<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 1O-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: July 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File No.0-21597
MAZEL STORES. INC.
--------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1830097
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31000 Aurora Road
Solon, Ohio 44139
----------------------------------------
(Address of principal executive offices)
(Zip Code)
440-248-5200
--------------------------
(Registrant's telephone number, including area code)
----------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes * No
---------- ---------
Indicate the number of shares outstanding of each of the issuer's common
stock, as of the latest practical date.
Common Shares, no par value, outstanding as of August 31, 1997: 9,170,100.
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<PAGE> 2
MAZEL STORES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets -
July 26, 1997 and January 25,1997 4
Consolidated Statements of Operations -for the
quarter and six months ended July 26, 1997 and July 27, 1996 5
Consolidated Statements of Cash Flows - for the
six months ended July 26, 1997 and July 27, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operation
Part II OTHER INFORMATION
Item 1-6 17
SIGNATURES 19
EXHIBITS 20
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's Consolidated Financial Statements follow this page.
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<PAGE> 4
Mazel Stores, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
July 26, January 25,
1997 1997
----------- -----------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 1,752 $ 8,010
Accounts receivable- trade, less allowance for
doubtful accounts of $195 in both periods presented 17,971 10,565
Notes and other receivables 132 96
Inventories 51,798 40,399
Prepaid expenses 1,544 1,186
Deferred income tax benefit 3,006 3,006
----------- -----------
Total current assets 76,203 63,262
Equipment, furniture and leasehold improvements, net 7,401 6,251
Other assets 1,325 1,107
Notes receivable-related parties 2,944 2,936
Goodwill, net 10,757 10,876
Deferred income tax benefit 1,929 1,929
----------- -----------
$100,559 $ 86,361
=========== ===========
Liabilities and Stockholder's Equity
Current liabilities
Long-term debt, current portion $ 17 $ 17
Accounts payable 15,395 15,447
Accrued expenses 4,474 3,050
Other current liabilities 454 275
----------- -----------
Total current liabilities 20,340 18,789
Revolving line of credit 9,020 0
Long-term debt, net of current portion 57 53
Other liabilities 2,181 2,091
Deferred income tax liability 666 666
----------- -----------
Total liabilities 32,264 21,599
Stockholder's equity
Common stock, no par value: 14,000,000 shares authorized:
9,170,100 share issued and outstanding 0 0
Preferred stock, no par value: 2,000,000 shares authorized:
no shares issued or outstanding 0 0
Additional paid-in capital 64,742 64,742
Retained earnings 3,553 20
----------- -----------
Total stockholder's equity 68,295 64,762
Commitments and contingencies
----------- -----------
$100,559 $ 86,361
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
Mazel Stores, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------------------------- --------------------------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 49,053 $ 42,711 $ 92,181 $ 85,165
Gross profit 16,160 13,752 31,004 26,651
% of sales 32.94% 32.20% 33.63% 31.29%
Selling general and administrative 12,522 10,923 24,742 20,822
------------ ------------ ------------ ------------
Operating profit 3,638 2,829 6,262 5,829
% of sales 7.42% 6.62% 6.79% 6.84%
Other income (expense)
Interest (expense) (130) (693) (175) (1,284)
Other income 14 107 22
------------ ------------ ------------ ------------
Income before income taxes 3,508 2,150 6,194 4,567
Income tax expense (benefit) 1,506 (44) 2,661 35
------------ ------------ ------------ ------------
Net income $ 2,002 $ 2,194 $ 3,533 $ 4,532
============ ============ ============ ============
Net income per share $ 0.22 $ 0.39
============ ============
Average shares outstanding 9,170,100 9,170,100
============ ============
PRO FORMA AS ADJUSTED DATA (NOTE 4)
Income before income taxes $ 2,150 $ 4,567
Supplemental pro forma adjustments
Management compensation adjustments 412 824
Reduction in interest expense net 738 1,476
Provision for income taxes (1,320) (2,747)
------------ ------------
Pro forma as adjusted net income $ 1,980 $ 4,120
============ ============
Pro forma as adjusted net income per share $ 0.22 $ 0.45
============ ============
Pro forma as adjusted shares outstanding 9,170,100 9,170,100
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 6
Mazel Stores, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
July 26 July 27
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income $3,533 $4,532
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 638 465
Changes in operating assets and liabilities
Accounts receivable- trade (7,406) (4,419)
Notes and other receivables (36) (320)
Inventories (11,399) (11,401)
Prepaid expenses (358) (398)
Other assets (241) (9)
Accounts payable (52) 3,355
Accrued expenses and other liabilities 1,697 1,441
------------ -----------
Total adjustments (17,157) (11,286)
------------ -----------
Net cash used in operating activities (13,624) (6,754)
------------ -----------
Cash flows from investing activities
Capital expenditures (1,654) (927)
Cash received at acquisition, net of cash expenses 70
------------ -----------
Net cash used in investing activities (1,654) (857)
------------ -----------
Cash flows from financing activities
Repayment of debt (800)
Net borrowings under credit facility 9,020 7,171
Equity contributions 4,000
Partners' withdrawals (1,918)
------------ -----------
Net cash provided by financing activities 9,020 8,453
------------ -----------
Net increase (decrease) in cash and cash equivalents (6,258) 842
Cash and cash equivalents at beginning of period 8,010 1,470
------------ -----------
Cash and cash equivalents at end of period $1,752 $2,312
============ ===========
Supplemental disclosure
Cash paid for interest $57 $1,251
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
MAZEL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Six Months Ended
July 26, 1997 & July 27, 1996
(1) Basis of Presentation
Combined financial statements for the quarter and six months ended July
27, 1996 are derived from the unaudited combined financial statements of Mazel
Company L.P. and Odd Job Holdings, Inc., which were previously under common
control and combined as of the date of the initial public offering (the
"Offering") (see note 2). The financial statements for the quarter and six
months ended July 26, 1997 represent the consolidated retail and wholesale
operations of Mazel Stores, Inc. All significant intercompany accounts and
transactions are eliminated in the combined and consolidated financial
statements.
In the opinion of management, the information herein includes all
adjustments which are normal and recurring in nature, necessary to present
fairly the results of the interim periods shown in accordance with generally
accepted accounting principles. Operating results for the interim period are not
necessarily indicative of the results that may be expected for the full fiscal
year.
The unaudited interim consolidated financial statements have been
prepared using the same accounting principles that were used in the preparation
of the Company's annual report on Form 10K for the year ended January 25, 1997
and should be read in conjunction with the consolidated financial statements and
the notes thereto.
(2) Initial Public Offering
On November 21, 1996, the Company completed its initial public offering
of 2,574,000 shares of Common Stock, no par value at $16 per share, generating
net proceeds of approximately $37.3 million, after deducting underwriting fees
and Offering expenses. On December 13, 1996, the underwriters exercised their
over-allotment option to purchase an additional 386,100 common shares,
generating an additional $5.7 million of cash proceeds to the Company. The net
proceeds were used to repay approximately $33.4 million of indebtedness to a
senior institutional lender and approximately $4.0 million of Partners' notes,
and to fund $2.9 million in tax loans and approximately $900,000 in compensation
buyouts to certain executives; the remaining $1.9 million was used for the
Company's general corporate purposes.
(3) Earnings Per Share
Earnings per share have been computed based on the weighted average
shares outstanding during each period presented. Pro forma as adjusted earnings
per share include shares issued pursuant to the Company's Offering as if such
shares were outstanding at the beginning of the period presented.
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<PAGE> 8
(4) Pro Forma Disclosures
Prior to the Offering, Mazel Company L.P., the predecessor company,
maintained the tax status of a limited partnership and therefore, was not
subject to federal or state income taxes. The unaudited pro forma as adjusted
income data assumes a provision for federal and state income taxes at an
effective rate of 40%. Pro forma as adjusted data excludes certain nonrecurring
charges, and gives effect to the use of proceeds of the Offering, as well as
certain adjustments made as a result of the Offering relating principally to
compensation expense.
(5) New Accounting Pronouncements
During 1997 the FASB issued SFAS No. 128, Earnings per Share, which
changes the computation and presentation of earnings per share information and
SFAS No. 129, Disclosure of Information about Capital Structure. Both
statements are effective for financial statements issued for periods ending
after December 15, 1997 and, accordingly, will be adopted by the Company in the
fourth quarter of the current fiscal year. Adoption of these statements will
not materially impact the current computation and presentation of earnings per
share or financial statement disclosures.
During 1997 the FASB also issued No.130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, are effective for fiscal years beginning after December 15, 1997.
The impact upon adoption of these statements by the Company in fiscal 1998 will
result in additional disclosures with regard to the Company's business segments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Overview
Mazel Stores, Inc. consists of two complementary operations: (i) a major
regional closeout retail business; and (ii) one of the nation's largest closeout
wholesale businesses.
Mazel was founded as a wholesaler of closeout merchandise in 1975. In
1992, Mazel Company L.P. (a predecessor to the Company), a general partner of
which was an affiliate of ZS Fund, a private investment firm, acquired
substantially all of the assets of Mazel's wholesale and retail businesses. In
December 1995, Odd Job Holdings, Inc., wholly-owned by another affiliate of ZS
Fund, acquired Odd Job, which operated a chain of 12 retail stores in the New
York metropolitan area, and acquired Peddlers Mart, which operated one store. In
connection with a restructuring that occurred immediately prior to the Offering
in November 1996, the Company acquired all of the assets of Mazel Company L.P.
and the stock of Odd Job Holdings, Inc. The Company (including its predecessors)
opened or acquired ten (10) stores in fiscal 1996; it plans to open nine stores
in fiscal 1997 (three of which were opened during the second quarter), 12 stores
in fiscal 1998 and 15 stores in fiscal 1999.
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<PAGE> 9
RESULTS OF OPERATIONS
The results of operations set forth below describe: (i) the Company's
retail operations; and (ii) its wholesale operations. Retail operations include
the results of the Odd Job and Peddlers Mart operations. wholesale operations
include the results of Mazel Company L.P. for the second quarter and six months
1996 and the results of the wholesale segment of Mazel Stores, Inc. for the
second quarter and six months 1997.
RETAIL SEGMENT
STATEMENT OF OPERATION DATA
RETAIL SEGMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $23,218 $18,157 $44,262 $35,038
Cost of sales 13,843 10,987 26,597 21,367
------ ------ ------ ------
Gross profit 9,375 7,170 17,665 13,671
SG&A expense 8,254 6,701 16,017 12,593
----- ----- ------ ------
Operating profit-retail $l,121 $469 $1,648 $l,078
====== ==== ====== ======
PERCENTAGE OF NET SALES
Quarters Ended Six Months Ended
-------------- ----------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1997
---- ---- ---- ----
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales 59.62% 60.51% 60.09% 60.98%
----- ----- ----- -----
Gross margin 40.38% 39.49% 39.91% 39.02%
SG&A expense 35.55% 36.91% 36.19% 35.94%
----- ----- ----- -----
Operating margin-retail 4.83% 2.58% 3.72% 3.08%
==== ==== ==== ====
</TABLE>
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<PAGE> 10
Second Quarter 1997 Results versus Second Quarter 1996
Net sales increased $5.1 million, or 27.9% to $23.2 million in second
quarter 1997 from $18.1 million for second quarter 1996. Comparable store net
sales, which are based on a small base of 13 stores, increased approximately
$171,000, or 1.1% to $16.4 million in second quarter 1997 from $16.2 million in
second quarter 1996. Overall sales increases reflect the addition of 11 stores
opened or acquired since the beginning of second quarter 1996.
Gross profit increased $2.2 million, or 30.8%, to $9.4 million in second
quarter 1997, from $7.2 million in second quarter 1996. Gross margin increased
to 40.4% in second quarter 1997, from 39.5% in second quarter 1996. The increase
was due in part to the effect of large purchases made late in the first quarter
of the current fiscal year. Due to the deal to deal nature of the business, the
increase in second quarter margin may not be indicative of future gross margin
performance.
Selling, general and administrative expenses increased $1.6 million, or
23.2%, to $8.3 million in second quarter 1997, from $6.7 million in second
quarter 1996. Selling, general and administrative expenses, as a percentage of
net sales, decreased to 35.6% in second quarter 1997 from 36.9% in the second
quarter 1996. The $1.6 million increase primarily resulted from $1.3 million of
increased store level expenses, particularly occupancy expense related to the
new stores. In addition, warehouse and store delivery costs increased $144,000
due to costs associated with increased inventory levels and new store support
costs. An expanded advertising program, including periodic circulars, resulted
in an increase of approximately $167,000 in advertising costs. Store operating
expenses decreased as a percentage of total sales as increased operating
leverage was achieved.
Operating profit increased to $1.1 million for second quarter 1997, from
$469,000 for second quarter 1996. As a percentage of net sales, operating margin
increased to 4.8% from 2.6%. This increase was primarily due to the factors
described above.
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<PAGE> 11
Six Months Ended 1997 Results versus Six Months Ended 1996
Net sales increased $9.2 million, or 26.3% to $44.2 million in six
months ended 1997 from $35.0 million for the six months ended 1996. Comparable
store net sales decreased approximately $480,000, or 1.5% to $31.7 million in
six months ended 1997 from $32.2 million in the comparable 1996 period. Overall
sales increases reflect the addition of 13 stores opened or acquired since the
beginning of fiscal year 1996. A stronger second quarter helped improve year to
date comparable store sales results.
Gross profit increased $4.0 million, or 29.2%, to $17.7 million in six
months ended 1997, from $13.7 million in 1996. Gross margin increased to 39.9%
in 1997, from 39.0% in the comparable 1996 period. The increase was due in part
to a positive effect from large purchases made late in the first quarter of the
current fiscal year.
