be filed with any Governmental Authority in the last three (3) years (including, without limitation, Forms 5500 and all schedules and financial statements attached thereto for all Benefit Plans subject to ERISA).  Neither the Company nor any ERISA Affiliate has any express or implied commitment (x) to create, incur liability with respect to or cause to exist any other material employee benefit plan, program or arrangement, (y) to enter into any contract or agreement to provide compensation or benefits to any individual other than in the Ordinary Course, or (z) to modify, change or terminate any Benefit Plan, other than with respect to a modification, change or termination required by ERISA, the Code or other applicable Law.

 

(iii)          The Benefit Plans have been operated in material compliance in all respects with their terms and the applicable provisions of ERISA, the regulations and authorities thereunder, and all other Laws applicable to the Benefit Plans.  There are no actions, investigations, legal proceedings, or other claims or suits (other than claims for benefits in the Ordinary Course) pending or, to the Knowledge of the Company, threatened against the Benefit Plans or their assets or arising out of the Benefit Plans which would reasonably be expected to result in material liability to the Company or its Subsidiaries.  The Company and its Subsidiaries have performed all obligations required to be performed by them under, and are not in default under or in violation of, and the Company has no Knowledge of any default or violation by any party to, any Benefit Plan.

(iv)          Neither the Company, any of its Subsidiaries, any ERISA Affiliate nor any Benefit Plan has, or would reasonably be expected to have, by reason of the transactions contemplated by this Agreement, to make any payment, whether by way of acceleration of vesting or otherwise, that could be classified as a “parachute payment” within the meaning of Code Section 280G.  Neither Parent, Merger Sub or the Company will be precluded from deducting, for federal income tax purposes, any payment, whether or not listed on Section 3.10(a)(iv) of the Company Disclosure Schedule, which are or may be made by, from or with respect to any Benefit Plan, to any employee, former employee, director or agent of the Company or any ERISA Affiliate, either alone or in conjunction with any other payment, by reason of such payment’s characterization as an excess parachute payment under Section 280G of the Code.

 

(v)          No Benefit Plan is subject to the terms of any collective bargaining agreement.

 

(vi)         All contributions to, and payments from, the Benefit Plans that may have been required to be made in accordance with their terms have been timely made or will be made prior to Closing.  The Company or any ERISA Affiliate has not provided, nor is it required to provide, security to any pension plan pursuant to Section 401(a)(29) of the Code.

 

(vii)        There has been no amendment to, announcement by the Company or any ERISA Affiliate relating to, or change in employee participation of coverage under, any Benefit Plan which would increase materially the expense of maintaining such Benefit Plan above the level of the expense incurred therefor for the most recent fiscal year.

 

(viii)        Except as set forth on Section 3.10(a)(viii) of the Company Disclosure Schedule, neither the execution nor delivery of this Agreement, nor the consummation or performance of any of the transactions contemplated herein, will (either alone or together with any other event): (i) result in any material payment (including, without limitation, any material bonus, severance, unemployment compensation, forgiveness of indebtedness, or golden parachute payment) becoming due to any current or former employee, officer or director of the Company or any Subsidiary, (ii) increase any material benefit otherwise payable under any Benefit Plan, or (iii) result in the material acceleration of the time of payment, vesting or funding, of any such benefit.

 

(ix)         The Company or any Subsidiary has not classified any individual as an “independent contractor” or of similar status who, according to a Benefit Plan or the applicable Laws of the jurisdiction, should have been classified as an employee of any of the Company or any Subsidiary.  The Company or any Subsidiary does not have any material liability by reason of any employee of the Company or Subsidiary being improperly excluded from participating in any Benefit Plan.

(x)          No stock or other security issued by the Company or an ERISA Affiliate forms or has formed a part of the assets of any Benefit Plan.

 

(xi)         Except as disclosed on Section 3.10(a)(xi) of the Company Disclosure Schedule, each Benefit Plan that is subject to Code Section 409A has been administered in compliance with Code Section 409A or, to the extent that it has not been administered in compliance with Code Section 409A, can be corrected without any inclusion in income of any employee of the Company or its Subsidiaries, and the regulations and other guidance issued thereunder, and no compensation shall be includable in the gross income of any employee of the Company or Subsidiary as a result of the operation of Code Section 409A with respect to any arrangements or agreements in effect prior to the Closing Date solely as a result of a documentary or operational failure under Code Section 409A occurring prior to the Effective Time.

 

(xii)        To the Knowledge of the Company, all Benefit Plans, substantially all of the participants of which are non-resident aliens of the United States, comply in all material respects with all applicable local Laws.  With respect to any Benefit Plan, substantially all of the participants of which are non-resident aliens of the United States, the Company or any ERISA Affiliate has not (nor will have as a consequence of the Merger) any liability to make payment to any pension plan as a result of any deficiency or shortfall in the funding of such plan.

 

(xiii)       Each Benefit Plan can be amended, terminated or otherwise discontinued after the Closing Date in accordance with its terms, without liability to the Company or any Subsidiary (other than benefit claims and administration expenses in the Ordinary Course).

 

(xiv)       No Benefit Plan provides, or reflects or represents any liability to provide, retiree life insurance, retiree health or other retiree employee welfare benefits to any person for any reason, except as may be required by statute, and neither the Company nor any of its Subsidiaries has ever represented, promised or contracted (in writing) to any employee (either individually or to employees as a group) or any other person that such employee(s) or other person would be provided with retiree life insurance, retiree health or other retiree employee welfare benefits, except to the extent required by statute.

 

(xv)        The Company and its Subsidiaries have maintained workers' compensation coverage as required by applicable state Law through purchase of insurance and not by self insurance or otherwise.

 

(b)            Qualified Plans .  Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code and any trust maintained pursuant thereto has received a determination letter or opinion letter to such effect and that any such trust is exempt from federal income taxation under Section 501(c) of the Code, and nothing has occurred or failed to occur with respect to the amendment or the operations of the Benefit Plans which is reasonably likely to cause the loss of such qualification or exemption.  The Company, any of its Subsidiaries, any ERISA Affiliates, or any Benefit Plan has not engaged in any prohibited transaction (within the meaning of Section 4975 of the Code) or party-in-interest transaction (within the meaning of Section 406 of ERISA) with respect to any Benefit Plan that could subject the Company or its Subsidiaries to any material taxes, penalties or other liabilities under Section 4975 of the Code or Section 502(i) of ERISA.

(c)             Title IV Plans .  With respect to each Benefit Plan subject to Title IV of ERISA (other than a Multiemployer Plan) in which the Company, any Subsidiary of the Company or any trade or business (whether or not incorporated) that is a member of a group of which the Company or any Subsidiary of the Company is a member and with which the Company or any Subsidiary of the Company is under common control within the meaning of Section 414(b), (c) or (m) of the Code (an “ ERISA Affiliate ”), within the five years prior to the date of this Agreement, (i) neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has withdrawn from such Benefit Plan as a “substantial employer” (as defined in Section 4001(a) (2) of ERISA), (ii) neither the Company nor any Subsidiary of the Company nor any ERISA Affiliate has filed a notice of intent to terminate any such Benefit Plan or adopted any amendment to treat any such Benefit Plan as terminated, (iii) the Pension Benefit Guaranty Company (“ PBGC ”) has not instituted an Action to terminate any such Benefit Plan, (iv) no material reportable event (as described in Section 4043 of ERISA) (other than those events as to which the thirty day notice period is waived) has occurred with respect to any such Benefit Plan and (v) for plan years beginning before 2008, no amendment with respect to which security was required under Section 307 of ERISA has been made.  No accumulated funding deficiency, whether or not waived, exists with respect to any such Benefit Plan.  Neither the Company, any of its Subsidiaries nor any ERISA Affiliate has incurred any material liability to the PBGC with respect to any Benefit Plan subject to Title IV of ERISA, other than for the payment of premiums, all of which have been paid when past due.  No such Benefit Plan has applied for or received a waiver of the minimum funding standards imposed by Section 412 of the Code.  With respect to the actuarial report furnished to Parent under Section 3.10(a)(ii) above, the information supplied to the actuary by the Company and its ERISA Affiliates for use in preparing the report was complete and accurate and neither the Company nor any ERISA Affiliate has any reason to believe that the conclusions expressed in that report are incorrect.  No event has occurred since the date of any such actuarial report that had, or is likely to have, a materially adverse effect on the ratio of plan assets to the actuarial present value of plan obligations for accumulated benefits shown in the report.  No event has occurred and no condition exists that would subject the Company or any of its Subsidiaries to any liability imposed under Section 4069 of ERISA.