Selling, general and administrative expenses increased $3.4 million, or
27.2%, to $16.0 million in the six months ended 1997, from $12.6 million in six
months ended 1996. Selling, general and administrative expenses, as a
percentage of net sales, increased to 36.2% in the the six months ended 1997
from 35.9% in the comparable 1996 period. The $3.4 million increase primarily
resulted from $2.6 million of increased store level expenses, particularly
occupancy expense related to the new stores. In addition, warehouse and store
delivery costs increased $460,000 due to costs associated with increased
inventory levels and new store support costs. An expanded advertising program,
including periodic circulars, resulted in an increase of approximately $352,000
in advertising costs.
Operating profit increased to $1.6 million for the six months ended
1997 from $1.1 million for the six months ended 1996. As a percentage of net
sales, operating profit increased to 3.7% from 3.1%. This increase was
primarily due to the factors described above.
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<PAGE> 12
WHOLESALE SEGMENT
STATEMENT OF OPERATION DATA
WHOLESALE SEGMENT AND CORPORATE EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Ouarters Ended Six Months Ended
-------------- ----------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $25,835 $24,553 $47,919 $50,125
Cost of sales 11050 12,971 34,580 37,145
Gross profit 6,785 6,582 13,339 12,980
SG&A expense 3,275 2,867 6,733 8,691
------- ------- ------- ------
Operating profit-wholesale 3,510 3.715 6.606 7,289
======= ======= ======= ======
Corporate expenses(1) $ 993 $ 1.355 $1,992 $2.538
======= ======= ======= ======
<FN>
(1) Corporate expenses consist of shared administrative costs between retail
and wholesale.
</TABLE>
PERCENTAGE OF NET SALES
-----------------------
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales 73.74% 73.19% 72.16% 74.10%
------ ------ ------ ------
Gross margin 26.26% 26.81% 27.84% 25.90%
SG & A expense 12.68% 11.68% 14.05% 11.35%
------ ------ ------ ------
Operating margin-wholesale 13.58% 15.13% 13.79% 14.55%
====== ====== ====== ======
Corporate expenses 2.02% 3.17% 2.16% 2.98%
====== ====== ====== ======
</TABLE>
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<PAGE> 13
Second Quarter 1997 versus Second Quarter 1996
Net sales increased $1.3 million, or 5.2%, to $25.8 million in second
quarter 1997, from $24.6 million in second quarter 1996. Wholesale sales during
the second quarter of 1997 benefited from the purchase of unusually large deals
late in the first quarter of this fiscal year. Sales volumes exceeded a strong
prior year as sales to new and existing customers increased while intercompany
volume decreased.
Gross profit increased $203,000 or 3.1%, to $6.8 million in second
quarter 1997, from $6.6 million in second quarter 1996. Gross margin decreased
slightly to 26.3% in second quarter 1997 from 26.8% in second quarter 1996. The
increase in gross profit was due primarily to the increased sales volume, while
the gross margin decreased slightly due to the drop ship sales category.
Selling, general and administrative expenses increased $408,000 or
14.2%, to $3.3 million in second quarter 1997, from $2.9 million in second
quarter 1996. As a percentage of net sales, selling, general and administrative
expenses increased to 12.7% in second quarter 1997, from 11.7% in second quarter
1996. Warehousing expense accounted for approximately half of the increase in
selling general and administrative expenses. This increase was due in part to
the rise in repack labor and supplies. Other variable expenses such as travel
and start up costs associated with the new line of promotional products, also
contributed to the selling general and administrative expense increase.
Wholesale operating profit decreased to $3.5 million in second quarter
1997, from $3.7 million in second quarter 1996. As a percentage of net sales,
operating margin decreased to 13.6 % in the second quarter 1997 from 15.1% in
the comparable 1996 quarter due to the factors described above.
Six Months Ended 1997 versus Six Months Ended 1996
Net sales decreased $2.2 million, or 4.4%, to $47.9 million in six
months ended 1997 from $50.1 million in the comparable 1996 period. Six months
sales, while still down slightly from the prior year, have recovered from the
soft first quarter sales by realizing benefits from the deals purchased late in
the first quarter of the current fiscal year.
Gross profit increased $359,000 or 2.8%, to $13.3 million in the six
months ended 1997 from $13.0 million in the comparable 1996 period. Gross
margin increased to 27.8% in the six months ended 1997 from 25.9% in the six
months ended 1996. The increase in gross profit and gross margin was due
primarily to the Company's ability to buy higher margin product and the
increase in warehouse sales in relation to dropship sales, the former carrying
a higher margin.
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<PAGE> 14
Selling, general and administrative expenses increased $1.0 million or
18.3%, to $6.7 million in the six months ended 1997, from $5.7 million in the
six months ended 1996. As a percentage of net sales, selling, general and
administrative expenses increased to 14.1% in the six months ended 1997, from
11.4% in the six months ended 1996. Warehousing expense accounted for
approximately half of the increase, as increased repack labor and supplies were
required. Other variables expenses such as sales commissions, travel and start
up expenses associated with a new promotional line of products.
Wholesale operating profit decreased to $6.6 million in the six months
ended 1997, from $7.3 million in the six months ended 1996. As a percentage of
net sales, operating margin decreased to 13.8 % in the six months ended 1997
from 14.5% in the comparable 1996 quarter due to the factors described above.
CORPORATE EXPENSES
Second Quarter 1997 versus Second Quarter 1996
Corporate expenses consist of the cost of senior management and shared
administrative resources which are utilized by both segments of the business.
Corporate expense decreased $362,000 or 26.7% to $1.0 million during second
quarter 1997 from $1.4 million for second quarter 1996. Corporate expenses
decreased as a percentage of total Company's sales to 2.0% in 1997 from 3.2% in
1996. The decrease in corporate expenses was due primarily to salary reductions
taken by key executives as part of the Company's offering offset partially by
increases in legal and professional expenses.
Six Months Ended 1997 versus six Months Ended 1996
Corporate expenses consist of the cost of senior management and shared
administrative resources which are utilized by both segments of the business.
Corporate expense decreased $546,000 or 21.5% to $2.0 million during the six
months ended 1997 from $2.5 million for the six months ended 1996. Corporate
expenses decreased as a percentage of total Company's sales to 2.2% in 1997
from 3.0% in 1996. The decrease in corporate expenses was due primarily to
salary reductions taken by key executives as part of the Company's offering
offset partially by increases in legal and professional expenses.
14 of 19
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of purchases of
inventory, expenditures related to new store openings and the working capital
requirements for new and existing stores. The Company takes advantage of
closeout and other special situation purchasing opportunities which frequently
result in large volume purchases, and, as a consequence, its cash requirements
are not constant or predictable during the year and can be affected by the
timing and size of its purchases. The Company maintains a high level of
committed credit, so that it can take immediate advantage of special situation
purchasing opportunities. Having such credit availability provides the Company
with a competitive advantage measured against many of its competitors.
In the fourth quarter of 1996 the Company completed an initial public
Offering of 2,960,100 shares of Common Stock, no par value, at $16 per share.
The Offering generated net proceeds of approximately $43.0 million, after
deducting underwriting fees and Offering expenses. The net proceeds were used to
repay $33.4 million of indebtedness to a senior institutional lender and $4.0
million of Partners' notes, to fund approximately $2.9 million in tax loans to
certain executives and former shareholders of the Company, $900,000 in
compensation buyouts to certain executives and the remaining $1.9 million was
used for general corporate purposes. A portion of the tax loans to certain
executive officers are to be repaid in the third quarter of the current fiscal
year from the proceeds of sale of the company's common stock by such
individuals, including the repurchase of up to 25,000 shares directly by the
Company at market value.
As a result of the Offering, in December 1996, the Company entered into
a new $40 million credit facility. Loans under the new facility are secured by
liens only on the Company's receivables and warehouse inventories. The facility
has a maturity date of April 30, 1999. Borrowings under the new facility bear
interest, at the Company's option, at either LIBOR plus 200 basis points or
prime less 50 basis points. The credit facility contains restrictive covenants
which require minimum net worth levels, maintenance of certain financial ratios
and limitations on capital expenditures and investments. At July 26, 1997 the
Company's availability on the credit facility was $31.0 million.
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<PAGE> 16
For the first six months of 1997, cash used by consolidated operating
activities was $17.2 million as compared to cash used in the first six months
of 1996 of $11.3 million. Increases in inventory and trade receivables accounted
for the majority of cash used in the first six months of 1997. In the first
six months of 1996, increased inventory and trade receivable levels and
decreased trade payables accounted for the majority of cash used in operations.
Cash used in investing activities increased to $1.7 million in the first six
months of 1997 from $857,000 in the first six months of 1996. Cash used in
investing activities in the first six months of 1997, was primarily for the
acquisition of capital assets. Equipment and racking required for the expansion
of the wholesale distribution facility, the remodeling of the Company's New York
Showroom and the opening of three new retail stores accounted for the majority
of these capital expenditures. Cash provided by financing activities increased
to $9.0 million in the first six months of 1997 from $8.5 million in the first
six months of 1996. The financing provided in the first six months of 1997
was from borrowings on the Company's line of credit. In the first six months
of 1996 financing was provided by equity contributions and borrowings on the
Company's line of credit, partially offset by partner withdrawals.
INFLATION
During the six months ended July 26,1997, lease expense, salaries and
wages have increased modestly. The increases have not had a significant effect
on the Company's results of operations because the impact of rising costs have
been offset by price increases. As a result, inflation has not had nor is it
expected to have a significant impact on the Company's operations.
SEASONALITY AND QUARTERLY FLUCTUATION
Historically, the Company's retail stores have experienced their
highest net sales and operating income levels during the fourth quarter, which
includes the holiday selling season. The Company's wholesale operations have
historically experienced slightly higher sales and operating income levels in
the second half of the year.
The Company's quarterly results of operations may also fluctuate from
quarter to quarter as a result of the amount and timing of sales contributed by
new stores, the level of advertising and pre-opening expenses associated with
the opening of new stores, the integration of new stores into the operations of
the Company and the timing of large opportunistic purchases and sales in the
Company's wholesale operations as well as other factors.
16 of 19
<PAGE> 17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. (a) The Company's annual meeting of shareholders was held on
June 3, 1997.
(b) At the annual meeting, the Company's shareholders elected Phillip
Cohen, Jacob Koval and Jerry Sommers as Directors for a three-year term
which expires at the annual meeting of shareholders in 2000.
The term of office of Charles Bilezikian, Brady Churches, Robert Home,
Reuven D. Dessler and Ned L. Sherwood, as Directors, continued after
the 1997 meeting; such term expires with respect to Messrs. Bilezikian,
Churches and Horne at the annual shareholders meeting in 1998 and with
respect to Messrs. Dessler and Sherwood at the annual shareholders
meeting in 1999.
(c) At the annual meeting, the Company's shareholders ratified the
appointment of KPMG Peat Marwick, LLP as auditors of the Company for
the fiscal year ended January 31, 1998. The holders of 8,356,889 shares
of Common Stock voted to ratify the appointment, the holders of 350
shares voted against the ratification, and no holders of shares
abstained.
The following tabulation represents voting for the directors:
Withheld
For Authority
--- ---------
Phillip Cohen 8,283,089 74,150
Jacob Koval 8,283,089 74,150
Jerry Sommers 8,867,182 90,057
17 of 19
<PAGE> 18
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
(a) List of Exhibits
10.17 Asset and Stock Purchase Agreement among VCM Ltd., Mazel
Stores, Inc. Valley Fair Corporation, LF Widman Inc. and
Value City Department Stores, Inc.
27 Financial Data Schedule
(b) Reports on Form 8K
None
18 of 19
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAZEL STORES, INC.
(Registrant)
/s/ Reuven Dessler
- ---------------- -----------------------------
Date Reuven Dessler
Chief Executive Officer
/s/ Sue Atkinson
- ---------------- -----------------------------
Date Sue Atkinson
Senior Vice President
Chief Financial Officer and
Treasurer
19 of 19
<PAGE> 1
ASSET AND STOCK PURCHASE AGREEMENT
BY AND AMONG
VCM, LTD.,
MAZEL STORES, INC.,
VALLEY FAIR CORPORATION
L. F. WIDMANN, INC.
AND
VALUE CITY DEPARTMENT STORES, INC.