(d)             Multiemployer Plans .  Neither the Company, any of its Subsidiaries nor any ERISA Affiliate participates or has participated in the six years prior to the date of this Agreement in any multiemployer plan, as defined under Section 3(37) of ERISA (a “ Multiemployer Plan ”).  Neither the Company, any of its Subsidiaries or any ERISA Affiliate has incurred any withdrawal liability, within the meaning of Section 4201 of ERISA to any Multiemployer Plan nor does the Company, any of its Subsidiaries or any ERISA Affiliate have any potential withdrawal liability arising from a transaction described in Section 4204 of ERISA that has not been paid in full as of the date hereof.  All required contributions, withdrawal liability payments or other payments of any type that the Company any of its Subsidiaries or any ERISA Affiliate have been obligated to make to any Multiemployer Plan have been duly and timely made.  Neither the Company, any of its Subsidiaries nor any ERISA Affiliate has undertaken any course of action that would reasonably be expected to lead to a complete or partial withdrawal from any Multiemployer Plan.  Neither the Company, any of its Subsidiaries nor any ERISA Affiliate has received notice from the PBGC or from any Multiemployer Plan to the effect that any such plan is in reorganization within the meaning of Section 4241 of ERISA.

 

(e)            The Company, each of its Subsidiaries and each ERISA Affiliate have materially complied, such that no material liability would reasonably be expected to result to the Company, any of its Subsidiaries or any ERISA Affiliate as a result of the failure to so comply, with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder, including, without limitation, the “M&A regulations” issued as Treasury Regulations § 54.4980B-9, with respect to each Benefit Plan that is, or was during any taxable year of the Company, any of its Subsidiaries or any ERISA Affiliate for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code.  Each Benefit Plan has been operated in compliance with the applicable continuation requirements of applicable state Law mandating health insurance continuation coverage for employees of the Company or Subsidiary.

 

(f)             Labor Matters .

 

(i)            With respect to the employees of the Company and its Subsidiaries, (A) within the twelve months prior to the date of this Agreement, there has not been pending nor, to the Knowledge of the Company, any threatened strike, slowdown, stoppage, organizational effort, picketing, handbilling activity, representation or certification campaign, grievance, arbitration, administrative hearing, or claim of unfair labor practice, not including workers’ compensation claims, (B) there is no pending or, to the Company’s Knowledge, threatened Action for wrongful discharge, Action for employment discrimination, Action for sexual harassment or other Action involving an employment dispute of any nature against the Company or any of its Subsidiaries; (C) neither the Company nor any of its Subsidiaries are a party to any collective bargaining agreement or other contract with any labor union or any other similar organization, no labor union or similar organization currently represents the employees of the Company or its Subsidiaries, and to the Knowledge of the Company, no labor union or similar organization, or any employees of the Company or any of its Subsidiaries have taken any action with respect to organizing the employees of the Company or its Subsidiaries; and (D) the Company has not, in the two years prior to the date of this Agreement, effectuated a “plant closing” or “mass layoff” as those terms are defined in WARN, affecting in whole or in part any site of employment, facility, operating unit or employee of the Company or any of its Subsidiaries without complying with the notice requirements and other provisions of WARN which could cause any liability to the Company or any of its Subsidiaries with respect to the employees of the Company or any of its Subsidiaries.

(ii)           The Company and its Subsidiaries are in material compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining, individual and collective consultation, notice of termination, redundancy and the payment and withholding of Taxes and other sums as required by the appropriate Governmental Authority and have withheld and paid to the appropriate Governmental Authority or are holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company or any of its Subsidiaries and are not liable for any arrears of wages, Taxes, penalties or other sums for failure to comply with any of the foregoing.  The Company and its Subsidiaries have paid in full to all employees or adequately accrued for in accordance with GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees and there is no claim with respect to payment of wages, salary, overtime pay or any other form of compensation that has been asserted or is now pending or threatened before any Governmental Authority with respect to any persons currently or formerly employed by the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries is a party to, or otherwise bound by, any consent decree with, or citation or order by, any Governmental Authority relating to employees or employment practices.  There is no charge or proceeding with respect to a violation of any occupational safety or health standards that has been asserted and is now pending or, to the Company’s Knowledge, threatened with respect to the Company.  There is no charge of discrimination in employment or employment practices, for any reason, including, without limitation, age, gender, race, religion or other legally protected category, which has been asserted and is now pending or, to the Company’s Knowledge, threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which the Company or any of its Subsidiaries have employed or employ any person.  No inquiry or investigation affecting the Company or any of its Subsidiaries has been made and is now pending or, to the Company’s Knowledge, threatened by the Commission for Racial Equality, the Equal Employment Opportunity Commission or any similar body.

 

(iii)          Except as set forth in Section 3.10(f)(iii) of the Company Disclosure Schedule, the employment of each of the employees of the Company or any of its Subsidiaries is terminable at will, without cause or prior notice.  Neither the consummation of the Merger nor any termination of employment of any employees of the Company or any of its Subsidiaries will result in or give rise to (A) any liability to make any severance, retention, termination, change of control, “golden parachute,” or any other payment to present or former employees; or (B) the acceleration of any other rights or benefits to any present or former employee, whether pursuant to a Benefit Plan, Law, contract or otherwise.  There are no customs, established practices or discretionary arrangements of the Company or any of its Subsidiaries in relation to the termination of employment of any of its employees (whether voluntary or involuntary).  Neither the Company nor any of its Subsidiaries has any outstanding liability to pay compensation for loss of office or employment or a redundancy payment to any present or former employee.  There is no term of employment of any employee of the Company or any of its Subsidiaries which shall entitle that employee to treat the consummation of the Merger as amounting to a breach of his or her contract of employment or entitling him or her to any payment or benefit whatsoever or entitling him or her to treat himself or herself as redundant or otherwise dismissed or released from any obligation.

SECTION 3.11.       Registration Statement; Proxy Statement; Transaction Statement .  The information relating to and provided by the Company and its Subsidiaries, or their respective representatives, to be contained in the registration statement on Form S-4 to be filed with the SEC by Parent for the purpose of registering the offer and sale of the Debentures to be issued in the Merger (the “ Registration Statement ”), and the information included or incorporated by reference in the proxy statement to be sent to the Company Stockholders in connection with the Stockholders’ Meeting (as it may be amended or supplemented, the “ Proxy Statement ”) and in the transaction statement on Schedule 13e-3 under Section 13(e) of the Exchange Act and Rule 13(e)-3 thereunder (the “ Transaction Statement ”), shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to the Company Stockholders and at the time of the Stockholders' Meeting, with respect to the Proxy Statement and the Transaction Statement, and, at the date it is declared effective, with respect to the Registration Statement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading.  Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent, Merger Sub or any of Parent’s or Merger Sub’s representatives for inclusion or incorporation by reference in the Proxy Statement, the Registration Statement or the Transaction Statement.  The Proxy Statement and the Transaction Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder.

 

SECTION 3.12.       Property and Leases .

 

(a)            (i) Section 3.12(a)(i) of the Company Disclosure Schedule sets forth a correct and complete list and address of all interests in real property owned by the Company and its Subsidiaries as of the date of this Agreement (all such real property, together with all buildings, structures and other improvements and fixtures located on or under such real property and all easements, rights and other appurtenances to such real property, are individually referred to herein as “ Company Property ” and collectively referred to herein as the “ Company Properties ”).  Each of the Company and its Subsidiaries own fee simple title to each of the Company Properties in which it has an interest, in each case free and clear of any Liens, title defects, contractual restrictions, covenants or reservations of interests in title, except for (i) Permitted Liens, and (ii) matters set forth in Section 3.12(a)(i) of the Company Disclosure Schedule.  Except as set forth in Section 3.12(a)(i) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has received any written notice that the Company or the applicable Subsidiary has violated any Law applicable to the ownership or operation of the Company Properties or any covenants, conditions, easements or restrictions of record affecting any of the Company Properties, which violation has not been cured and, if not cured, has not had and would not reasonably be expected to have a Company Material Adverse Effect.  Except as set forth in Section 3.12(a)(i) of the Company Disclosure Schedule, there are no leases, subleases, occupancy agreements, options to purchase or rights of first refusal with respect to the Company Properties and there are no parties in possession of the Company Properties other than the Company and its Subsidiaries.

(ii)            Section 3.12(a)(ii) of the Company Disclosure Schedule lists each interest in real property leased (including ground leases) or subleased as of the date of this Agreement by the Company and any of its Subsidiaries (collectively, the “ Leased Properties ”).  True, correct and complete copies of all leases, subleases and each amendment and assignment of interest related thereto executed by the Company or any of its Subsidiaries or, to the extent the Company or any of its Subsidiaries has received written notice of such assignment, by the landlords or fee simple title holders with respect thereto prior to the date of this Agreement concerning the Leased Properties (“ Lease Documents ”) have been made available to Parent.  The Company or one of its Subsidiaries has the right to use and occupancy of the Leased Property for the full term of the lease or sublease relating thereto, subject to the terms of the Lease Documents.  Each such lease or sublease is a legal, enforceable and binding agreement of the Company or a Subsidiary thereof and, to the Knowledge of the Company, each of the other parties thereto, and there is no, nor has the Company or any of its Subsidiaries received notice of any, default by the Company or a Subsidiary thereof (or any condition or event, which, after notice or a lapse of time or both would constitute a default thereunder by the Company or a Subsidiary thereof), which has not been cured and, if not cured, has not had and would not reasonably be expected to have a Company Material Adverse Effect.  Neither the Company nor any of its Subsidiaries have Knowledge of any default by any other party to a Lease Document which has not been cured and, if not cured, has not had and would not reasonably be expected to have a Company Material Adverse Effect.  Except for the Permitted Liens or as set forth in Section 3.12(a)(i) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has assigned its interest under any such lease or sublease or sublet any part of the premises covered thereby or mortgaged or otherwise encumbered any interest in any such lease or leasehold.