(AND CERTAIN OF ITS DIRECT AND INDIRECT SUBSIDIARIES)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 - DEFINITIONS....................................................................2
1.1 "Assets".................................................................2
1.2 "Asset Closing Statement"................................................2
1.3 "Audited Stock Closing Statement"........................................2
1.4 "Buyer's Product Liability Obligations"..................................3
1.5 "Closing"................................................................3
1.6 "Closing Date"...........................................................3
1.7 "Claims" ................................................................3
1.8 "COBRA" .................................................................3
1.9 "Code" ..................................................................3
1.10 "Damages" ...............................................................3
1.11 "Effective Date".........................................................3
1.12 "ERISA" .................................................................3
1.13 "Excluded Widmann Assets"................................................3
1.14 "GAAP"...................................................................3
1.15 "HBA Inventory"..........................................................3
1.17 "Intellectual Property"..................................................4
1.18 "Net Book Value of the Assets"...........................................4
1.19 "Net Book Value of the Widmann Assets"...................................4
1.20 "Other Group Members"....................................................4
1.21 "Plan" or "Plans"........................................................4
1.22 "Related Entity".........................................................4
1.23 "Specified Losses".......................................................5
1.24 "Stipulated Rate"........................................................5
1.25 "Taxes"..................................................................5
1.26 "Tax Returns"............................................................5
1.27 "Toys/Sports Department Inventory".......................................5
1.28 "Toy/Sports License Agreement"...........................................5
1.29 "Trade Secrets"..........................................................5
1.30 "Valley Fair Stores".....................................................6
1.31 "Valley Fair Store Lease"................................................6
1.32 "VCD Employee" ..........................................................6
1.33 "VCD's Product Liability Obligations"....................................6
1.34 "VCD's Warranty Claims"..................................................6
1.35 "VCD Warehouse Facilities"...............................................6
1.36 "VCD Warehouse Facilities Leases".......................................6
1.37 "WARN" ..................................................................6
1.38 "Widmann Financial Statements"...........................................6
1.39 "Widmann Product Liability Obligations"..................................7
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
1.40 "Widmann Stock"..........................................................7
1.41 "Widmann Warehouse Facility".............................................7
1.42 "Widmann Warehouse Facility Lease".......................................7
1.43 "Widmann Warranty Claims"................................................7
SECTION 2 - SALE AND PURCHASE OF ASSETS....................................................7
2.1 Sale of Assets...........................................................7
2.2 Excluded Assets..........................................................7
2.3 Consideration............................................................8
2.4 Asset Purchase Price And Payment.........................................8
(a) Final Asset Purchase Price.............................8
(b) Estimated Asset Purchase Price.........................8
(c) Determination of Final Asset Purchase Price............8
(d) Settlement of Final Asset Purchase Price..............10
2.5 Allocation of Purchase Price............................................10
2.6 Prorations..............................................................0
2.7 Assumption of Liabilities...............................................11
2.8 Unassumed Liabilities...................................................11
2.9 Further Assurances......................................................12
SECTION 3 - PURCHASE OF WIDMANN STOCK.....................................................12
3.1 Purchase of Widmann Stock...............................................12
3.2 Inventory Taking........................................................12
3.3 ........................................................................12
3.4 Stock Purchase Price and Payment........................................12
(a) Final Stock Purchase Price............................12
(b) Estimated Stock Purchase Price........................12
(c) Determination of Final Stock Purchase Price...........13
(d) Settlement of Purchase Price..........................14
(e) Purchase Price Adjustment for Specified Losses........14
SECTION 4 - CLOSING DATE AND EFFECTIVE DATE...............................................16
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF VCD.........................................16
5.1 Organization, Qualification and Authority of VCD........................17
(a) Due Organization and Qualification....................17
(b) Power and Authority to Conduct Business...............17
(c) No Defaults or Violations.............................17
(d) Power and Authority to Enter Into Agreements..........17
(e) Due Execution and Enforceability......................18
5.2 Title to Assets; No Claims, Liens, Etc..................................18
5.3 Intellectual Property...................................................18
5.4 Trade Secrets...........................................................18
5.5 Contracts...............................................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.6 Toys/Sports Department Inventory........................................19
5.7 Product Warranties......................................................19
5.8 Tax Returns.............................................................19
5.9 Pending Claims, Litigation and Governmental Proceedings.................19
5.10 Judgments, Orders and Consent Decrees...................................20
5.11 VCD Employees...........................................................20
5.12 Labor Matters...........................................................20
5.13 Employee Benefit Plans..................................................20
5.14 Environmental Matters...................................................20
5.15 OSHA Matters............................................................21
5.16 Customer Deposits.......................................................21
5.17 Compliance with Laws....................................................21
5.18 Conduct of Business in Ordinary Course..................................21
5.19 Broker's or Finder's Fees...............................................22
5.20 Full Disclosure.........................................................22
5.21 Duty of VCD to Make Inquiry.............................................22
SECTION 6 - REPRESENTATIONS AND WARRANTIES OF
VALLEY FAIR AND WIDMANN..........................................................22
6.1 Organization, Qualification and Authority of Valley Fair and Widmann....22
(a) Due Organization and Qualification of Valley Fair.....22
(b) Due Organization and Qualification of Widmann.........23
(c) Power and Authority to Conduct Business...............23
(d) No Defaults or Violations.............................23
(e) Power and Authority to Enter Into Agreements..........23
(f) Due Execution and Enforceability......................24
6.2 Capital Structure.......................................................24
6.3 Title to Shares and Widmann Assets......................................24
6.4 Widmann Financial Statements............................................25
6.5 Intellectual Property...................................................25
6.6 Trade Secrets...........................................................25
6.7 Licenses................................................................25
6.8 Conduct of Business in Ordinary Course..................................25
6.9 Environmental Matters...................................................26
6.10 Taxes...................................................................26
6.11 HBA Inventory...........................................................28
6.12 Product Warranties......................................................28
6.13 Real Property...........................................................28
6.14 Tangible Personal Property..............................................28
6.15 Other Property..........................................................29
6.16 Banking Facilities......................................................29
6.17 Loan Agreements, Etc....................................................29
6.18 Other Contracts.........................................................29
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
6.20 Employee Benefit Plans. ................................................34
6.21 Insurance...............................................................34
6.22 Pending Claims, Litigation and Governmental Proceedings.................35
6.23 Judgments, Orders and Consent Decrees...................................35
6.24 Employment/Labor Matters................................................35
6.25 Customer Deposits.......................................................36
6.26 Purchase Orders.........................................................36
6.27 Compliance with Laws....................................................36
6.28 Broker's or Finder's Fees...............................................36
6.29 Full Disclosure.........................................................36
6.30 Duty of Valley Fair to Make Inquiry.....................................36
SECTION 7 - REPRESENTATIONS AND WARRANTIES OF MAZEL.......................................37
7.1 Organization, Qualification and Authority of Mazel......................37
(a) Due Organization and Qualification....................37
(b) Power and Authority to Conduct Business...............37
(c) No Defaults or Violations.............................37
(d) Power and Authority to Enter Into Agreements..........38
(e) Due Execution and Enforceability......................38
7.2 Judgments, Orders and Consent Decrees...................................38
7.3 Broker's or Finder's Fees...............................................38
7.4 Compliance with Laws....................................................38
7.5 Full Disclosure.........................................................39
7.6 Duty of Mazel to Make Inquiry...........................................39
SECTION 8 - COVENANTS OF VCD, WIDMANN AND/OR VALLEY FAIR..................................39
8.1 Conduct and Preservation of Business....................................39
8.2 Injunctions.............................................................40
8.3 Conduct Prior to Effective Date.........................................40
8.4 Resignations............................................................41
8.5 Further Assurances......................................................42
8.6 Widmann Tax Covenants...................................................42
SECTION 9 - CONDITIONS PRECEDENT TO BUYER'S OBLIGATION
TO CLOSE ..............................................................................45
9.1 Representations and Warranties True on Effective Date...................45
9.2 Compliance with Agreement...............................................45
9.3 Secretary's Certificate.................................................45
9.4 Compliance Certificate..................................................46
9.5 No Litigation...........................................................46
9.6 Proceedings and Instruments Satisfactory................................46
9.7 Consents and Approvals..................................................46
9.8 Damage or Destruction...................................................46
9.9 No Material Adverse Change..............................................46
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
9.10 Warehouse Arrangements..................................................46
9.11 Injunctions.............................................................46
9.12 License Agreements......................................................46
9.13 Insurance Arrangements..................................................47
9.14 Valley Fair Store Lease.................................................47
9.15 Dissolution of Widmann..................................................47
9.16 Good Standing Certificates..............................................47
9.17 Corporate Authority.....................................................47
SECTION 10 - CONDITIONS PRECEDENT TO VCD'S AND VALLEY FAIR'S
OBLIGATION TO CLOSE...........................47
10.1 Representations and Warranties True at the Effective Date...............47
10.2 Compliance With Agreement...............................................47
10.3 No Litigation...........................................................47
10.4 License Agreements......................................................48
10.5 Warehouse Arrangements..................................................48
10.6 Insurance Arrangements..................................................48
10.7 Valley Fair Store Lease.................................................48
10.8 Proceedings and Instruments Satisfactory................................48
10.9 Consents and Approvals..................................................48
SECTION 11 - FURTHER AGREEMENTS OF THE PARTIES............................................48
11.1 Employees...............................................................48
11.2 Nondisclosure...........................................................49
SECTION 12 - RISK OF LOSS.................................................................50
12.1 Risk of Loss............................................................50
SECTION 13 - TERMINATION AND ABANDONMENT..................................................50
13.1 Termination.............................................................50
13.2 Notice of Termination...................................................50
SECTION 14 - INDEMNIFICATION AND REIMBURSEMENT............................................51
14.1 Indemnification by VCD and Valley Fair..................................51
14.2 Indemnification by Buyer and Mazel......................................52
14.3 Claims for Reimbursement................................................53
14.4 Defense of Third-Party Claims...........................................53
14.5 Provisions Regarding Indemnities........................................54
(a) Insurance Recoveries..................................54
(b) Exclusivity...........................................54
(d) Limitations on Liability..............................55
(e) Waiver of Consequential and Punitive Damages..........55
SECTION 15 - MISCELLANEOUS PROVISIONS.....................................................55
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
15.1 Costs and Expenses......................................................55
15.2 Amendment and Modification..............................................55
15.3 No Assignment...........................................................55
15.4 Notices.................................................................56
15.5 Counterparts............................................................57
15.6 Headings................................................................57
15.7 Recitals, Exhibits and Schedules........................................57
15.8 Schedules and Exhibits..................................................57
15.9 Waiver; Remedies........................................................57
15.10 Governing Law...........................................................57
15.11 Severability............................................................57
15.12 Entire Agreement........................................................58
</TABLE>
vi
<PAGE> 8
ASSET AND STOCK PURCHASE AGREEMENT
----------------------------------
THIS AGREEMENT, made and entered into as of the 14th day of July, 1997,
by and among VALUE CITY DEPARTMENT STORES, INC., an Ohio corporation and its
direct and indirect subsidiaries identified on the signature pages herein
(collectively, "VCD"), VALLEY FAIR CORPORATION, a Delaware corporation ("Valley
Fair") (VCD and Valley Fair are sometimes referred to collectively herein as
"Sellers"), L. F. WIDMANN, INC., a Pennsylvania corporation and a wholly-owned
subsidiary of Valley Fair ("Widmann"), VCM, Ltd., an Ohio limited liability
company ("Buyer"), and MAZEL STORES, INC., an Ohio corporation ("Mazel") is to
evidence the following agreements and understandings:
W I T N E S S E T H:
--------------------
WHEREAS, VCD owns and operates retail department stores specializing in
the sale of retail merchandise consisting in part of certain toys and sporting
goods departments (the "Toys/Sports Departments") located in the VCD department
stores;
WHEREAS, Widmann operates the health and beauty aids departments in the
VCD department stores and the two department stores operated by Valley Fair (the
"HBA Departments") and operates health and beauty aid retail stores at other
locations (the "Non- VCD Stores"), each of which is listed on EXHIBIT "A"
hereof;
WHEREAS, VCD, through its indirect wholly-owned subsidiary, GB
Retailers, Inc., a Delaware corporation, and Mazel, through its indirect
wholly-owned subsidiary, Odd Job Trading Corp., a New York corporation, each own
fifty percent (50%) membership interests in Buyer and have formed Buyer for the
purpose of acquiring and operating the Toys/Sports Departments and acquiring and
operating Widmann;
WHEREAS, Buyer desires to purchase from VCD, and VCD desires to sell to
Buyer, substantially all of the properties, rights and assets of VCD used in
connection with the operation of the Toys/Sports Departments on the terms and
conditions hereinafter set forth;
WHEREAS, Valley Fair owns all of the issued and outstanding shares of
Widmann; and
<PAGE> 9
WHEREAS, Buyer desires to purchase from Valley Fair 100% of the issued
and outstanding capital stock of Widmann.
NOW, THEREFORE, in consideration of the mutual promises made herein and
for other good and valuable consideration, the receipt, adequacy and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1 - DEFINITIONS
-----------------------
Capitalized terms not otherwise defined in this Agreement shall have
the meanings set forth in this Section 1.
1.1 "ASSETS" means the following assets, rights, interests and properties
of VCD:
(a) All Toys/Sports Department Inventory;
(b) Packaging and labeling material and sales literature relating
exclusively to the Toys/Sports Department Inventory;
(c) All of VCD's Warranty Claims relating exclusively to the
Toys/Sports Department Inventory;
(d) All books, accounts, and records relating exclusively to the
Toys/Sports Department Inventory;
(e) VCD's unfulfilled purchase commitments relating to the
Toys/Sports Department Inventory (the "Purchase Orders") as
identified on SCHEDULE 1.1(e), which Schedule shall be
separately provided to Buyer at the same time as the Asset
Closing Statement; and
(f) VCD's equipment, machinery, vehicles, leasehold improvements,
warehouse supplies and other fixed assets relating exclusively
to the Toys/Sports Department Inventory as identified on
SCHEDULE 1.1(f).
1.2 "ASSET CLOSING STATEMENT" means the portion of the balance sheet of VCD that
pertains to the Assets, as of the Effective Date, prepared by VCD in a manner
consistent with its normal practices for financial accounting purposes.
1.3 "AUDITED STOCK CLOSING STATEMENT" means the balance sheet of Widmann
reflecting the assets and liabilities of Widmann (excluding the Excluded Widmann
Assets) as of the
2
<PAGE> 10
Effective Date, prepared in accordance with GAAP, and as audited by Alpern,
Rosenthal & Company.
1.4 "BUYER'S PRODUCT LIABILITY OBLIGATIONS" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from inventory sold by Buyer on or after the Effective Date.
1.5 "CLOSING" means the Closing defined in Section 4.
1.6 "CLOSING DATE" means the Closing Date defined in Section 4.
1.7 "CLAIMS" means all liens, encumbrances, security interests, mortgages,
charges, equities, interests, options or pledges of every kind, nature and
description.
1.8 "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
1.9 "CODE" means the Internal Revenue Code of 1986 and any amendments,
predecessor laws, or successor laws.
1.10 "DAMAGES" means all liabilities, deficiencies, losses, costs or expenses,
including, but not limited to, reasonable attorneys' and other professional
fees, costs of litigation, interest and penalties.
1.11 "EFFECTIVE DATE" means the end of August 2, 1997.
1.12 "ERISA" means the Employee Retirement Income Securities Act of 1974, as
amended.
1.13 "EXCLUDED WIDMANN ASSETS" means the Widmann Warehouse Facility and the
Valley Fair Stores.
1.14 "GAAP" means generally accepted accounting principles consistently applied.
1.15 "HBA INVENTORY" means, collectively, the inventory owned by Widmann and
located in the HBA Departments, the Non-VCD Stores and the Widmann Warehouse
Facility and the replenishment inventory and all related points of sale
inventory, i.e., displays, display headers (on pallets and dies) and components
thereof.
3
<PAGE> 11
1.16 "HBA LICENSE AGREEMENTS" means the license agreements by and between Buyer
and VCD and by and between Buyer and Valley Fair with respect to the HBA
Departments in the form attached as SCHEDULE 1.16.
1.17 "INTELLECTUAL PROPERTY" includes, but is not limited to: all Trade Secrets,
patents, and patent applications, if any, trade names, trademarks, trade dress,
logos and service marks (whether domestic or foreign, registered or
unregistered), and all copyrights (registered or unregistered).
1.18 "NET BOOK VALUE OF THE ASSETS" means the adjusted book value of the Assets
as of the Effective Date based on the books and records of VCD maintained for
financial accounting purposes, which in the case of Toys/Sports Department
Inventory reflect VCD's normal and customary shrinkage factor of three percent
(3%).
1.19 "NET BOOK VALUE OF THE WIDMANN ASSETS" means the adjusted book value of the
Widmann assets, reduced by the liabilities of Widmann, as of the Effective Date
based on the books and records of Widmann maintained for financial accounting
purposes excluding the Excluded Widmann Assets.
1.20 "OTHER GROUP MEMBERS" has the meaning set forth in Section 6.10(a).
1.21 "PLAN" OR "PLANS" means any: single and/or multi-employer "employee benefit
plan" as defined by Section 3(3) and/or Section 3(37) of ERISA, fringe benefit
plan as defined in Code Section 6039D and any other bonus, incentive
compensation, deferred compensation, profit sharing, stock option, stock
purchase, tax-sheltered annuity, medical reimbursement, stay, flexible benefit,
cafeteria, hospitalization, disability insurance, accident, workers
compensation, accident, savings, severance, supplemental unemployment, layoff,
golden parachute, executive compensation, salary continuation, retirement,
pension, health, life insurance, disability, group insurance, vacation, holiday,
sick leave, fringe benefit or welfare plan, or any other similar plan, contract,
fund, arrangement, program, practice, agreement, policy or understanding
(whether written or oral, formal or informal, qualified or nonqualified, and
whether or not in effect at the Effective Date), and any trust, escrow, custody
or other agreement related thereto, which provides or provided benefits, or
describes policies or procedures applicable to any officer, employee, agent,
representative, service provider, former officer or former employee or the
dependents of any thereof, regardless of whether funded.
1.22 "RELATED ENTITY". means any entity required to be aggregated with VCD or
Widmann, as the context requires, under Code Section 414.
4
<PAGE> 12
1.23 "SPECIFIED LOSSES" means the net losses realized by Buyer within two (2)
years of the Effective Date (based on Buyer's books and records maintained for
financial accounting purposes prepared on a basis consistent with Widmann's past
practices) directly attributable to (i) moving the HBA Inventory from the
Widmann Warehouse Facility to a different warehouse facility, and (ii) closing
any of the Non-VCD Stores, but excluding losses incurred in the operation of a
Non-VCD Store prior to the date of the final determination by Buyer to close
such store. For purposes of calculating the net losses realized by Buyer under
this definition, items of income or loss realized by Buyer from matters not
identified in (i) or (ii) of the preceding sentence shall not be taken into
account.
1.24 "STIPULATED RATE" means the rate of interest publicly announced as the
"prime rate" of interest by National City Bank, Cleveland (or its successor) and
will float on a daily basis.
1.25 "TAXES" shall mean any taxes, charges, fees, levies, penalties, or other
assessments imposed by any United States federal, state, local or foreign taxing
authority, including, but not limited to, income, excise, property, sales, use,
gross receipts, transfer, franchise, capital stock, net worth, equity, payroll,
gains, withholding, ad valorem, social security, or other taxes including any
interest, penalties or additions attributable to taxes.
1.26 "TAX RETURNS". shall mean any return, report or information return required
to be filed with any taxing authority with respect to Taxes.
1.27 "TOYS/SPORTS DEPARTMENT INVENTORY" means, collectively, the inventory owned
by VCD and located in the Toys/Sports Departments, in lay-away or at the VCD
Warehouse Facilities and the replenishment inventory and all related
point-of-sale inventory, i.e., displays, display headers (on pallets and dies)
and components thereof that relates exclusively to the Toys/Sports Departments,
as and to the extent such inventory is identified on SCHEDULE 1.27.
1.28 "TOY/SPORTS LICENSE AGREEMENT" means the license agreement by and between
Buyer and VCD with respect to the Toys/Sports Departments in the form attached
as SCHEDULE 1.28.
1.29 "TRADE SECRETS" includes, but is not limited to any confidential computer
software and data bases, records, development data and reports, quality control
specifications, cost analysis, flow charts, process sheets, "know-how",
memoranda, customer lists, vendor lists, or other confidential information
relating to sales, pricing and marketing data and any other confidential
information of like nature.
5
<PAGE> 13
1.30 "VALLEY FAIR STORES" means the real property currently owned by Widmann and
to be distributed to Valley Fair prior to the Effective Date on which the three
(3) Non-VCD stores identified on SCHEDULE 1.30 operate.
1.31 "VALLEY FAIR STORE LEASE" means the master store lease in the form attached
as SCHEDULE 1.31, pertaining to the Valley Fair Stores.
1.32 "VCD EMPLOYEE" means any person employed by VCD pursuant to either a
contractual or at will relationship who works for VCD at the VCD Warehouse
Facilities in connection with the Toys/Sports Department Inventory or is a buyer
with respect to the Toys/Sports Department Inventory.
1.33 "VCD'S PRODUCT LIABILITY OBLIGATIONS" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) in respect of the Toys/Sports Department Inventory sold by VCD prior
to the Effective Date.
1.34 "VCD'S WARRANTY CLAIMS" means all warranty, indemnification, or other
contract claims of VCD against third parties whether implied, express or
otherwise, or refunds due to VCD from third party manufacturers, vendors, or
carriers arising from or relating to the sale of the Toys/Sports Department
Inventory.
1.35 "VCD WAREHOUSE FACILITIES" means the warehouse located at 2025 Corvair
Avenue, Columbus, Ohio, leased by VCD and one-half (1/2) of the warehouse
located at 2020 Corvair Avenue, Columbus, Ohio, leased by VCD.
1.36 "VCD WAREHOUSE FACILITIES LEASES" means the two (2) leases in the form
attached as SCHEDULE 1.36 pertaining to the VCD Warehouse Facilities.
1.37 "WARN" means the Worker Adjustment Retraining Notification Act of 1988.
1.38 "WIDMANN FINANCIAL STATEMENTS" means the balance sheets of Widmann as of
January 28, 1996 and February 2, 1997, and the related operating statements for
the fiscal years then ended, attached hereto as SCHEDULE 1.38, each audited by
Alpern, Rosenthal & Company as a part of their audit of the consolidated
financial statements of Valley Fair and without a separate audit report for the
Widmann financial statements. Also attached as part of schedule 1.38 is a
statement providing the adjusted cost basis of the Widmann assets for federal
income tax purposes as of February 2, 1997.
6
<PAGE> 14
1.39 "WIDMANN PRODUCT LIABILITY OBLIGATIONS" means any claim for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) in respect of the HBA Inventory sold by Widmann prior to the
Effective Date.
1.40 "WIDMANN STOCK" means all of the capital stock of Widmann consisting of 51
shares of common stock, $2121.50 par value per share, all of which 51 shares are
issued and outstanding.
1.41 "WIDMANN WAREHOUSE FACILITY" means the warehouse located at Clinton County
Industrial Park, McElhattan, Pennsylvania currently owned by Widmann but to be
distributed to Valley Fair prior to the Effective Date.
1.42 "WIDMANN WAREHOUSE FACILITY LEASE" means the one (1) lease in the form
attached as SCHEDULE 1.42.
1.43 "WIDMANN WARRANTY CLAIMS" means all warranty, indemnification, or other
contact claims of Widmann against third parties whether implied, express or
otherwise, or refunds due to Widmann from third party manufacturers, vendors,
carriers or utilities arising from or relating to the sale of HBA Inventory.
SECTION 2 - SALE AND PURCHASE OF ASSETS
---------------------------------------
2.1 SALE OF ASSETS. Subject to the terms and conditions of this Agreement, VCD
agrees to sell, transfer, assign, grant, set-over and deliver the Assets to
Buyer, free and clear of all Claims of title to the Assets excepting only the
Excluded Assets (as defined in Section 2.2).
The Assets of VCD constituting tangible personal property shall be
conveyed to Buyer by execution and delivery of a General Assignment and Bill of
Sale in the form attached hereto as EXHIBIT "B".
2.2 EXCLUDED ASSETS. Buyer shall not purchase or acquire hereunder any right,
title or interest in or to any of the properties, rights or assets of VCD not
described in Section 2.1 hereof (collectively, the "Excluded Assets"). Such
Excluded Assets include, but are not limited to (a) any right, title, interest,
liability or obligation of VCD or of any Related Entity under any Plans adopted
by VCD or by any Related Entity in favor of the employees of VCD or of any
Related Entity, or under any trust agreement, escrow or custody arrangement
related to any Plan, (b) VCD's franchise to be a corporation and its articles of
incorporation, corporate seal, minute books, stock books and other corporate
records pertaining to its corporate existence and (c) any Intellectual Property
owned by VCD.
7
<PAGE> 15
2.3 CONSIDERATION. Upon the terms and subject to the conditions set forth in
this Agreement and in consideration for the Assets, Buyer shall pay and remit to
VCD the Final Asset Purchase Price (as defined in Section 2.4 hereof) in the
manner described in Section 2.4 hereof.
2.4 ASSET PURCHASE PRICE AND PAYMENT.
(a) FINAL ASSET PURCHASE PRICE. The aggregate purchase price
payable to VCD for the Assets (the "Final Asset Purchase
Price") will be an amount equal to the Net Book Value of the
Assets as shown on the books and records of VCD as determined
pursuant to Section 2.4(c), plus or minus the proration
adjustments described in Section 2.6.
(b) ESTIMATED ASSET PURCHASE PRICE. The amount payable to VCD at
Closing ("Estimated Asset Purchase Price") shall be based on
the "Estimated Asset Closing Statement" provided to Buyer on
the Closing Date, which presents VCD's best estimate of the
Net Book Value of the Assets on the Effective Date, PLUS OR
MINUS the proration adjustments described in Section 2.6. The
Estimated Asset Purchase Price reduced by (in order to reflect
that such amount is being paid prior to the Effective Date)
interest thereon at the Stipulated Rate calculated from the
Closing Date through the Effective Date shall be paid by wire
transfer of immediately available funds to an account
designated by VCD pursuant to wire transfer instructions that
VCD will deliver to Buyer not less than two (2) business days
prior to the Closing Date.
(c) DETERMINATION OF FINAL ASSET PURCHASE PRICE.
(i) VCD shall, on or before the forty-fifth (45th) day
following the Closing Date, cause to be prepared and delivered
to Buyer, at Buyer's expense, the Asset Closing Statement
reflecting VCD's determination of the Net Book Value of the
Assets and a statement providing the adjusted cost basis of
the Assets for federal income tax purposes as of the Effective
Date. Buyer shall be entitled to inspect and review the work
papers, other materials, reporting methodologies, and
reporting systems used by VCD to prepare the Asset Closing
Statement. Buyer shall also be entitled to conduct due
diligence, which may include physical inspections and pricing
checks at the Toys/Sports Departments and the VCD Warehouse to
ensure that the Asset Closing Statement accurately reflects
the Net Book Value of the Assets. The Asset
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Closing Statement shall be accompanied by a schedule showing,
in reasonable detail, the manner and method in which VCD made
its determination of the Net Book Value of the Assets. If
after such review Buyer does not object to the amounts
reflected on the Asset Closing Statement, the Net Book Value
of the Assets shall be based on such statement for purposes of
determining the Final Asset Purchase Price.
(ii) If Buyer has any objection to any amounts reflected on
the Asset Closing Statement, Buyer shall so notify VCD in
writing, within thirty (30) days after its receipt of the
Asset Closing Statement, specifying its objections in
reasonable detail. Buyer and VCD shall attempt to resolve any
disputed amounts. If they are unable to reach a resolution
within thirty (30) days of written notice of objection to VCD,
then the disputed items shall be resolved as provided in
Section 2.4(c)(iii).
(iii) VCD and Buyer shall submit the remaining disputed items
to mediation in accordance with the Commercial Mediation Rules
of the American Arbitration Association (hereinafter the
"AAA"), using a mutually agreed upon neutral Mediator. The
locale of such mediation shall be in Columbus, Ohio. If Buyer
and VCD cannot mutually agree upon a Mediator, one will be
selected in accordance with the Rules of the AAA. Any
administrative fees that may be levied by the AAA and the
costs of the Mediator shall be borne equally by Buyer and VCD.