 

(iii)          Each Company Property and Leased Property, has received all approvals of Governmental Authorities (including licenses and Permits) required in connection with the ownership or lease, as applicable, and operation thereof, except where the failure to receive such approvals would not reasonably be expected to have a Company Material Adverse Effect, and have been operated and maintained in all material respects in accordance with applicable Laws.  There are no pending or, to the Knowledge of the Company, threatened condemnation proceedings with respect to the Company Property or, to the Knowledge of the Company, the Leased Property that would materially adversely affect the use, occupancy or value thereof.

(b)            Except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries have good and marketable title to all the personal and non-real properties and assets reflected in their books and records as being owned by them, free and clear of all Liens, except for Permitted Liens.

 

(c)            The Company has no Knowledge of any physical damage to any Company Properties that has had or would reasonably be expected to have a Company Material Adverse Effect.

 

SECTION 3.13.       Intellectual Property .

 

(a)            Each of the Company and its Subsidiaries own, license or otherwise possess legally enforceable rights to use and fully exploit all Intellectual Property used in the conduct of its business.

 

(b)             Section 3.13(b) of the Company Disclosure Schedule contains a complete and accurate list of all (i) registered patents and patent applications, (ii) registered trademarks, trademark applications, unregistered trademarks, service marks, and trade names, (iii) copyrights and copyright registrations and applications for registration of copyrights, (iv) domain name registrations, and (v) registrations and applications for registration of industrial designs, mask works or other industrial rights owned by the Company, specifying as to each such item, as applicable: (A) the owner of the item, (B) the jurisdictions in which the item is issued or registered or in which any application for issuance or registration has been filed, (C) the respective issuance, registration, or application number of the item, (D) the date of application or issuance or registration of the item; and (E) the status of any such registration or application (e.g., pending, cancelled or abandoned).

 

(c)            All of the registered patents, industrial design registrations, trademark and service mark registrations, copyright registrations, mask work registrations and domain name registrations indicated in Section 3.13(b) of the Company Disclosure Schedule are valid and in full force, are held of record in the name of the Company free and clear of all Liens and other claims (including by way of example and not limitation, claims of joint authors or inventors), and are not the subject of any cancellation or reexamination proceeding or any other proceeding challenging their extent or validity.  Except as set forth in Section 3.13(c) of the Company Disclosure Schedule, the Company or the applicable Subsidiary is the applicant of record in all patent applications, and applications for trademark, service mark, trade dress, industrial design, copyright, mask work and domain name registration indicated in Section 3.13(b) , and no opposition, extension of time to oppose, interference, rejection, or refusal to register has been received in connection with any such application.

(d)             Section 3.13(d) of the Company Disclosure Schedule contains a complete and accurate list of each license, sublicense, consent, settlement, joint development, collaboration or other agreement (whether written or otherwise) pertaining to the use, development or modification of any Intellectual Property used by the Company or any of its Subsidiaries, or by which the Company or any of its Subsidiaries licenses or otherwise authorizes a third party to use Intellectual Property owned by the Company or such Subsidiary, other than the Franchise Agreements.  Neither the Company or any of its Subsidiaries nor, to the Knowledge of the Company, any other party to such agreements is in breach of or default under any such license or other agreement and except as set forth on Section 3.13(d) of the Company Disclosure Schedule, each such license or other agreement is now and immediately following the Closing shall be valid and in full force and effect.

 

(e)            To the Knowledge of the Company, the business operations of each of the Company and its Subsidiaries as currently conducted, including but not limited to the design, development, use, import, manufacture and sale of the products, technology or services of the Company and each such Subsidiary, do not infringe, dilute, misappropriate or otherwise violate the Intellectual Property of any third party, or constitute unfair competition or trade practices under the Laws of any jurisdiction.  Neither the Company nor any of its Subsidiaries has any pending claims that a third party has violated or infringed any of the Company's Intellectual Property.

 

(f)            To the Knowledge of the Company, there has been no unauthorized disclosure, publication or other release of the trade secrets or other confidential or proprietary information of the Company or any of its Subsidiaries.

 

(g)            The information technology systems owned, licensed, leased, operated on behalf of, or otherwise held for use in the business by the Company or any of its Subsidiaries, including all computer hardware, software, firmware and telecommunications systems used in the businesses of Company and its Subsidiaries (the “ IT Systems ”), are operated and maintained in a commercially appropriate manner, including without limitation, by installing and operating appropriate network and workstation security firewall systems and screening the IT Systems, and the components thereof, for the presence of known computer software viruses.  Each of the Company and its Subsidiaries has taken commercially appropriate steps to provide for the archival and restoration of the critical business data of the Company and such Subsidiary in the event of a disaster.

 

SECTION 3.14.       Taxes .  Except as set forth i n Section 3.14 of the Company Disclosure Schedule:

(a)            All federal Tax Returns and all other Tax Returns required to be filed by or on behalf of the Company or any of its Tax Subsidiaries have been properly and timely filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns, as amended, are accurate and complete in all material respects.  Except as and to the extent publicly disclosed by the Company in the Company SEC Reports, (i) all Taxes payable by or on behalf of the Company or any of its Tax Subsidiaries (whether or not shown in a Tax Return) have been fully and timely paid or adequately provided for in accordance with GAAP, and (ii) adequate reserves or accruals for Taxes have been provided in accordance with GAAP with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing or for which Taxes are being contested in good faith.  Neither the Company nor any of its Tax Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force and no request for any such waiver or extension is currently pending.   Section 3.14 of the Company Disclosure Schedule contains a list of all jurisdictions (whether foreign or domestic) to which any Tax is payable by or on behalf of the Company or any of its Subsidiaries and with whom Tax Returns are required to be filed by or on behalf of the Company or any of its Subsidiaries.

 

(b)            No audit or other proceeding by any taxing authority is ongoing or pending with respect to any Taxes due from or with respect to any Tax Subsidiary, and there is no dispute with respect to any liability for Taxes of the Company or any Tax Subsidiary either claimed or raised, or to the Knowledge of the Company, threatened in writing.

 

(c)            The Company and its Tax Subsidiaries (i) have complied in all respects with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes; and (ii) have duly and timely withheld from any compensation payable and from distributions to any stockholder or payments to any creditor and have paid over to the appropriate taxing authorities all amounts required to be withheld and paid over on or prior to the due date thereof under all applicable Laws.

 

(d)            Neither the Company nor any of its Tax Subsidiaries has received written notice from any taxing authority in a jurisdiction in which the Company or such Tax Subsidiary does not file a Tax Return stating that the Company or such Tax Subsidiary is or may be subject to taxation by that jurisdiction.

 

(e)            Neither the Company nor any of its Tax Subsidiaries (i) is a party to any Tax sharing, Tax indemnity or similar agreement or arrangement, other than any agreement or arrangement between the Company and any of its Tax Subsidiaries, pursuant to which it will have any obligation to make any payments after the Closing and (ii) has any liability for the Taxes of any Person other than the Company and its Tax Subsidiaries (x) under Treasury Regulation §1.1502-6 (or similar provision of state, local or foreign law), (y) as transferee or successor or (z) by contract.

 

(f)            Within the past two years, neither the Company nor any Tax Subsidiary has distributed stock of another Person in a transaction intended to be governed by Section 355 of the Code, nor has the stock of the Company or any Tax Subsidiary been distributed in transaction intended to be governed by Section 355 of the Code.

 

(g)            Neither the Company nor any Tax Subsidiary has engaged in a "reportable transaction" as defined in Treasury Regulation Section 1.6011-4, or any transaction that is the same as, or substantially similar to, any "listed transactions" as defined in Treasury Regulation Section 1.6011-4(b)(2).

(h)            Neither the Company nor any Tax Subsidiary has been at any time a United States Real Property Holding Corporation within the meaning of Section 897(c)(2) of the Code.

 

(i)            Neither the Company nor any Subsidiary (i) has elected to change, or is required to change, a method of accounting for Tax purposes pursuant to Section 481 of the Code or otherwise that will have a continuing effect following the Closing or (ii) is the subject of any closing agreement with respect to Taxes that will have continuing effect following the Closing.

 

(j)            The Company and its Tax Subsidiaries have not made any payments and are not obligated to make any payments, nor are the Company and its Tax Subsidiaries a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under either Sections 280G or 162(m) of the Code.

 

(k)            There are no excess loss accounts, deferred intercompany transactions, or other items of income, gain, loss, deduction or credit of the Company and its Tax Subsidiaries under the federal consolidated return regulations or other comparable or similar provisions of state law that must be recognized or may be triggered as a result of the consummation of the transactions contemplated by this Agreement.

 

SECTION 3.15.       Environmental Matters .

 

(a)            Each of the Company and its Subsidiaries and the Company Properties are in compliance in all material respects with all Environmental Laws and Environmental Permits (as defined below).

 

(b)            Each of the Company and its Subsidiaries possesses and maintains all material Permits required by Environmental Laws (collectively, “ Environmental Permits ”) in connection with their ownership of the Company Properties and in connection with the operation of their business as it is now conducted.  There is no Action pending, or to the Knowledge of the Company, threatened, that seeks revocation, cancellation, withdrawal, suspension or any adverse modification of such Environmental Permits.  The Company and its Subsidiaries have timely filed all applications necessary to renew such Environmental Permits, except where the failure by the Company to timely file any such application would not reasonably be expected to have a Company Material Adverse Effect.  The consummation of the transactions contemplated by this Agreement do not require any consent, approval, license, authorization, registration, certification, permit or any other action of any Governmental Authority in connection with Environmental Laws or other third party relating to any Environmental Permit (collectively, “ Environmental Consents ”), except where the failure to obtain such Environmental Consents would not reasonably be expected to have  a Company Material Adverse Effect.

(c)            None of the Company, any of its Subsidiaries, the Company Properties or the Leased Properties is subject to any pending or, to the Knowledge of the Company, threatened Environmental Liabilities, which would reasonably be expected to result in the Company or any of its Subsidiaries incurring a material Environmental Liability.

 

(d)            With respect to the Company Properties and the Leased Properties, neither the Company nor any of its Subsidiaries has arranged for the treatment, storage or disposal of or otherwise caused to be treated, stored or disposed of any Hazardous Material, (i) with respect to which they have received any written notice of any actual or potential Environmental Liabilities which have not been resolved in all material respects, or (ii) to the Knowledge of the Company, at any off-site location listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or any other list, schedule, log, inventory or record, which is publicly available, searchable and maintained by a Governmental Authority with respect to sites where there has been a Release or threatened Release of Hazardous Materials.

 

(e)            No Release of Hazardous Material has occurred on, at or under any Company Property since the acquisition of the Company Property by the Company or since the leasing of the Leased Property by the Company or any of its Subsidiaries, which would reasonably be expected to result in the Company or any of its Subsidiaries incurring a material Environmental Liability.

 

(f)            Neither the Company nor any of its Subsidiaries has received any written request for information from any Governmental Authority, pursuant to Section 104(e) of CERCLA or any similar Environmental Law, which would reasonably be expected to result in the Company or any of its Subsidiaries incurring a material Environmental Liability.

 

(g)            The Company and its Subsidiaries have made available to Parent true and complete copies of all environmental audits and other material environmental documents and reports, studies, analysis, tests or monitoring in their possession or control relating to the Company Properties, the Leased Properties and their Environmental Liabilities.

 

(h)            To the Company’s Knowledge, except as set forth in this Agreement, there is no information in the possession or control of the Company or any of its Subsidiaries that discloses facts or circumstances with respect to the Company Properties, the Leased Properties or the business of the Company and its Subsidiaries that would reasonably be expected to result in material Environmental Liabilities.

 

(i)            Except as set forth in Section 3.15(i) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has retained or assumed by contract any material Environmental Liabilities.

 

(j)            To the Knowledge of the Company, there are no Hazardous Materials present at any of the Company Properties or the Leased Properties, including any Hazardous Materials contained in barrels above ground or underground storage tanks, landfills, land deposits, dumps, equipment (whether movable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water or any other part of any of the Company Properties or the Leased Properties, or incorporated into any structure therein or thereon, which would reasonably be expected to result in the Company or any of its Subsidiaries incurring a material Environmental Liability.

SECTION 3.16.       Material Contracts .

 

(a)             Section 3.16(a) of the Company Disclosure Schedule contains, as of the date of this Agreement, a complete and accurate listing of the following contracts, agreements, commitments, leases, licenses, arrangements, instruments and obligations, whether written or oral (and, if oral, a complete and accurate summary thereof), to which the Company or any Subsidiary of the Company is a party, together with all amendments, waivers or other changes thereto (such contracts being “ Material Contracts ”):

 

(i)            each contract, agreement, commitment, lease, license, arrangement, instrument and/or obligation which is reasonably likely to involve payments in excess of $50,000 in any one case or $100,000 in the aggregate by or to the Company or any Subsidiary of the Company, other than any Franchise Agreement;

 

(ii)           all collective bargaining agreements, employment and consulting agreements, independent contractor agreements, severance agreements, director or officer indemnification agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and similar plans, group life insurance, hospitalization insurance or other similar plans or arrangements maintained for or providing benefits to employees of, or independent contractors or other agents for, the Company or any Subsidiary of the Company;

 

(iii)          all broker, distributor, dealer, manufacturer’s representative, agency, sales promotion, market research, marketing consulting and advertising or marketing contracts and agreements in excess of $50,000 in any one case;

 

(iv)         all contracts and agreements relating to (A) any indebtedness (which does not include accounts payable incurred in the Ordinary Course), notes payable (including notes payable in connection with acquisitions), accrued interest payable or other obligations for borrowed money, whether current, short-term, or long-term, secured or unsecured, of the Company or any of its Subsidiaries in excess of $50,000 in the aggregate, (B) any purchase money indebtedness or earn-out or similar obligation in respect of purchases of property or assets by the Company or any of its Subsidiaries, (C) any lease obligations of the Company or any of its Subsidiaries under leases which are capital leases in accordance with GAAP, (D) any financing of the Company or any of its Subsidiaries effected through “special purpose entities” or synthetic leases or project financing, (E) any obligations of the Company or any of its Subsidiaries in respect of banker’s acceptances or letters of credit (other than stand-by letters of credit in support of Ordinary Course trade payables), (F) any obligation or liability of the Company or any of its Subsidiaries with respect to interest rate swaps, collars, caps, currency derivatives and similar hedging obligations in excess of $50,000 in the aggregate, or (G) any guarantee of any of the foregoing (the liabilities and obligations referred to in (A) through (G) above, “ Indebtedness ”) or any Liens upon any properties or assets of the Company or any Subsidiary of the Company as security for such Indebtedness;

(v)          all contracts and licenses relating to the Intellectual Property, other than those entered into in connection with Franchise Agreements in the Ordinary Course;

 

(vi)         all contracts and agreements that (A) limit the ability of the Company and/or any Subsidiary or affiliate of, or successor to, the Company and/or any Subsidiary, or, to the Knowledge of the Company, any executive officer of the Company and/or any Subsidiary, to compete in any line of business or with any Person or in any geographic area or during any period of time, (B) require the Company and/or any Subsidiary or affiliate of, or successor to, the Company and/or any Subsidiary to use any supplier or third party for all or substantially all of any of its material requirements or need in any respect, (C) limit or purport to limit the ability of Company and/or any Subsidiary or affiliate of, or successor to, the Company and/or any Subsidiary to solicit any customers or clients of the other parties thereto, (D) require the Company and/or any Subsidiary or affiliate of, or successor to, the Company and/or any Subsidiary to provide to the other parties thereto “most favored nation” pricing, or (E) require the Company and/or any Subsidiary or affiliate of, or successor to, the Company and/or any Subsidiary to market or co-market any products or services of a third party;

 

(vii)        all joint venture contracts, partnership arrangements or other agreements outside the Ordinary Course involving a sharing of profits, losses, costs or liabilities of any Person by the Company or any Subsidiary with any third Person;

 

(viii)       all powers of attorney and proxies entered into by or granted to the Company or any of its Subsidiaries, whether limited or general, revocable or irrevocable;

 

(ix)          each contract otherwise described in this Section 3.16(a) containing any provisions (A) contemplating or relating in any way to a change in control or similar event with respect to the Company or any one or more of its Subsidiaries or otherwise having the effect of providing that the consummation of the Merger or any of the other transactions contemplated by this Agreement or the execution, delivery or effectiveness of this Agreement will materially conflict with, result in a violation or breach of, or constitute a default (with or without notice or lapse of time or both) under, such contract or give rise under such contract to any right of, or result in, a termination, right of first refusal, material amendment, revocation, cancellation or material acceleration, or a loss of a material benefit or the creation of any Lien upon any of the properties or assets of the Company, Parent or any of their respective Subsidiaries, or to any increased, guaranteed, accelerated or additional rights or material entitlements of any Person, or (B) prohibiting or imposing any restrictions on the assignment of all or any portion of such contract by Subsidiaries, including provisions requiring consent or approval of, or notice to, any Person in the event of a change in control of the Company or any of its Subsidiaries to any other Person (without regard to any exception permitting assignments to Subsidiaries or affiliates);

(x)           all contracts, agreements and arrangements entered into by the Company or any of its Subsidiaries and any other Person providing for the acquisition by the Company or such Subsidiary (including by merger, consolidation, acquisition of stock or assets or any other business combination) of any corporation, partnership, other business organization or division or unit thereof or any material amount of assets of such other Person, and information identifying the maximum amounts, if any, that are still payable or potentially payable to any other Person under such contracts, agreements and arrangements pursuant to any post-closing adjustment to the purchase price (including under any “earnout” or other similar provision);

 

(xi)          all confidentiality, non-disclosure and/or standstill agreements entered into by the Company or any of its Subsidiaries (other than in the Ordinary Course) except those which have expired by their terms; and

 

(xii)         all other contracts, agreements, commitments, leases, licenses, arrangements, instruments and/or obligations, whether or not made in the Ordinary Course, which are material to the Company and its Subsidiaries, the conduct of the business thereof, or the termination or cancellation of which would have or would reasonably be expected to have a Company Material Adverse Effect.