Each party shall bear its own costs and attorneys fees. The
parties may, by written agreement, forego mediation. If they
are unable to reach a resolution through mediation, the items
remaining in dispute shall be submitted for resolution to the
accounting firm of Arthur Anderson or another national
certified public accounting firm reasonably satisfactory to
Buyer and VCD (the "Deciding CPA's"). The Deciding CPA's shall
be instructed by VCD and Buyer to determine and report to the
parties within twenty (20) business days after submission of
such remaining disputed items (or as soon thereafter as the
Deciding CPA's deem practicable), and such report shall be
final, binding and conclusive on the parties hereto. The fees
and disbursements of the Deciding CPA's shall be allocated
between VCD and Buyer in the same proportion that the
aggregate amount of the disputed amounts, as finally
determined by the Deciding CPA's, bears to the total sum of
disputed amounts. The Deciding CPA's shall have no right,
authority or discretion to employ any accounting standard or
principles except for those used by VCD in accordance with
GAAP.
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(d) SETTLEMENT OF FINAL ASSET PURCHASE PRICE. To the extent that
the Final Asset Purchase Price, as finally determined pursuant
to Section 2.4(c), is greater or less than the Estimated Asset
Purchase Price (such excess or deficiency being hereinafter
referred to as the "Adjustment"), not later than the third
(3rd) business day following the date upon which the Final
Asset Purchase Price is finally determined, Buyer shall pay to
VCD (if the Final Asset Purchase Price is greater than the
Estimated Asset Purchase Price) or VCD shall pay to Buyer (if
the Final Asset Purchase Price is less than the Estimated
Asset Purchase Price), by certified check or by wire transfer
of immediately available federal funds pursuant to wire
transfer instructions received at least two (2) days prior to
the date of payment, the amount of the Adjustment plus
interest thereon at the Stipulated Rate calculated from the
Effective Date to the date of payment of such amounts.
2.5 ALLOCATION OF PURCHASE PRICE. The Final Asset Purchase Price represents the
amount agreed upon by the parties to be the fair market value of the Assets. The
Final Asset Purchase Price shall be allocated for income tax purposes among the
Assets in accordance with the amounts ultimately agreed upon by the parties for
each class of Assets as determined pursuant to Section 2.4 above, which
allocation shall be consistent with Code Section 1060 ("Purchase Price
Allocation"). Each of the parties hereby covenants and agrees that it will not
take a position on any federal, state or local tax return, before any
governmental agency charged with the collection of any tax, or in any judicial
proceeding that is in any way inconsistent with the Purchase Price Allocation
and will cooperate with one another in the timely filing consistent with such
Purchase Price Allocation on Form 8594 with the Internal Revenue Service.
2.6 PRORATIONS. The following items shall be prorated as of the Effective Date
to the extent that VCD has paid for such items for any period after the
Effective Date or Buyer will be required to pay such items for any period prior
to the Effective Date:
(a) Personal property taxes and other taxes with respect to the
Assets;
(b) amounts payable by VCD or Buyer in respect of the use and
occupancy of the VCD Warehouse Facilities ; and
(c) any other item that may be mutually agreed to by the parties.
Any net amount owed hereunder shall be paid within thirty (30) days
following the Closing Date by the party owing such amount.
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2.7 ASSUMPTION OF LIABILITIES.
Buyer and VCD agree that Buyer is assuming and accepting any debts,
liabilities or obligations of VCD, contingent or non-contingent, liquidated or
unliquidated, asserted or unasserted under the Purchase Orders and Buyer's
Product Liability Obligations (collectively, the "VCD Assumed Liabilities").
2.8 UNASSUMED LIABILITIES. Other than the VCD Assumed Liabilities and Buyer's
obligations prescribed in the VCD Warehouse Facilities Leases, the Toy/Sports
License Agreement, and the HBA License Agreements, Buyer shall not assume or be
liable to VCD or any other person or entity for or in respect of any debts,
liabilities and obligations of VCD whatsoever, including but not limited to, the
following debts, liabilities and obligations of VCD:
(a) Any debt, liability or obligation of VCD to taxing or other
governmental authorities for any foreign or domestic, federal,
state or local income taxes or similar taxes based upon the
income of VCD;
(b) Any debt, liability or obligation of VCD with respect to any
event that shall have occurred on or prior to the Effective
Date whether or not such event and the liability relating
thereto is insured against under any of the coverages under
the insurance policies and/or self-insurance programs of VCD;
(c) VCD's Product Liability Obligations;
(d) Any debt, liability or obligation of VCD under or in respect
of any compensation or benefit plan, policy or arrangement in
favor of the employees of VCD;
(e) Any debt, liability or obligation of VCD to any of its
shareholders, directors, officers or employees arising out of
the transactions contemplated hereby, including, without
limitation, any liability for severance or termination pay; or
(f) Any debt, liability, cost, contribution, or obligation of VCD
or of any Related Entity arising from or relating to, directly
or indirectly, any Plan of VCD or of any Related Entity,
including, but not limited to, excise taxes, interest, and
penalties, and whether to current or former employees, retired
employees, alternative payees under qualified domestic
relations orders, any eligible
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participants, or the beneficiaries of any such party or
parties, to the Internal Revenue Service, Department of Labor,
Pension Benefit Guaranty Corporation or other government
agency, to any multi-employer plan or fund or to any other
party, and Buyer shall not be a successor employer under any
such Plan.
2.9 FURTHER ASSURANCES. VCD, from time to time after the Closing Date, at
Buyer's request and expense, shall execute, acknowledge and deliver to Buyer
such other instruments of conveyance and transfer and shall take such other
actions and execute and deliver such other documents, certificates and further
assurances as Buyer may reasonable require to vest more effectively in Buyer or
to put Buyer more fully in possession of, any of the Assets.
SECTION 3 - PURCHASE OF WIDMANN STOCK
-------------------------------------
3.1 PURCHASE OF WIDMANN STOCK. Pursuant to the terms and provisions of this
Agreement and subject to the conditions hereinafter set forth, on the Closing
Date, Buyer shall purchase from Valley Fair, and Valley Fair shall sell, assign,
tender and deliver to Buyer all of the issued and outstanding Widmann Stock free
and clear of all Claims thereon.
3.2 INVENTORY TAKING. Preceding the Effective Date, a "wall-to-wall" physical
inventory of the HBA Inventory to be purchased on such date will be conducted at
the HBA Warehouse Facility, the HBA Departments and the Non-VCD Stores by a
third party selected by Valley Fair and by Mazel. Buyer will pay the expense of
such inventory taking. In order to facilitate the taking of the "wall-to-wall"
physical inventory, no HBA Inventory shall be shipped and no goods or materials
shall be received during the taking of such physical inventory. Representatives
of Mazel and Valley Fair shall be entitled to participate at their respective
cost and expense in the observation of the taking of the physical inventory.
3.3 STOCK PURCHASE PRICE AND PAYMENT.
(a) FINAL STOCK PURCHASE PRICE. The aggregate purchase price
payable to Valley Fair for the Widmann Stock (the "Final Stock
Purchase Price") will be an amount equal to the Net Book Value
of the Widmann Assets as shown on the books and records of
Widmann as determined pursuant to Section 3.3(c).
(b) ESTIMATED STOCK PURCHASE PRICE. The amount payable to Valley
Fair at Closing ("Estimated Stock Purchase Price") shall be
based on an estimated stock closing statement provided to
Buyer on the Closing Date, which presents Valley Fair's best
estimate of the Net Book Value of the Widmann Assets. The
Estimated Stock Purchase Price reduced by (in order to reflect
that such
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amount is being paid prior to the Effective Date) interest
thereon at the Stipulated Rate calculated from the Closing
Date through the Effective Date shall be paid by wire transfer
of immediately available funds to an account designated by
Valley Fair pursuant to wire transfer instructions that Valley
Fair will deliver to Buyer not less than two (2) business days
prior to the Closing Date.
(c) DETERMINATION OF FINAL STOCK PURCHASE PRICE.
(i) Valley Fair shall, on or before the forty-fifth (45th) day
following the Closing Date, cause to be prepared and delivered
to Buyer, at Buyer's expense, the Audited Stock Closing
Statement reflecting Valley Fair's accountant's determination
of the Net Book Value of the Widmann Assets and a statement
providing the adjusted cost basis of the Widmann assets for
federal income tax purposes as of the Effective Date. Buyer
(or its accountants) shall be entitled to inspect and review
the work papers, other materials, reporting methodologies, and
reporting systems used by Valley Fair and its accountants to
prepare the Audited Stock Closing Statement. Buyer shall also
be entitled to conduct due diligence, which may include
physical inspections and pricing checks at the HBA
Departments, Non-VCD Stores, and the Widmann Warehouse
Facility to ensure that the Audited Stock Closing Statement
accurately reflects the Net Book Value of the Widmann Assets.
If Mazel does not object to the amounts reflected on the
Audited Stock Closing Statement, the Net Book Value of the
Widmann Assets shall be based on such statement for purposes
of determining the Final Stock Purchase Price.
(ii) If Buyer has any objection to any amounts reflected on
the Audited Stock Closing Statement, Buyer shall so notify
Valley Fair in writing, within thirty (30) days after its
receipt of the Audited Stock Closing Statement, specifying its
objections in reasonable detail. Buyer and Valley Fair shall
attempt to resolve any disputed amounts. If they are unable to
reach a resolution within thirty (30) days of written notice
of objection to Valley Fair, then the disputed items shall be
resolved as provided in Section 3.3(c)(iii).
(iii) Valley Fair and Buyer shall submit the remaining
disputed items to mediation in accordance with the Commercial
Mediation Rules of the American Arbitration Association
(hereinafter the "AAA"), using a mutually agreed upon neutral
Mediator. The locale of such mediation shall be in Columbus,
Ohio. If Buyer and Valley Fair cannot mutually agree upon a
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<PAGE> 21
Mediator, one will be selected in accordance with the Rules of
the AAA. Any administrative fees that may be levied by the AAA
and the costs of the Mediator shall be borne equally by Buyer
and Valley Fair. Each party shall bear its own costs and
attorneys fees. The parties may, by written agreement, forego
mediation. If they are unable to reach a resolution through
mediation, the items remaining in dispute shall be submitted
for resolution to the accounting firm of Arthur Anderson or
another national certified public accounting firm reasonably
satisfactory to Buyer and Valley Fair (the "Deciding CPA's").
The Deciding CPA's shall be instructed by Valley Fair and
Buyer to determine and report to the parties within twenty
(20) business days after submission of such remaining disputed
items (or as soon thereafter as the Deciding CPA's deem
practicable), and such report shall be final, binding and
conclusive on the parties hereto. The fees and disbursements
of the Deciding CPA's shall be allocated between Valley Fair
and Buyer in the same proportion that the aggregate amount of
the disputed amounts, as finally determined by the Deciding
CPA's, bears to the total sum of disputed amounts. The
Deciding CPA's shall have no right, authority or discretion to
employ any accounting standard or principles except for those
used by Widmann in accordance with GAAP.
(d) SETTLEMENT OF PURCHASE PRICE. To the extent that the Final
Stock Purchase Price, as finally determined pursuant to
Section 3.3(c), is greater or less than the Estimated Stock
Purchase Price (such excess or deficiency being hereinafter
referred to as the "Adjustment"), not later than the third
(3rd) business day following the date upon which the Final
Stock Purchase Price is finally determined, Buyer shall pay to
Valley Fair (if the Final Stock Purchase Price is greater than
the Estimated Stock Purchase Price) or Valley Fair shall pay
to Buyer (if the Final Stock Purchase Price is less than the
Estimated Stock Purchase Price), by certified check or by wire
transfer of immediately available federal funds pursuant to
wire transfer instructions received at least two (2) days
prior to the date of payment, the amount of the Adjustment
plus interest thereon at the Stipulated Rate calculated from
the Effective Date to the date of payment of such amounts.
(e) PURCHASE PRICE ADJUSTMENT FOR SPECIFIED LOSSES.
(i) Buyer shall cause to be prepared and delivered to Valley
Fair, at Buyer's expense, two statements, one for each fiscal
year following the Effective Date (the "Specified Losses
Statements"), showing in detail the
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<PAGE> 22
computation of the amount of the Specified Losses actually
realized during each of the twelve fiscal month periods ending
nearest to the first two anniversaries of the Effective Date.
Valley Fair (or its accountants) shall be entitled to inspect
and review the work papers, other materials, reporting
methodologies, and reporting systems used by Buyer to prepare
each Specified Losses Statement. Valley Fair shall also be
entitled to conduct due diligence, which may include physical
inspections and pricing checks at the HBA Departments, Non-VCD
Stores, and the Widmann Warehouse Facility to ensure that each
Specified Losses Statement accurately reflects the Specified
Losses for the period. If Valley Fair does not object to the
amounts reflected on a Specified Losses Statement, the
Specified Losses for that period shall be as set forth in the
Specified Losses Statement. However, if Valley Fair has any
objection to any amounts reflected on a Specified Losses
Statement, Valley Fair shall so notify Buyer in writing within
thirty (30) days after its receipt of the Specified Losses
Statement, specifying its objections in reasonable detail.
Buyer and Valley Fair shall attempt to resolve any disputed
amounts. If they are unable to reach a resolution within
thirty (30) days of written notice of objection to Buyer, then
the disputed items shall be resolved as provided in Section
3.3(e)(ii).
(ii) Valley Fair and Buyer shall submit the remaining disputed
items to mediation in accordance with the Commercial Mediation
Rules of the American Arbitration Association (hereinafter the
"AAA"), using a mutually agreed upon neutral Mediator. The
locale of such mediation shall be in Columbus, Ohio. If Buyer
and Valley Fair cannot mutually agree upon a Mediator, one
will be selected in accordance with the Rules of the AAA. Any
administrative fees that may be levied by the AAA and the
costs of the Mediator shall be borne equally by Buyer and
Valley Fair. Each party shall bear its own costs and attorneys
fees. The parties may, by written agreement, forego mediation.
If they are unable to reach a resolution through mediation,
the items remaining in dispute shall be submitted for
resolution to the accounting firm of Arthur Anderson or
another national certified public accounting firm reasonably
satisfactory to Buyer and Valley Fair (the "Deciding CPA's").
The Deciding CPA's shall be instructed by Valley Fair and
Buyer to determine and report to the parties within twenty
(20) business days after submission of such remaining disputed
items (or as soon thereafter as the Deciding CPA's deem
practicable), and such report shall be final, binding and
conclusive on the parties hereto. The fees and disbursements
of the Deciding CPA's shall be allocated between Valley Fair
and Buyer in the
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<PAGE> 23
same proportion that the aggregate amount of the disputed
amounts, as finally determined by the Deciding CPA's, bears to
the total sum of disputed amounts. The Deciding CPA's shall
have no right, authority or discretion to employ any
accounting standard or principles except for those used by
Widmann in accordance with GAAP.
(iii) Upon the final determination of the Specified Losses, if
any, for each one of the two fiscal years, Valley Fair shall
refund the portion of the Final Stock Purchase Price equal to
(i) one-third of the cumulative total Specified Losses for
both years that are less than or equal to Six Million Dollars
($6,000,000), plus (ii) the amount of the cumulative total
Specified Losses for both years in excess of Six Million
Dollars ($6,000,000). Additionally, the license fee provided
under the Toys/Sports License Agreement shall be reduced from
11% of net sales to 10% of net sales (as defined in the
Toys/Sports License Agreement) until the time that the
cumulative amount of the 1% reductions equal the amount of the
Specified Losses not otherwise refunded to Buyer under the
above provisions of this Section 3.3(e) (which amount will not
exceed Four Million Dollars ($4,000,000)).
SECTION 4 - CLOSING DATE AND EFFECTIVE DATE
-------------------------------------------
The transactions contemplated by this Agreement shall be deemed to
have occurred simultaneously and shall be effective as of the end of August 2,
1997 unless otherwise agreed to by the parties hereto. The Closing will occur at
the offices of Porter, Wright, Morris & Arthur, 41 South High Street, Columbus,
Ohio on or before August 1, 1997 (the "Closing Date"). Concurrently with the
Closing, Buyer will deliver to Seller, and Seller will deliver (or cause to be
delivered) to Buyer, those agreements and certificates required to be delivered
hereunder.
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF VCD
-------------------------------------------------
In order to induce Buyer to purchase the Assets and perform its other
obligations herein, VCD hereby makes the following representations, warranties
and covenants, each of which shall be true and correct on the date hereof and
shall be true and correct on the Effective Date and which shall survive the
Effective Date to the extent specified in Section 14 herein.
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5.1 ORGANIZATION, QUALIFICATION AND AUTHORITY OF VCD.
(a) DUE ORGANIZATION AND QUALIFICATION. VCD is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Ohio and is qualified to transact
business as a foreign corporation in all jurisdictions where
the nature of its business or the ownership, leasing or
operation of VCD's properties or assets requires qualification
and where the failure to so qualify would have a material
adverse effect on the business, results of operations or
financial condition of VCD.
(b) POWER AND AUTHORITY TO CONDUCT BUSINESS. VCD has the full
power and authority to own or lease its properties and to
conduct its business in the manner and in the places where
such property is owned or leased and its business is conducted
by it. VCD possesses all permits and licenses from state,
local, or Federal agencies or subdivisions necessary to
operate its business, all of which are in full force and
effect, the absence of which permits and licenses would have a
material adverse effect on the business, results of operations
or financial condition of VCD.
(c) NO DEFAULTS OR VIOLATIONS. As of the Effective Date, except as
disclosed in SCHEDULE 5.1(c), the execution and delivery of
this Agreement, and the performance of the obligations by VCD
under this Agreement: (i) will not violate, contravene, be in
conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under or
violation of: (A) any provision of law; (B) any order, rule or
regulation of any court, arbitrator or other agency of
government; (C) any provision of the Articles of Incorporation
or Code of Regulations of VCD; or (D) any lease, indenture,
agreement or other instrument to which VCD, or any of the
Assets is or may be bound; (ii) will not result in the
creation or imposition of any Claim of any nature whatsoever
upon the Assets.
(d) POWER AND AUTHORITY TO ENTER INTO AGREEMENTS. VCD has the
right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements
provided for herein by and on behalf of VCD. No consent,
approval or authorization of, or registration, declaration, or
filing with any court, governmental authority (federal, state
or local), collective bargaining unit, lending institution or
other third party is required in connection with the execution
and delivery by VCD of this Agreement or its
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performance of, or compliance with, the terms, provisions,
and conditions hereof.
(e) DUE EXECUTION AND ENFORCEABILITY. The execution, delivery and
performance of this Agreement and the other agreements
provided for herein by and on behalf of VCD have been duly and
validly authorized and approved by the Board of Directors of
VCD. VCD has taken and will take all such other corporate
action as is necessary or required to enter into, execute and
deliver this Agreement and the other agreements provided for
herein and to perform its obligations hereunder and
thereunder. This Agreement and the other agreements provided
for herein constitute the valid and legally binding
obligations of VCD, enforceable against VCD in accordance with
their respective terms and conditions (except to the extent
the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally or by general equitable
principles).
5.2 TITLE TO ASSETS; NO CLAIMS, LIENS, ETC. As of the Effective Date, VCD will
have good and marketable title to all of the Assets to be transferred and sold
to Buyer on the Effective Date, free and clear of all Claims whatsoever.
5.3 INTELLECTUAL PROPERTY. VCD has not received any notification, and has no
knowledge that it has infringed, nor is now infringing, on any trade name,
trademark, service mark or copyright belonging to any other person, firm, or
corporation relating to the Assets. To the knowledge of VCD, it owns or holds
adequate licenses or other rights to use all trademarks, service marks, trade
names, and copyrights necessary for its business as now conducted, and that use
does not, and will not, conflict with, infringe on, or otherwise violate any
rights of others relating to the Assets.
5.4 TRADE SECRETS. To the knowledge of VCD, it is not using, or in any way
making use of, any Trade Secrets of any third party relating to the Assets in
violation of the rights of any such third party.
5.5 CONTRACTS. Except for this Agreement and as set forth on SCHEDULE 5.5, VCD
is not, and on the Closing Date will not be a party to any contracts or
commitments (whether oral or written), including, without limitation, any
franchise agreement, licensing agreement, sales representative agreement,
distributorship agreement, or employment agreement, that relates exclusively to
the sale of the Toys/Sports Department Inventory.
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5.6 TOYS/SPORTS DEPARTMENT INVENTORY.
(a) To be attached hereto as SCHEDULE 1.27 (which Schedule shall
be separately furnished to Buyer at the same time the Asset
Closing Statement is provided to Buyer pursuant to Section
2.4(c)(i), initialed by the parties hereto and deemed
delivered hereunder) are the stock ledgers prepared under
VCD's customary practices that completely and accurately in
all material respects identify the cost to VCD (computed using
the retail method) of all Toys/Sports Department Inventory
owned by VCD on the Effective Date with such costs adjusted to
reflect VCD's normal and customary shrinkage factor of 3% used
for financial accounting purposes in accordance with GAAP.
(b) All of the Toys/Sport Department Inventory is located at the
VCD Warehouse Facilities and/or at the Toys/Sports Departments
and/or in transit between the two and is owned by VCD, and
none of such inventory is on consignment from, or has been
consigned to others.
5.7 PRODUCT WARRANTIES. Except for any manufacturer's warranties or those
implied by law, there are no outstanding product warranty obligations of VCD,
nor any representations, guarantees or indemnifications given or made by VCD in
connection with the sale of Toys/Sports Department Inventory.
5.8 TAX RETURNS. VCD has filed with the Internal Revenue Service and with all
other appropriate foreign, federal, state, provincial and local governmental
agencies, and will continue to file through and after the Effective Date, all
personal property tax returns and tax reports required to be filed by VCD in
respect of its ownership of the Assets prior to the Effective Date and has paid
and will pay or continue to pay when due all amounts due in connection
therewith. No claims for assessment or collection of taxes in respect of the
Assets has been asserted against VCD, and VCD does not know of any proposed tax
assessment against or in respect of the Assets. There are no tax liens on the
Assets.
5.9 PENDING CLAIMS, LITIGATION AND GOVERNMENTAL PROCEEDINGS. Set forth on
SCHEDULE 5.9 is a list and description of each complaint, claim, suit, action,
arbitration or regulatory, administrative, or governmental proceeding or
investigation or any other proceeding or investigation relating to the Assets
filed against or commenced by VCD in the last year. Except as set forth on
SCHEDULE 5.9, no proceeding or investigation is pending or, to the knowledge of
VCD, threatened against VCD which relates to or affects the Assets.
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5.10 JUDGMENTS, ORDERS AND CONSENT DECREES. VCD is not subject to any judgment,
ruling, injunction, order, writ or decree of, or agreement with, any court,
arbitrator or regulatory authority limiting, restricting or adversely affecting
the sale by VCD of the Toys/Sports Department Inventory or VCD's ownership of
the Assets.
5.11 VCD EMPLOYEES. [INTENTIONALLY OMITTED]
5.12 LABOR MATTERS.
(a) VCD acknowledges that Buyer is not assuming any of VCD's
obligations or liabilities relating to or arising from any
employment contract, collective bargaining agreement, Plan or
program in favor of VCD's employees, all of which remain the
sole obligation of VCD.
(b) Except as disclosed in SCHEDULE 5.12 to VCD's knowledge, no
unions or other collective bargaining units have been, or are
required to be, certified or recognized by VCD as representing
the VCD Employees, and no union organizing efforts exist with
respect to any of the VCD Employees.
(c) Except as disclosed in SCHEDULE 5.12 there are no
controversies pending or, to the best of VCD's knowledge,
threatened between VCD and any of the VCD Employees; and there
has not been within the last year, nor was there, or is there
threatened or contemplated, any strike, slowdown, picketing or
work stoppage by any employees against VCD, wherever located,
any lockout by VCD of any of its employees or other
occurrence, event or condition of a similar character
affecting or which affected VCD. To the knowledge of VCD, it
has complied in all material respects with all laws relating
to the employment of labor, including, but not limited to, any
provisions thereof relating to equal employment opportunities,
civil rights, working conditions, wages, hours, COBRA, WARN,
and the payment of social security and similar taxes, and VCD
is not liable for any arrearage of wages or any taxes or
penalties for failure to comply with any of the foregoing.
5.13 EMPLOYEE BENEFIT PLANS. VCD and/or any Related Entity will comply with Code
Section 4980B and ERISA Sections 601-609 with respect to matters arising out of
the transactions contemplated by this Agreement.
5.14 ENVIRONMENTAL MATTERS. As relates solely to the operation of the VCD
Warehouse Facilities, to the knowledge of VCD, it is in compliance in all
material respects with all
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federal, state, and local laws, regulations, and ordinances relating to the
environment or to the discharge of matter into the air, water, or earth,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the Resource
Conservation and Recovery Act of 1976, as amended. There are no actions, suits,
or proceedings pending or, to the knowledge of VCD, threatened against VCD in
connection with the VCD Warehouse Facilities by or before any federal, state, or
local court or government authority or agency concerning any non-compliance or
alleged non-compliance with any such laws, regulations, and ordinances in
respect of said facility.
5.15 OSHA MATTERS. As relates solely to the operation of the VCD Warehouse
Facilities, to the knowledge of VCD, it is in compliance in all material
respects with all requirements of the Occupational Safety and Health Act
("OSHA") the regulations promulgated thereunder and the Ohio state, local, and
regional laws relating to employee health, welfare and safety. VCD has not
received any citation from the OSHA, any inspector therefor, or any state, local
or regional agency setting forth any reason for which the VCD Warehouse
Facilities is not in compliance with OSHA, the regulations thereunder, or any
comparable state, local, or regional law.
5.16 CUSTOMER DEPOSITS. Except for customer layaway deposits in the ordinary
course of business, VCD has not received, and will not receive prior to the
Closing Date, any deposits, payments on account or similar payment with respect
to the Toys/Sports Department Inventory, and no such deposits, payments on
account or similar payments are due or owing to VCD.
5.17 COMPLIANCE WITH LAWS. To the knowledge of VCD, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated thereunder relating to the Assets; and, to
the knowledge of VCD, there are no pending or threatened claims or notices of
violation by VCD of any such laws, statutes, ordinances, rules and regulations
or claims which are likely of assertion relating to the Assets.
5.18 CONDUCT OF BUSINESS IN ORDINARY COURSE. Except as set forth on SCHEDULE
5.18, since May 3, 1997, the Toys/Sports Departments have been operated in the
usual and ordinary course consistent with past practice and there has not been
any change since May 3, 1997 in the properties, assets, business or condition of
the Toys/Sports Departments, financial or otherwise, that have resulted in or
which might reasonably be expected to result in a material adverse change in the
business, results of operations, or financial condition of the Toys/Sports
Departments taken as a whole.
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5.19 BROKER'S OR FINDER'S FEES. No person or firm other than VCD (and its
directors, officers, employees and independent accountants and attorneys) have
arranged, or participated in arranging, on behalf of VCD, the transactions
provided for herein. There are no broker's or finder's fees to be paid by VCD
and except as described in this Section, VCD has no knowledge of any claim (or
the reasonable basis therefor) for a broker's or finder's fee to be paid by
Buyer in connection with the consummation of the transactions provided for
herein.