 

(b)            The Company has made available to Parent and Merger Sub true, complete and correct copies of all Material Contracts, together with all amendments, waivers or other changes thereto, and has been given a written summary of all oral Material Contracts.  Each Material Contract is in full force and effect (except for those Material Contracts that have expired in accordance with their terms) and is a legal, valid and binding agreement of the Company or its Subsidiary, as the case may be, and, to the Knowledge of the Company, of each other party thereto, enforceable against the Company or such Subsidiary, as the case may be, and, to the Knowledge of the Company, against the other party or parties thereto, in each case, in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity, except as would not reasonably be expected to have a Company Material Adverse Effect.  Except as set forth in Section 3.16(b) of the Company Disclosure Schedule, and except for matters that have not had and would not reasonably be expected to have a Company Material Adverse Effect, (i) none of the Company or any of its Subsidiaries is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect under any Material Contract, (ii) to the Knowledge of the Company, none of the other parties to any such Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, (iii) neither the Company nor any of its Subsidiaries has received any written notice of the intention of any party to terminate or cancel any such Material Contract whether as a termination or cancellation for convenience or for default of the Company or any of its Subsidiaries and (iv) neither the execution of this Agreement nor the consummation of the transactions contemplated hereby shall constitute a default under, or give rise to cancellation rights under, or otherwise adversely affect any of the Company’s rights under any Material Contract.

SECTION 3.17.       Insurance .   Section 3.17 of the Company Disclosure Schedule contains a true and complete list of all material policies of liability, theft, fidelity, business interruption, key man life, fire, product liability, worker’s compensation and other forms of insurance held by the Company or any of its Subsidiaries in effect as of the date of this Agreement.  True and complete copies of each such insurance policy have been made available to Parent.  With respect to each policy of insurance listed on Section 3.17 of the Company Disclosure Schedule, all such policies are in full force and effect, all premiums due and payable thereon have been paid, and no notice of cancellation or termination has been received with respect to any such policy which has not been replaced on substantially similar terms prior to the date of such cancellation.  There is no material claim pending under any such policies as to which coverage has been questioned, denied or disputed.  Such policies are sufficient for compliance with (a) all requirements of applicable Laws and (b) all contracts to which the Company is a party, and such policies are valid, outstanding and enforceable.  To the Company’s Knowledge, the Company has not been refused any insurance with respect to its or any of its Subsidiaries' assets or operations, and its coverage has not been limited by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance, during the last five years.

 

SECTION 3.18.       State Takeover Statutes .  The approval by the Company Board and the Company Special Committee of this Agreement, the Merger and the other transactions contemplated hereby constitutes approval of this Agreement, the Merger and the other transactions contemplated hereby for purposes of Section 203 of the DGCL and represents the only action necessary to ensure that Section 203 of the DGCL does not and will not apply to the execution, delivery, performance and consummation of this Agreement, the Merger and the other transactions contemplated hereby.

 

SECTION 3.19.       Foreign Corrupt Practices Act .  Neither the Company nor any of its Subsidiaries (including any of their officers or directors) nor, to the Knowledge of the Company, any of their respective agents, distributors, employees or other Person associated with or acting on their behalf has, directly or indirectly, taken any action which would cause it to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any rules or regulations thereunder or any similar anti-corruption or anti-bribery law applicable to the Company or any of its Subsidiaries in any jurisdiction other than the United States (collectively, the “ FCPA ”), used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, made, offered or authorized any unlawful payment to foreign or domestic government officials or employees, whether directly or indirectly, or made, offered or authorized any bribe, rebate, payoff, influence payment, kickback or other similar unlawful payment, whether directly or indirectly.

SECTION 3.20.       Affiliate Contracts and Affiliated Transactions .  Except as set forth in Section 3.20 of the Company Disclosure Schedule or as described in the Company SEC Reports filed prior to the date hereof, no officer or director of the Company or of any Subsidiary of the Company (or, to the Company’s Knowledge, any family member of any such Person who is an individual or any entity in which any such Person or any such family member owns a material beneficial interest) or any Person owning 5% or more of the Common Stock is a party to any material contract, agreement, commitment, lease, license, arrangement, instrument, obligation, transaction or understanding with or binding upon the Company or any of its Subsidiaries or any of their respective properties or assets, in each case that are required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act.

 

SECTION 3.21.       Brokers and Other Expenses .  No broker, investment banker, financial advisor or other Person, other than B. Riley & Co., the fees and expenses of which will be paid by the Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Merger and the other transactions contemplated by this Agreement based upon arrangements made by the Company Special Committee on behalf of the Company.   Section 3.21 of the Company Disclosure Schedule sets forth the amount of any broker’s fees, financial advisors’ or other similar fees payable by the Company in connection with the Merger or the other transactions contemplated by this Agreement, other than fees payable to B. Riley & Co.

 

SECTION 3.22.       Fairness Opinion .  Prior to the execution of this Agreement, B. Riley & Co. has delivered to the Company Special Committee its written opinion (the “ Company Fairness Opinion ”) to the effect that, as of the date thereof and based upon and subject to the matters set forth therein and in reliance thereon, the Merger Consideration to be received by the Company Stockholders in the Merger, after giving effect to the Parent Share Distribution is, in the aggregate, fair to the Company Stockholders from a financial standpoint.  As of the date of this Agreement, the Company Fairness Opinion has not been withdrawn, revoked, waived, amended, modified or supplemented in any respect.

 

SECTION 3.23.       Suppliers .  Except as set forth in Section 3.23 of the Company Disclosure Schedule, no supplier of the Company or any of its Subsidiaries has provided more than 5% of the products and supplies required for the operation of the respective business of the Company or such Subsidiary during the most recently completed fiscal year and the subsequent interim period.  None of the suppliers listed in Section 3.23 of the Company Disclosure Schedule (each, a “ Supplier ) has canceled or otherwise terminated, or made any written threat to the Company or such Subsidiary to cancel or otherwise terminate, its relationship with the Company or such Subsidiary, or has decreased materially its services or supplies to the Company or such Subsidiary.  The Company has not received written notice, and the Company has no reason to believe, that the Company and its Subsidiaries will experience any material difficulty in obtaining, in the desired quantity and quality, the raw materials or supplies required for the operation of their respective businesses.  Neither the Company nor any of its Subsidiaries has engaged in any fraudulent conduct with respect to any of the Suppliers.

SECTION 3.24.       Books and Records .  The books, records and accounts of the Company and its Subsidiaries, in all material respects (a) have been maintained in accordance with good business practices on a basis consistent with prior years; (b) are stated in reasonable detail and accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries; and (c) accurately and fairly reflect the basis for the financial statements contained in the Company SEC Reports.

 

SECTION 3.25.        Broker-Dealer, Fund and Investment Advisory Matters .

 

(a)            Mustang Capital Management, LLC is duly registered as an investment adviser with the SEC and has made required notice filings and obtained such investment adviser registrations required by each other applicable Governmental Authority pursuant to applicable Law and such registrations are in full force and effect.  Mustang Capital Management, LLC is in compliance with all applicable federal, state and foreign Laws requiring such registration, licensing or qualification, and is not subject to any liability or disability by reason of the failure to be so registered, licensed or qualified.  There is no Action pending or, to the Knowledge of the Company, threatened which would reasonably be expected to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of such registration, license or qualification.

 

(b)            None of the Company, any of its Subsidiaries, or any of their respective officers or employees, is or is required to be registered, licensed or qualified as a broker-dealer, futures commission merchant, commodity trading advisor, commodity pool operator, registered principal, registered representative, insurance agent, salesperson, or in any other capacity, with the SEC or any securities or insurance commission or other Governmental Authority as required by applicable Law.

 

(c)            Neither the Company nor any Subsidiary (i) is an “investment company” within the meaning of the 1940 Act, or (ii) serves in any capacity described in Section 9(a) or 9(b) of the 1940 Act with respect to any investment company registered under the 1940 Act or any company required to be registered as an investment company under the 1940 Act.

 

(d)            With respect to Mustang Capital Management, LLC, (i) such person is not (taking into account any applicable exemption) ineligible pursuant to Section 203(e) of the Advisers Act to act as an investment adviser, (ii) no “person associated” (as defined in Section 202(a)(17) of the Advisers Act) with such person is (taking into account any applicable exemption) ineligible under Section 203(f) of the Advisers Act to serve as a “person associated” with an investment adviser, and (iii) there is no Action pending and served on the Company or any Subsidiary of the Company or, to the Company’s Knowledge, pending and not so served or threatened by any Governmental Authority, which would result in (A) the ineligibility under such Section 203(e) of such person to act as an investment adviser or (B) the ineligibility under such Section 203(f) of such “person associated” with such person to serve as a “person associated” with an investment adviser.

(e)            The Company has not received written notice of, any violations of any of the above.

 

(f)            Mustang Capital Management, LLC has at all times since January 1, 2004 rendered investment advisory services to all Clients and to investment Funds in compliance with all requirements, if any, as to investment objectives, portfolio composition and portfolio management, the terms of the applicable Investment Advisory Agreement, written instructions from such Clients and Funds, offering memoranda, applicable law and, to the Company’s Knowledge, the organizational documents of such Clients and Funds.