5.20 FULL DISCLOSURE. No representation or warranty by VCD and Schedule or
Exhibit furnished by VCD to Buyer pursuant to this Agreement omits to state a
material fact necessary to make the representations and warranties of VCD under
this Agreement not misleading.
5.21 DUTY OF VCD TO MAKE INQUIRY. To the extent that any of the representations
and warranties made by VCD in this Agreement are qualified by the knowledge or
belief of VCD, VCD represents and warrants that it has made reasonable inquiry
and investigation concerning the matters to which such representations and
warranties relate, including, without limitation, diligent inquiry of any
relevant management personnel of VCD.
SECTION 6 - REPRESENTATIONS AND WARRANTIES OF
---------------------------------------------
VALLEY FAIR AND WIDMANN
-----------------------
In order to induce Buyer to purchase the Widmann Stock and perform its
other obligations herein, Valley Fair and Widmann, jointly and severally, hereby
make the following representations, warranties and covenants, each of which
shall be true and correct on the date hereof and shall be true and correct on
the Effective Date and which shall survive the Effective Date to the extent
specified in Section 14 herein:
6.1 ORGANIZATION, QUALIFICATION AND AUTHORITY OF VALLEY FAIR AND WIDMANN.
(a) DUE ORGANIZATION AND QUALIFICATION OF VALLEY FAIR. Valley Fair
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is
qualified to transact business as a foreign corporation in all
jurisdictions where the nature of its business or the
ownership, leasing or operation of its properties or assets
requires qualification and where the failure to so qualify
would have a material adverse effect on the business, results
of operations or financial condition of Valley Fair.
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(b) DUE ORGANIZATION AND QUALIFICATION OF WIDMANN. Widmann is a
corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania
and is qualified to transact business as a foreign corporation
in Ohio and in all jurisdictions where the nature of its
business or the ownership, leasing or operation of its
properties or assets requires qualification and where the
failure to so qualify would have a material adverse effect on
the business, results of operations or financial condition of
Widmann.
(c) POWER AND AUTHORITY TO CONDUCT BUSINESS. Each of Valley Fair
and Widmann has the full power and authority to own or lease
its properties and to conduct its business in the manner and
the places where such property is owned or leased and the
business is conducted by it. Valley Fair and Widmann possess
all material permits and licenses from state, local or Federal
agencies or subdivisions necessary to operate their respective
businesses, all of which are in full force and effect, the
absence of which permits and licenses would have a material
adverse effect on the business, results of operations or
financial condition of Widmann.
(d) NO DEFAULTS OR VIOLATIONS. As of the Effective Date, except as
disclosed in SCHEDULE 6.1(d), the execution and delivery of
this Agreement, and the performance of the obligations by
Valley Fair under this Agreement: (i) will not violate,
contravene, be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a
default or violation under: (A) any provision of law; (B) any
order, rule or regulation of any court, arbitrator or other
agency of government; (C) any provision of the Articles of
Incorporation or By-laws of Valley Fair; or (D) any lease,
indenture, agreement or other instrument to which Valley Fair
or Widmann, respectively, or any of the assets of either of
them is or may be bound; and (ii) will not result in the
creation or imposition of any Claim of any nature whatsoever
upon the Widmann Stock.
(e) POWER AND AUTHORITY TO ENTER INTO AGREEMENTS. Each of Valley
Fair and Widmann has the right, power and authority to enter
into and perform their respective obligations under this
Agreement and the other agreements provided for herein. No
consent, approval or authorization of, or registration,
declaration, or filing with any court, governmental authority
(federal, state or local), collective bargaining unit, lending
institution or other third party is required in connection
with the execution and delivery by Valley Fair or
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Widmann of this Agreement or their respective performance of,
or compliance with, the terms, provisions, and conditions
hereof, except as disclosed in SCHEDULE 6.1(e)
(f) DUE EXECUTION AND ENFORCEABILITY. The execution, delivery and
performance of this Agreement and the other agreements
provided for herein by and on behalf of Valley Fair and
Widmann have been duly and validly authorized and approved by
the Shareholders and Board of Directors of Valley Fair. Valley
Fair has taken and will take all such other corporate action
as is necessary or required to enter into, execute and deliver
this Agreement and the other agreements provided for herein
and to perform its obligations hereunder and thereunder. This
Agreement and the other agreements provided for herein
constitute the valid and legally binding obligations of Valley
Fair, enforceable against Valley Fair in accordance with their
respective terms and conditions (except to the extent the same
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights
generally or by general equitable principles).
6.2 CAPITAL STRUCTURE. The authorized capital stock of Widmann consists solely
of 51 shares of common stock, par value $2,121.50 per share. As of the date
hereof, 51 shares of Widmann Stock are issued and outstanding and no shares are
held in treasury. All of the outstanding shares of Widmann Stock are owned by
Valley Fair and are validly issued, fully paid and nonassessable. Except for
this Agreement, there are no outstanding options, warrants or rights to acquire
or other commitments or agreements with respect to, or any outstanding
securities or obligations convertible into, any shares of Widmann Stock or other
securities of Widmann, or any interest therein, nor are there any obligations to
pay any dividend or to make any distribution in respect thereof. No shares of
Widmann Stock are reserved for issuance. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of the Widmann
stock. There are no restrictions on the transferability of the Widmann Stock.
6.3 TITLE TO SHARES AND WIDMANN ASSETS. Valley Fair has good and marketable
title to the Widmann Stock, free and clear of any Claims. At the Closing, Valley
Fair will transfer assign, and deliver good and marketable title to the Widmann
Stock to Buyer, free and clear of any and all Claims whatsoever. Additionally,
at the Closing, Widmann will have good marketable title to all of its assets,
free and clear of all Claims whatsoever other than the Claims shown on the
Audited Stock Closing Statement.
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6.4 WIDMANN FINANCIAL STATEMENTS. The Widmann Financial Statements fairly
present the financial position of Widmann as of January 28, 1996 and February 2,
1997, and the results of Widmann's operations for the twelve (12) month periods
then ended, all in accordance with GAAP other than the absence of footnote
disclosures. Since February 2, 1997, other than the closing of one Non-VCD Store
and the transactions contemplated herein, there have been no asset dispositions
or obligations incurred by Widmann other than in the ordinary course.
6.5 INTELLECTUAL PROPERTY.
(a) Set forth on SCHEDULE 6.5 is a list of all Intellectual
Property both domestic and foreign, owned by Widmann and used
in its business at the date hereof (the "Widmann Intellectual
Property"), and indicating any registration numbers and dates
of registration. Except as set forth on SCHEDULE 6.5 hereto,
Widmann owns all right, title and interest in and to the
Widmann Intellectual Property.
(b) Widmann has not received any notification, and has no
knowledge that it has infringed, nor is now infringing, on any
trade name, trademark, service mark or copyright belonging to
any other person, firm, or corporation. To the knowledge of
Valley Fair and Widmann, Widmann owns or holds adequate
licenses or other rights to use all trademarks, service marks,
trade names, and copyrights necessary for its business as now
conducted, and that use does not, and will not, conflict with,
infringe on, or otherwise violate any rights of others.
6.6 TRADE SECRETS. To the knowledge of Valley Fair and Widmann, Widmann does not
use any Trade Secrets in its business operations. To the knowledge of Valley
Fair and Widmann, Widmann is not using, or in any way making use of, any Trade
Secrets of any third party in violation of the rights of any of such third
parties. There are no suits pending or to Widmann's knowledge, threatened with
respect to any Trade Secrets involving Widmann.
6.7 LICENSES. Set forth on SCHEDULE 6.7 attached hereto is a list and
description of all licenses of computer programs, software, technology or
similar rights granted to Widmann and used in connection with its business.
6.8 CONDUCT OF BUSINESS IN ORDINARY COURSE. Except as set forth on SCHEDULE 6.8,
since February 2, 1997, Widmann has been operated in the usual and ordinary
course
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consistent with past practice and there has not been any change since February
2, 1997 in the properties, assets, business or condition of Widmann, financial
or otherwise, which has resulted in or which might reasonably be expected to
result in a material adverse change in the business, results of operations, or
financial condition of Widmann taken as a whole, other than ongoing and
continuing significant operating losses. Except as set forth on SCHEDULE 6.8,
since February 2, 1997, there has not been (a) any increase in compensation
payable or to become payable by Widmann to its employees (except in the ordinary
course of business and consistent with past practices) or the adoption of any
bonus, pension or other employee benefit plan or arrangement, (b) any
cancellation or waiver of any claims or rights with a value to Widmann in excess
of $100,000, individually or in the aggregate or (c) any agreements, oral or
written, by Widmann to take any action described in this sentence.
6.9 ENVIRONMENTAL MATTERS. To the knowledge of Valley Fair and Widmann, Widmann
is in compliance in all material respects with all federal, state, and local
laws, regulations, and ordinances relating to the environment or to the
discharge of matter into the air, water, or earth, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the Resource Conservation and Recovery Act of 1976, as
amended. There are no actions, suits, or proceedings pending or, to the
knowledge of Valley Fair or Widmann, threatened against Widmann by or before any
federal, state, or local court or governmental authority or agency concerning
any non-compliance or alleged non-compliance with any such laws, regulations,
and ordinances in respect of Widmann's facilities.
6.10 TAXES.
(a) Except as disclosed on SCHEDULE 6.10(a), Valley Fair, Widmann
and any corporation that is a member of an affiliated group
with Valley Fair or Widmann for federal income tax purposes
under Code Section 1504 or similar provisions of state, local
or foreign law ("Other Group Members") have duly filed with
the appropriate federal, state, local, and foreign taxing
authorities all Tax Returns required to be filed by Valley
Fair, Widmann and the Other Group Members on or before the
date hereof, and such tax returns are true, correct and
complete in all material respects and, as of the time of
filing, correctly in all material respects reflected the facts
regarding the income, business, activities, status and other
relevant matters of Valley Fair, Widmann and the Other Group
Members, or any other information required to be shown
thereon. All monies that Valley Fair, Widmann and the Other
Group Members are required by law to withhold from employees
have been withheld and either
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timely paid to the proper governmental authority or set aside
in accounts for such purposes and accrued on the books of
Valley Fair, Widmann or the Other Group Members, as the case
may be. Valley Fair, Widmann and the Other Group Members have
paid in full on a timely basis all Taxes due on such Tax
Returns or such Taxes that are otherwise due. Except as
disclosed on SCHEDULE 6.10(a), the balance for Taxes on Valley
Fair's, Widmann's and the Other Group Members' most recent
balance sheets, for the payment of all accrued but unpaid
Taxes through the date thereof has been determined in
accordance with GAAP.
(b) Except as set forth in SCHEDULE 6.10(b), neither Valley Fair ,
Widmann nor the Other Group Members have received any notice
of a deficiency or assessment with respect to Taxes of Valley
Fair, Widmann and the Other Group Members from any federal,
state, local, or foreign taxing authority that have not been
fully paid or finally settled, and any such deficiency or
assessment shown on SCHEDULE 6.10(b) is being contested in
good faith through appropriate proceedings described in
SCHEDULE 6.10(b). There are no ongoing audits or examinations
of any Tax Return that includes Widmann, Valley Fair or the
Other Group Members and no notice of audit or examination of
any such Tax Return has been received by Valley Fair, Widmann
or the Other Group Members; and no issue has been raised
(either in writing or verbally, formally or informally) on
audit or in any other proceeding (and is currently pending)
with respect to Taxes of Valley Fair, Widmann or the Other
Group Members by any federal, state, local, or foreign taxing
authority which, if resolved against Widmann, Valley Fair or
the Other Group Members would have a material adverse effect
on the business, results of operations or financial condition
of Widmann.
(c) After the date hereof, no election with respect to taxes will
be made by Widmann without the prior written consent of Buyer
provided Valley Fair may make a Code Section 338(h)(10)
election and Buyer shall consent to same.
(d) Widmann is not a party to or bound by (nor will Widmann become
a party to or be bound by) any tax-indemnity, tax-sharing, or
tax allocation agreement other than pursuant to rules provided
in Treasury Regulations.
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6.11 HBA INVENTORY.
(a) To be attached hereto as SCHEDULE 6.11(a) (which Schedule shall
be separately furnished to Buyer at the same time the Audited
Stock Closing Statement is provided to Buyer pursuant to
Section 3.3(c)(i), initialed by the parties heret and deemed
delivered hereunder) are the stock ledgers prepared under
Widmann's customary practices that in all material respects
identify the cost to Widmann of all HBA Inventory items owned
by Widmann (computed using the retail method for store
inventory and the average cost method for warehouse inventory)
on the Effective Date.
(b) Except as described in SCHEDULE 6.11(a), all of the HBA
Inventory is located at the Widmann Warehouse Facility, the HBA
Departments, the Non- VCD Stores, or in transit between any of
the foregoing and is owned by Widmann, and none of such
inventory is on consignment from, or has been consigned to
others.
6.12 PRODUCT WARRANTIES. Except for manufacturer's warranties or warranties
implied by law, there are no outstanding product warranty obligations of
Widmann, nor any representations, guarantees or indemnifications given or made
by Widmann in connection with the sale of HBA Inventory.
6.13 REAL PROPERTY. Set forth on SCHEDULE 6.13 attached hereto is a list and
brief description of each lease, easement, royalty and other agreement under
which Widmann will be lessee of, or will hold or operate, any real property as
of the Effective Date.