 

SECTION 3.26.       Franchises .

 

(a)            True and complete copies of all Franchise Agreements in effect as of the date hereof relating to any of the following brands:  “Western Sizzlin,” “Western Sizzlin Wood Grill,” “Great American Steak & Buffet” and “Quincy Steakhouses” (the “ Brands ”) have been delivered or made available to Parent.  The Company and its Subsidiaries have had, at all relevant times, the corporate, partnership or limited liability company power and authority and legal right to enter into and carry out the terms of each Franchise Agreement.  Except set forth in Section 3.26(a) of the Company Disclosure Schedule, the Company’s and its Subsidiaries' existing Franchise Agreements (i) do not obligate the Company or any of its Subsidiaries to buy or otherwise acquire the stock, assets or contractual rights of any Franchisee, (ii) do not impose on the Company or any if its Subsidiaries an obligation to guarantee any Franchisee’s lease obligations, third party financing obligations or any other material obligations to third parties, and (iii) impose on Franchisees an obligation to comply with all applicable Laws.  Except as set forth on Section 3.26(a) of the Company Disclosure Schedule, no Person holds any option or right to acquire from the Company or any of its Subsidiaries any Franchise Agreements.  Except as set forth in Section 3.26(a) of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries has granted any sub-franchising or developmental rights to any of the Brands which remain in force.  All of the Franchise Agreements are legal, valid and binding agreements, enforceable against the Company or its Subsidiary party thereto, as applicable, and to the Knowledge of the Company, enforceable against each Franchisee thereunder, subject to any Franchisee’s bankruptcy, insolvency, receivership or similar proceeding under state or federal law; there are no existing material defaults by the Company or any of its Subsidiaries thereunder; no event has occurred which (with notice, or lapse of time, or both) would constitute a material default by the Company or any of its Subsidiaries thereunder or which would permit any Franchisee to terminate its Franchise Agreement, or that would otherwise, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.  To the Knowledge of Company, there have been no fees received by the Company or any of its Subsidiaries pursuant to a Franchise Agreement that are currently, or which with the execution of this Agreement, the consummation of the transactions contemplated hereby, the passage of time, or the giving of notice, or both, would be subject to a claim for refund by a Franchisee.   Section 3.26(a) of the Company Disclosure Schedule specifies each Franchisee that, to the Knowledge of Company, (i) is in default under a Franchise Agreement; (ii) has received notice from the Company or any of its Subsidiaries during the past twelve months that such Franchisee is or was in default under such Franchise Agreement; or (iii) is the subject of a case under the U.S. Bankruptcy Code or any other bankruptcy, insolvency, receivership or similar case or proceeding under state or federal law.  Each Franchise Agreement entered into since January 1, 2006, is substantially similar to the form of Franchise Agreement incorporated into the Uniform Franchise Offering Circular or, as applicable, the franchise disclosure document (collectively, the “ UFOCs ”) that was issued to the Franchisee contemporaneously with the sale of the franchise by the Company or any of its Subsidiaries to the Franchisee.  Except as set forth in Section 3.26(a) of the Company Disclosure Schedule, the Company’s rights under its Franchise Agreements have not been subordinated to the interests of a Franchisee’s lender and no provision regarding the calculation and payment of royalty fees in any Franchise Agreement has been waived, altered or modified in any material respect.  Except as set forth in Section 3.26(a) of the Company Disclosure Schedule, since January 1, 2006, no Franchise Agreement has been rescinded or terminated prior to its stated expiration date; and to Company’s Knowledge, no basis for any demand of rescission, set-off, credit, reduction in payment required to be made pursuant to the terms of any Franchise Agreement, counterclaim or defense exists or has been asserted or threatened with respect to any Franchise Agreement.  Except as set forth in Section 3.26(a) of the Company Disclosure Schedule, no notices of default have been issued by the Company or any of its Subsidiaries with respect to any Franchise Agreement for a default which has not been cured, and none of the Company or any of its Subsidiaries has waived any default by a Franchisee which would materially and adversely affect any Franchise Agreement.  Since January 1, 2006, all offers and sales of Franchise Agreements, and terminations or non-renewals of Franchise Agreements have complied in all material respects with applicable Law and the terms of the respective Franchise Agreements.

(b)            Since January 1, 2006, the Company and its Subsidiaries have prepared and maintained each of their previous and current UFOCs for the Brands in an accurate manner and in accordance with applicable Law, have filed and maintained their UFOCs in all states or other jurisdictions in which the Company or any of its Subsidiaries offered or sold franchises which required filing, registration and/or approval prior to offers or sales of franchises in such states or other jurisdictions and have not failed to file any required amendments, updates or renewals on a timely and accurate basis.  The Company has provided or made available to Parent prior to the date hereof, copies of all material correspondence since January 1, 2006 relating to the registration and renewals of the UFOCs in the applicable states or other jurisdictions.  Since January 1, 2006, the respective officers and directors of the Company and each of its Subsidiaries, and to the Knowledge of the Company, the respective employees, agents and Representatives of the Company and each of its Subsidiaries have not furnished any materials or information which are in any way inconsistent with any "earnings claim" information or “financial performance representations” set forth in Item 19 of the UFOCs, as that term is defined by federal and state franchising laws, or which would otherwise constitute "earnings claims" or “financial performance representations” as so defined.

 

(c)            Except as set forth in Section 3.26(c) of the Company Disclosure Schedule, there are no other Material Contracts or special arrangements with any Franchisee other than as set forth in the respective Franchise Agreements or as disclosed in the UFOCs.

(d)            Except as set forth in Section 3.26(d) of the Company Disclosure Schedule, since January 1, 2006, none of the Company or any of its Subsidiaries have maintained any advertising funds requiring any Franchisee to make payments to the Company or any of its Subsidiaries or to an advertising fund for use in connection with national or regional advertising, and neither the Company nor any of its Subsidiaries has required any Franchisee to participate in any national, regional, or local advertising cooperatives (collectively, “ Franchise Funds ”).  The Company and each of its Subsidiaries have since January 1, 2006 complied in all respects with all agreements governing the Franchise Funds.  The only covenants or agreements governing the Franchise Funds are contained in the Franchise Agreements or disclosed in the UFOCs.  Since January 1, 2006, the Franchise Funds and all monies paid thereto have been collected, accounted for, allocated and used in accordance with the Franchise Agreements or as disclosed in the UFOCs.  The Company has provided Parent with all copies of documents pertaining to the Franchise Funds as well as all documents relating to any Franchisee advisory councils, any local advertising cooperatives, Franchisee associations, or related organizations affecting any of the Brands.  To the Company’s Knowledge, there are no allegations that any of the expenditures from the Franchise Funds have been used for or applied to anything other than as expressly permitted by the terms and conditions of each Franchise Agreement or were otherwise improperly collected, accounted for, maintained, used or applied. Except as described in Section 3.26(d) of the Company Disclosure Schedules, to the Company’s Knowledge, no franchise association (either independent or Company sponsored) is currently in place.  The organization of a franchise association is not currently contemplated by the Company, nor, to the Company’s Knowledge, any Franchisee.

 

(e)             Section 3.26(e) of the Company Disclosure Schedule contains a description of any contract, agreement, arrangement, commitment, instrument, plan, practice, authorization, understanding, obligation or other undertaking of any kind or character under which the Company or any of its Subsidiaries receives rebates, discounts or other remuneration from suppliers of goods or services to its Franchisees.  The Company and each of its Subsidiaries has complied in all material respects with all contractual obligations governing such entity's receipt and disclosure of such rebates, discounts or other remuneration from such suppliers.  Neither the Company nor any of its Subsidiaries is a guarantor or otherwise a party to any agreement pursuant to which it agreed to become directly or contingently liable for any obligation of any Franchisee.

 

(f)            The Company has maintained all files, books and records relating to the Franchise Agreements and franchise system which are sufficiently complete and accurate in all material respects.   Section 3.26(f) of the Company Disclosure Schedule includes a list of each of the current Operations Manuals utilized by the Franchisees for each Brand, and true and complete copies of such Operations Manuals have been provided by the Company to Parent.

(g)            There are no written or oral contracts, agreements, arrangements, commitments, instruments, plans, practices, authorizations, understandings, obligations or other undertakings of any kind or character with independent sales representatives, contractors, brokers or consultants under which the Company or any of its Subsidiaries has authorized any Person to sell or promote franchises on behalf of the Company or any of its Subsidiaries or agreed to rebate or share amounts receivable under any Franchise Agreement.

 

(h)            Neither the execution of this Agreement nor the consummation of the transactions contemplated herein, including the Merger, would result in a violation of or a default under, or give rise to a right of termination, modification, cancellation, rescission or acceleration of any obligation or loss of material benefits under, any Franchise Agreement.

 

(i)             Except as set forth in Section 3.26(i) of the Company Disclosure Schedule, there is no Action pending, or to the Knowledge of Company, threatened against or involving the Company or any of its Subsidiaries with respect to any of its Franchisees, and to the Company’s Knowledge, there is no basis for any such Action.  To the Company’s Knowledge, there is no Action pending or threatened against any Franchisee which is reasonably likely to require or cause the Company or any of its Subsidiaries to be joined as a party thereto or which otherwise is reasonably likely to have a Company Material Adverse Effect.

 

(j)             Except as set forth in Section 3.26(j) of the Company Disclosure Schedule, no Franchisee of the Company has (i) since January 1, 2009, paid royalty payments or other payments owed to the Company or any of its Subsidiaries in installments or otherwise on a schedule other than as set forth in the Franchisee's Franchise Agreement and (ii) since January 1, 2009, made a royalty payment or other payment owed to the Company or any of its Subsidiaries more than fifteen (15) days after such payment became due.

 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Except as set forth in the disclosure schedule that has been prepared by Parent and delivered by Parent to the Company in connection with the execution and delivery of this Agreement (the “ Parent Disclosure Schedule ”), Parent and Merger Sub hereby, jointly and severally, represent and warrant to the Company that:

 

SECTION 4.01.       Corporate Organization .  Parent is a corporation duly organized and in existence under the Laws of the State of Indiana, for which all reports required to be filed with the Indiana Secretary of State have been filed, and for which no articles of dissolution have been filed with the Indiana Secretary of State.  Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.  Each of Parent and Merger Sub has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to have such power and authority would not prevent or materially delay consummation of any of the transactions contemplated hereby, or otherwise prevent Parent or Merger Sub from performing its obligations under this Agreement.

SECTION 4.02.       Authority Relative to This Agreement .  Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement by Parent and Merger Sub, the performance by Parent and Merger Sub of their respective obligations hereunder and the consummation by Parent and Merger Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Parent and Merger Sub, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the performance by Parent and Merger Sub of their respective obligations hereunder or to consummate the transactions contemplated hereby (other than, with respect to the consummation of the Merger, the filing and recordation of appropriate merger documents as required by the DGCL).  This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub enforceable against each of Parent and Merger Sub in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency (including all Laws relating to fraudulent transfers), reorganization, moratorium or similar Laws affecting creditors’ rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at Law or in equity).

 

SECTION 4.03.       No Conflict; Required Filings and Consents .

 

(a)            The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub will not, and the consummation of the transactions contemplated hereby by Parent and Merger Sub will not, (i) conflict with or violate the certificate of incorporation or bylaws or other equivalent organizational documents of either Parent or Merger Sub, (ii) assuming that all consents, approvals and other authorizations described in Section 3.05(b) have been obtained and that all filings and other actions described in Section 3.05(b) have been made or taken, conflict with or violate, in any material respect, any Law applicable to Parent or Merger Sub or by which any property or asset of either of them is bound, or (iii) result in any material breach of, or constitute a material default (or an event which, with notice or lapse of time or both, would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any property or asset of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any property or asset of either of them is bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or materially delay consummation of any of the transactions contemplated hereby or otherwise prevent Parent or Merger Sub from performing its obligations under this Agreement.

 

(b)            The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of their obligations under this Agreement by Parent and Merger Sub will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except for (i) applicable requirements, if any, of the Securities Act, the Exchange Act or Blue Sky Laws, (ii) the filing and recordation of appropriate merger documents as required by the DGCL and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or materially delay consummation of any of the transactions contemplated hereby, or otherwise prevent Parent or Merger Sub from performing its obligations under this Agreement.

 

SECTION 4.04.       Registration Statement; Proxy Statement; Transaction Statement .  The information relating to and provided by Parent and Merger Sub to be contained in the Registration Statement, the Proxy Statement and the Transaction Statement shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to the Company Stockholders and at the time of the Stockholders’ Meeting, with respect to the Proxy Statement and the Transaction Statement, and, at the date it is declared effective, with respect to the Registration Statement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading.  Notwithstanding the foregoing, Parent and Merger Sub make no representation or warranty with respect to any information supplied by the Company or any of its Subsidiaries or Representatives for inclusion or incorporation by reference in the Registration Statement, the Proxy Statement or the Transaction Statement.  The Registration Statement will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder.

 

SECTION 4.05.       SEC Filings; Financial Statements .

 

(a)            Parent has timely filed or furnished all forms, reports, schedules, statements and documents required to be filed or furnished by it with the SEC since January 1, 2006 (the “ Parent SEC Reports ”).  As of their respective dates or, if amended, as of the date of such amendment, the Parent SEC Reports (i) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder applicable to such Parent SEC Reports and, to the extent applicable, SOX, and (ii) did not, at the time they were filed, or, if amended, as of the date of such amendment, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  As of the date of this Agreement, there are no outstanding or unresolved comments in such comment letters received by Parent from the SEC.  As of the date of this Agreement, to the Knowledge of Parent, none of the Parent SEC Reports is the subject of any ongoing review by the SEC.

 

EXHIBIT A

CERTIFICATE OF MERGER

OF

GRILL ACQUISITION CORPORATION

WITH AND INTO

WESTERN SIZZLIN CORPORATION

 

Pursuant to Title 8, Section 251(c) of the Delaware General Corporation Law, the undersigned corporation executed the following Certificate of Merger:

 

FIRST:               The name and state of incorporation of the surviving corporation is Western Sizzlin Corporation, a Delaware corporation (" Western Sizzlin "), and the name and state of incorporation of the corporation being merged into this surviving corporation is Grill Acquisition Corporation, a Delaware corporation (" Merger Sub ").

 

SECOND:          An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by Western Sizzlin and Merger Sub.

 

THIRD:              The name of the surviving corporation is Western Sizzlin Corporation, a Delaware corporation.

 

FOURTH:          The Certificate of Incorporation of Western Sizzlin shall be amended and restated to read in its entirety as set forth in Exhibit A attached hereto.

 

FIFTH:               The Agreement and Plan of Merger is on file at the principal place of business of Western Sizzlin at 401 Albemarle Ave SE, Roanoke, Virginia 24013.

 

SIXTH:               A copy of the Agreement and Plan of Merger will be furnished by Western Sizzlin, on request and without cost, to any stockholder of Western Sizzlin or any stockholder of Merger Sub.

 

IN WITNESS WHEREOF , the undersigned has caused this Certificate of Merger to be signed by an authorized officer on the ___   day of ________, 2009.

 

EXHIBIT A

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

WESTERN SIZZLIN CORPORATION

See Attached.

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

WESTERN SIZZLIN CORPORATION

 

ARTICLE I

NAME

 

The name of the corporation is Western Sizzlin Corporation (the " Corporation ").

 

ARTICLE II

REGISTERED OFFICE AND REGISTERED AGENT

 

Section 2.01.           Registered Office .   The registered office of the Corporation in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle.

 

Section 2.02.           Registered Agent .  The name of its registered agent at that address is Corporation Service Company.

 

ARTICLE III

PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of the State of Delaware (the " DGCL ").  The Corporation shall have all powers necessary or convenient to the conduct, promotion or attainment of such acts and activities.

 

ARTICLE IV

DURATION

 

The Corporation is to have perpetual existence.

 

ARTICLE V

CAPITAL STOCK

 

Section 5.01.           Classes of Stock .  The Corporation is authorized to issue one (1) class of stock to be designated " Common Stock ".  The total number of shares of Common Stock which the Corporation shall have authority to issue is one hundred (100) shares of Common Stock.  The shares of Common Stock shall have no par value.  The powers, preferences and rights and the qualifications, limitations or restrictions thereof shall be determined by the Board of Directors of the Corporation (the " Board of Directors ").

 

Section 5.02.           Consideration .  Shares of Common Stock may be issued for any consideration consistent with the DGCL, including tangible or intangible property or benefit to the Corporation, at such price and amount per share as may be determined by the Board of Directors.

 

ARTICLE VI

COMMON STOCK

 

The Common Stock shall have all of the rights accorded to shares under the DGCL, including, but not limited to, voting rights and all rights to distribution of the net assets of the Corporation upon dissolution.

 

ARTICLE VII

BYLAWS

 

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

 

ARTICLE VIII

DIRECTORS

 

Section 8.01.           Number .   The number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

 

Section 8.02.           Elections .   Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

Section 8.03.           Exculpation of Directors .

 

(a)            To the fullest extent permitted by the DGCL, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.  If the DGCL or any law of the State of Delaware is amended after the effectiveness of the Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware law as so amended.

 

(b)            Any repeal or modification of the foregoing provisions of this Section 8.03 by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

 

 

ARTICLE IX

INDEMNIFICATION

(a)            The Corporation shall, to the fullest extent permitted by the DGCL, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under the DGCL from and against any and all of the expenses, including without limitation reasonable costs, disbursements and legal counsel fees and expert witness fees, liabilities, including without limitation amounts paid or incurred in satisfaction of settlements, judgments fines and penalties, or other matters referred to in or covered by the DGCL, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which any person may be entitled under the Bylaws or any resolution of stockholders, resolution of directors, agreement, or otherwise, as permitted by the DGCL, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall survive the termination of such person’s service in such capacities and shall inure to the benefit of the heirs, executors and administrators of such person.

 

(b)            The rights of any person to indemnification provided by, or granted pursuant to, this Article IX are express contractual rights between the Corporation and such person that vest by virtue of any such person’s service at the time when the state of facts occurred giving rise to an action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, fiduciary or agent of the Corporation or was serving at the request of the Corporation as a director, officer, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise, or was the legal representative of any such director, officer, fiduciary or agent, which may be enforced by any such person in a court of competent jurisdiction.  Any repeal or modification of the provisions of this Article IX shall not adversely affect any vested right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification without the prior written consent of such person.

 

(c)            The rights of any person to indemnification provided by, or granted pursuant to, this Article IX shall be effective as of the date of the adoption of this Amended and Restated Certificate of Incorporation of the Corporation and shall apply to such person’s acts or omissions that occurred prior to such date if such person was a director, officer, fiduciary or agent of the Corporation or was serving at the request of the Corporation as a director, officer, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise, or was the legal representative of any such director, officer, fiduciary or agent at the time such act or omission occurred.

 

ARTICLE X

AMENDMENT

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

(Face of Debenture)

 

CUSIP  ______________________

 

 

THE STEAK N SHAKE COMPANY

 

14% Subordinated Debenture Due 201_

 

Interest Payment Dates:  June 30 and December 31

 

Record Dates:  _________________________

 

The Steak n Shake Company promises to pay to __________________________ or registered assigns, the sum of _________________________ Dollars on [ fifth anniversary of date of issue ].

 

This Debenture is subordinated to Senior Debt as defined by the Indenture.  The Steak n Shake Company may, at its option, redeem the Debentures, in whole or in part and without premium or penalty, as of any date that occurs on or after [ first anniversary of date of issue ].  See the reverse and the Indenture referenced for additional provisions of this Debenture.

 

(Back of Debenture)

 

THE STEAK N SHAKE COMPANY

 

14% Subordinated Debenture Due 201_

 

(1)            Interest .  The Steak n Shake Company (the " Company "), an Indiana corporation, promises to pay interest on the principal amount of this Debenture at the rate per annum shown above.  The Company will pay interest semiannually on June 30 and December 31 of each year, commencing June 30, 2010.  Interest on the Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from [Date of Issue] .  Interest will be computed on the basis of a 360-day year of twelve 30-day months.

 

(2)            Method of Payment .  The Company will pay interest on the Debentures to the Persons who are registered holders of Debentures at the close of business on the record date for the next interest payment date, except as otherwise provided herein or in the Indenture even though Debentures are cancelled after the record date and on or before the interest payment date.  Holders must surrender Debentures to a Paying Agent to collect principal payments.  The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts.  However, the Company may pay Principal and interest by wire transfer or check payable in such money.  It may mail an interest check to a record date holder's registered address.

 

(3)            Agents .  Initially, Wells Fargo Bank, National Association (" Trustee "), Corporate Trust Services, 230 West Monroe Street, Suite 2900, Chicago, Illinois 60606, will act as Registrar and Paying Agent.  With respect to presentation of the Debentures for payment or registration of transfers or exchanges, the Trustee's address is 608 Second Avenue South, N9303-121, Minneapolis, Minnesota 55479, Attention: Corporate Trust Operations.   The Company may change any such Agent without notice.  The Company or an Affiliate may act in any such capacity.  Subject to certain conditions, the Company may change the Trustee.

 

(4)            Indenture .  The Company issued the Debentures under an Indenture dated as of ______________, 20__ (" Indenture ") between the Company and the Trustee.  The terms of the Debentures include those stated in the Indenture and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) (the " Act ").  The Debentures are subject to all such terms, and Debentureholders are referred to the Indenture and the Act for a statement of such terms.  The Debentures are unsecured subordinated general obligations of the Company limited to $22,959,000 in aggregate principal amount.

 

(5)            Redemption .  The Debentures are not redeemable by the Company at any time prior to [ first anniversary of date of issue ].  From and after [ first anniversary of date of issue ], the Company may, at its option, redeem Debentures in accordance with Article III of the Indenture in whole or in part without premium or penalty.  The Company's right to redeem Debentures under this Section 5 may not be exercised if and for so long as the Company has failed to pay interest on any Debenture when the same becomes due and payable.

 

(6)            Notice of Redemption .  Notice of redemption will be mailed at least 30 days but not more than sixty (60) days before the redemption date to each holder of Debentures to be redeemed at his registered address.

 

 

(7)            Subordination .  The Debentures are subordinated to Senior Debt as defined in the Indenture.  To the extent provided in the Indenture, Senior Debt must be paid before the Debentures may be paid.  The Company agrees, and each Debentureholder by accepting a Debenture agrees, to the subordination and authorizes the Trustee to give it effect.

 

(8)            Denominations, Transfer, Exchange .  The Debentures are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000.  The transfer of Debentures may be registered and Debentures may be exchanged as provided in the Indenture.  The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes required by law.  The Registrar need not exchange or register the transfer of any Debenture or portion of a Debenture selected for redemption.  Also, it need not exchange or register the transfer of any Debentures for a period of fifteen (15) days before a selection of Debentures to be redeemed.

 

(9)            Persons Deemed Owners .  Subject to Section 6.12 of the Indenture, the registered holder of a Debenture may be treated as its owner for all purposes.

 

(10)          Amendments and Waivers .  Subject to certain exceptions, the Indenture or the Debentures may be amended, and any Default may be waived, with the consent of the holders of a majority in Principal amount of the Debentures.  Without the consent of any Debentureholder, the Indenture or the Debentures may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of Company obligations to Debentureholders or to make any change that does not adversely affect the rights of any Debentureholder.

 

(11)          Successors .  When successors assume all the obligations of the Company under the Debentures and the Indenture, the Company will be released from those obligations, except as provided in the Indenture.

 

(12)          Satisfaction and Discharge Prior to Redemption or Maturity .  Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Debentures and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal and interest on the Debentures to redemption or maturity.

 

(13)          Defaults and Remedies .  Subject to the Indenture, if an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the holders of at least 25% in Principal amount of the Debentures may declare all the Debentures to be due and payable immediately.  Debentureholders may not enforce the Indenture or the Debentures except as provided in the Indenture.  The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Debentures.  Subject to certain limitations, holders of a majority in Principal amount of the Debentures may direct the Trustee in its exercise of any trust or power.  The Trustee may withhold from Debentureholders notice of any continuing Default (except a Default in payment of Principal or interest) if it determines that withholding notice is in their interests.  The Company must furnish an annual compliance certificate to the Trustee.

 

 

(14)          Trustee Dealings with Company .  The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company, or its Affiliates, as if it were not Trustee, subject to the Indenture and the Act.

 

(15)          No Recourse Against Others .  A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation.  Each Debentureholder by accepting a Debenture waives and releases all such liability.  The waiver and release are part of the consideration for the issue of the Debentures.

 

(16)          Authentication .  This Debenture shall not be valid until authenticated by a manual signature of the Trustee.

 

(17)          Abbreviations .  Customary abbreviations may be used in the name of a Debentureholder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (Custodian), and U/G A (= Uniform Gifts to Minors Act).

 

The Company will furnish to any Debentureholder upon written request and without charge a copy of the Indenture.  Requests may be made to:  Secretary, The Steak N Shake Company, 36 S. Pennsylvania Street, Century Bldg. 500, Indianapolis, Indiana 46236.

Assignment Form

To assign this Debenture, fill in the form below:

and irrevocably appoint                                                                                                                                                                  to transfer this Debenture on the books of the Company.  The agent may substitute another to act for him.

*       Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

 

 

INDENTURE

 

Dated as of _____________, 20__

 

Between

 

THE STEAK N SHAKE COMPANY

 

and

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

 

As Trustee

 

 

14% SUBORDINATED DEBENTURES DUE 201_

 

 

 

CROSS-REFERENCE TABLE

 

TM Section			Indenture Section
310	(a)(1)		7.10
	(a)(2)		7.10
	(a)(3)		N.A.
	(a)(4)		N.A.
	(a)(5)		N.A.
	(b)		7.08 ;7.10
	(c)		N.A.
311	(a)		7.11
	(b)		7.11
	(c)		N.A.
312	(a)		2.05
	(b)		12.02
	(c)		N.A.
313	(a)		7.06
	(b)(1)		N.A.
	(b)(2)		7.06
	(c)		7.06
	(d)		7.06
314	(a)(1)		4.02
	(a)(2)		12.01
	(a)(4)		4.03
	(b)		N.A.
	(c)		2.02; 7.02(b); 8.01(3)
	(d)		N.A.
	(e)		4.03;12.04
	(f)		4.03
315	(a)(1)		6.05; 7.01(b)(1)
	(a)(2)		7.01(b)(2)
	(b)		7.05;12.01
	(c)		7.01(a)
315	(d)(1)		7.01(b)
	(d)(2)		7.01(c)(2)
	(d)(3)		6.05; 7.01(c)(3)
	(e)		6.09
316	(a) (last sentence)		2.09
	(a)(1)(A)		6.05
	(a)(1)(B)		6.04
	(a)(2)		N.A.
	(b)		6.07
	(c)		9.04
317	(a)(1)		6.03
	(a)(2)		6.10
	(b)		2.04
318	(a)		1.04