To the knowledge of Widmann, each lease or such similar agreement listed
on SCHEDULE 6.13 is in full force and effect and constitutes a legal, valid and
binding obligation of Widmann, enforceable in accordance with its terms (subject
to bankruptcy, insolvency, fraudulent transfer and other laws of general
applicability affecting creditors' rights generally and to general principles of
equity (whether applied in a proceeding in equity or at law); there has been no
pledge or assignment of Widmann's rights thereunder; all rents due thereunder
have been paid; and Widmann has taken no action, or failed to take any action,
which action or failure would constitute an event of default (or with notice or
lapse of time, or both, would constitute an event of default) thereunder, except
in each case as listed on SCHEDULE 6.13.
6.14 TANGIBLE PERSONAL PROPERTY. To be attached hereto as SCHEDULE 6.14 (which
Schedule shall be separately furnished to Buyer on the Closing Date, initialed
by the parties
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hereto and deemed delivered hereunder) is a list, brief description, cost and
net book value by category of all machinery, equipment and all other tangible
personal property (other than HBA Inventory and items of tangible personal
property not having an individual net book value of more than $5,000) owned or
leased by Widmann on the Effective Date. All such property is owned or leased by
Widmann free and clear of all Claims except as set forth in the Widmann
Financial Statements or in SCHEDULE 6.14. To the knowledge of Widmann, except as
set forth in the Widmann Financial Statements or in SCHEDULE 6.14, all leases
pursuant to which it leases personal property are in full force and effect and
constitute legal, valid and binding obligations of Widmann, enforceable against
Widmann, in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding in equity or at law).
6.15 OTHER PROPERTY. Widmann owns outright all other properties and assets
(other than leased assets) shown on Widmann's balance sheet as of February 2,
1997, as being owned outright, and all such other properties acquired since that
date, except, in either case, as subsequently sold or otherwise disposed of in
the ordinary course of business, and to the knowledge of Widmann, all such other
properties and assets are free and clear of all Claims whatsoever except those
described in the Widmann financial Statements or in SCHEDULE 6.15 hereto.
6.16 BANKING FACILITIES. Attached hereto as SCHEDULE 6.16 is a true and complete
list and brief description of all bank accounts, lock box arrangements and
safety deposit boxes in which Widmann has any interest, with the names of
authorized signatories or persons having access thereto.
6.17 LOAN AGREEMENTS, ETC. Attached hereto as SCHEDULE 6.17 is a true and
complete list of all instruments, agreements or arrangements pursuant to which
Widmann has borrowed money, incurred any indebtedness or established any line of
credit or guaranteed the payment by any party of any indebtedness which
represents a liability of Widmann's on the date hereof. Widmann has performed
all the obligations required to be performed by it, to date, and, is not in
default in any material respect under any mortgage, indenture, note or other
obligation for, or related to, borrowed money to which Widmann is a party, or to
which any business property or asset of Widmann is subject, and there has not
occurred any event, which, but for the passage of time or giving of notice or
both, would constitute such a default.
6.18 OTHER CONTRACTS. Attached hereto as SCHEDULE 6.18 is a true, complete and
correct list and brief description of all material contracts, agreements, or
other commitments,
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whether oral or written, to which Widmann is a party as of the date hereof. For
purposes of this Section 6.18, any routine purchase order or sales order entered
into in the ordinary and regular course of business which do not involve an
amount greater than One Hundred Thousand Dollars ($100,000) shall be deemed not
to be a material contract, agreement or other commitment. Except as described on
SCHEDULE 6.18, Widmann is not a party to any material oral or written (a)
contract for the employment of any officer or employee which is not terminable
without premium or penalty on no more than thirty (30) days' notice; (b) license
agreement or distributor, dealer, manufacturer's representative, sales agency or
advertising contract which is not terminable without premium or penalty on no
more than thirty (30) days' notice; (c) contract for the future purchase of
materials, supplies, services, utilities, merchandise or equipment continuing
from the date hereof for a period of more than six (6) months or involving
either truck leases or payments of more than One Hundred Thousand Dollars
($100,000) over its remaining term (including periods covered by any option to
renew); (d) trade discount, trade promotion, selling or distribution contract;
(e) bonus, deferred compensation, stock option, severance pay or other such
employee agreements other than as shown on SCHEDULE 6.18; (f) agreement or
arrangement for the sale of, or the grant of any preferential rights to, or
requiring the consent of any party to the transfer and assignment of any of the
assets or properties of Widmann, except in the ordinary and regular course of
business; (g) agreement to indemnify any officer, employee, director or creditor
of Widmann or to hold any of them harmless from any type of liability except as
otherwise provided in the articles of organization of bylaws of Widmann; or (h)
any other significant written or oral contract, or agreement, or instruction of
any kind or character. To the knowledge of Widmann, each of Widmann's material
contracts are valid and binding obligations of Widmann, are in full force and
effect and are enforceable against Widmann, in accordance with their terms,
subject to the bankruptcy, insolvency, fraudulent transfer, or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
Except as set forth on SCHEDULE 6.18, there is no pending or, to the knowledge
of Widmann, threatened cancellation or termination of any material contract.
Widmann has not repudiated or waived any provision of any such material contract
which repudiation or waiver would result in a materially adverse effect on the
business, results of operations or financial condition of Widmann taken as a
whole and no third party is in default under any such material contract that
would result in a materially adverse effect on the business, results of
operations or financial conditions of Widmann taken as a whole.
6.19 DEFAULTS AND THIRD PARTY CONSENTS. Except as otherwise noted in SCHEDULE
6.19, Widmann has not been advised that it is in default on any agreement,
lease, contract, commitment, instrument or obligation to which it is a party.
Except for any consents required for the transactions contemplated by this
Agreement, to the knowledge of Valley
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Fair and Widmann, there is no condition constituting a default of any material
contract to which it is a party and there exists no event which, after notice or
lapse of time, or both, would constitute a default by it under any such
contract, or would permit termination, modification, or acceleration against
Widmann under any such contract. Furthermore, to the knowledge of Widmann, no
state of facts exists in connection with any material contract, whether or not a
default, which is reasonably likely to materially adversely affect the business,
results of operations or financial condition of Widmann, taken as a whole.
6.20 EMPLOYEE BENEFIT PLANS. Except as disclosed on SCHEDULE 6.20, neither
Widmann nor any Related Entity sponsors, maintains, has any obligation to
contribute to, has liability under or is otherwise a party to any Plan or has
acted in such capacity or had such liability in the past. With respect to each
Plan listed on SCHEDULE 6.20 to the extent applicable:
(a) (i) To the best knowledge of Widmann, each such Plan has been
administered, maintained and operated in full compliance with
its terms and with applicable provisions of ERISA, the Code, all
requirements, regulations, rulings and other authority issued
thereunder, and all other applicable governmental laws and
regulations, including, without limitation, bonding
requirements, and requirements for the filing of applicable
reports, documents, and notices with the Secretary of Labor and
the Secretary of the Treasury, and for the furnishing of
documents to the participants or beneficiaries of each such
Plan; (ii) no notice has been received of the violation of the
terms of any Plan or of any applicable laws, requirements,
regulations, rulings or other authority and (iii) to the best
knowledge of Widmann, there is no reason to believe any action
or notice with respect to a violation is forthcoming;
(b) Neither Widmann nor any Related Entity sponsors, maintains, has
any obligation to contribute to, has liability under or is
otherwise a party to any Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA, Code Section 412, or Title IV of
ERISA;
(c) Each such Plan intended to qualify under Code Section 401(a) is
qualified under Code Section 401(a) and is the subject of a
favorable unrevoked determination letter issued by the IRS as to
its qualified status under the Code, and each trust established
in conjunction with each such Plan is exempt from federal income
tax under Code Section 501 (a) and is the subject of a favorable
unrevoked determination letter issued by the IRS as to its
exempt status under the Code, which determination letter may
still be relied upon as to such tax qualified and exempt status,
and no circumstances have occurred that would
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adversely affect the tax qualified status of any such Plan or
the exempt status of any such trust or which would result in, or
be likely to result in, the revocation of such determination;
(d) There is no suit, action, dispute, claim, arbitration or legal,
administrative or other proceeding or governmental investigation
pending or to the best knowledge of Widmann, threatened,
alleging any breach of the terms of any such Plan or of any
fiduciary duties thereunder or violation of any applicable law
with respect to any such Plan, nor any arbitration, proceeding
or investigation;
(e) To the best knowledge of Widmann, Widmann, each Related Entity,
each "party in interest" (as defined in ERISA Section 3(14)),
and each "disqualified person" (as defined in Code Section 4975)
or any agent of any such party with respect to any such Plan has
not engaged in a "prohibited transaction" within the meaning of
Code Section 4975 or a violation of ERISA Sections 404, 405, 406
or 407, and no actions have been taken, or have failed to have
been taken, which could subject Widmann, the Plans, any Related
Entity, any Plan fiduciary or administrator, or Buyer, or any
agent of any such party to any excise tax, penalty, claim or
liability thereunder for any prohibited transaction, for any
breach of any fiduciary duty or for any other action or failure
to act with respect to a Plan;
(f) Except as disclosed on SCHEDULE 6.20(f), (i) none of such Plans
that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for
any participant or beneficiary of a participant after such
participant's retirement or termination of employment, except to
the extent required by law; (ii) there has been no violation of
Code Section 4980B or ERISA Sections 601-608 with respect to any
such Plan; (iii) no such Plans are "multiple employer welfare
arrangements" within the meaning of ERISA Section 3 (40); (iv)
with respect to any such Plans that are self-insured, no claims
have been made pursuant to any such Plan that have not yet been
paid other than in the normal course of business and to the best
knowledge of Widmann, no injury, sickness or other medical
condition has been incurred with respect to which claims may be
made pursuant to any such Plan (such disclosure to include the
amount thereof); (v) Widmann and each Related Entity do not
maintain and do not have any obligation to contribute to any
"voluntary employees' beneficiary association" within the
meaning of Code Section 501(c)(9) or other funding arrangement
for the provision of
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welfare benefits (such disclosure to include the amount of any
such funding); and (vi) each Plan which is an employee welfare
benefit plan as defined in ERISA Section 3(1) is adequately
funded through insurance or otherwise, using reasonable
actuarial assumptions, to provide the benefits contemplated
thereunder;
(g) Widmann, each Related Entity and each trade or business (whether
or not incorporated) under common control with Widmann or a
Related Entity within the meaning of ERISA Section 4001 (b)(1)
has not, and at any time has not had, any liability or any
funding deficiency with respect to or obligation to contribute
to any "multi-employer plan" as defined in ERISA Section 3(37)
or ERISA Section 4001 (a)(3), Widmann, each Related Entity and
each trade or business (whether or not incorporated) under
common control with Widmann or a Related Entity within the
meaning of ERISA Section 4001(b)(1) has not at any time
withdrawn in any complete or partial withdrawal from any "multi-
employer plan" as defined in ERISA Section 3(37) or ERISA
Section 4001(a)(3) and no event has occurred and there exists no
condition or set of circumstances which presents a risk of the
occurrence of the withdrawal from or the partition, termination,
reorganization, or insolvency of any multi- employer plan which
would result in any liability to Buyer with respect to a
multi-employer plan;
(h) With respect to each such Plan, true, correct, and complete
copies of the applicable following documents have been delivered
to Buyer: (i) all current Plan documents and related trust
documents, and any amendment thereto; (ii) Forms 5500, financial
statements, annual reports, and actuarial reports for the last
three Plan Years; (iii) the most recently issued IRS
determination letter; and (iv) summary plan description and
summary of material modifications;
(i) Except as listed in SCHEDULE 6.20(i) the consummation of the
transactions contemplated by this Agreement will not: (i)
entitle any current or former employee or officer of Widmann or
of any Related Entity to severance pay or to any other payment,
(ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer, or
(iii) directly or indirectly cause Widmann, any Related Entity
or Buyer to transfer or set aside any assets to fund or
otherwise provide for benefits for any current or former
employee or officer; and none of the Plans provides benefits or
payments contingent upon, triggered by or increased as a result
of a change
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in the ownership or effective control of Widmann, or in the
ownership of a substantial portion of its assets (within the
meaning of Code Section 280G);
(j) To the best knowledge of Widmann, all benefit payments due from
any Plan or trust established thereunder have been paid through
normal administrative proceedings to the Plan participants or
beneficiaries entitled thereto in accordance with the terms of
said Plan and applicable law, requirements, regulations,
rulings, and other authority applicable thereto;
(k) (i) Neither the Plans, Widmann, nor any Related Entity has any
liability to the Department of Labor or to the Internal Revenue
Service under the provisions of ERISA, the Code, or other
applicable laws, requirements, regulations, rulings or other
authority, and (ii) to the best knowledge of Widmann, there are
no facts or circumstances which could give rise to any liability
of or claims against the Plans, Widmann, any Related Entity or
Buyer to or by the Department of Labor or the Internal Revenue
Service.
(l) All contributions to or benefit payments under the Plans for any
required period have been or will be timely paid by Widmann, the
termination of or withdrawal from any Plan (as a result of the
transactions contemplated by this Agreement and as a result of
the terms and conditions of any such Plan) immediately after the
Effective Date will not subject Buyer to any liability, tax or
penalty whatsoever, and the execution or performance of the
transactions contemplated by this Agreement will not create,
accelerate or increase any obligations under any Plan; and
(m) To the best knowledge of Widmann, no representation or
communication, oral or written, with respect to participation,
eligibility for benefits, vesting, benefit accrual or coverage
under any Plan has been made to the employees of Widmann or any
Related Entity which are not in accordance with the terms of the
Plan and applicable laws, requirements, regulations, rulings and
other authority applicable thereto.
6.21 INSURANCE. SCHEDULE 6.21 sets forth all of the insurance policies, binders,
or bonds maintained by or on behalf of Widmann (the "Insurance Policies"). To
the knowledge of Widmann, all of the Insurance Policies are in full force and
effect prior to the Effective Date, neither Valley Fair nor Widmann is in
default thereunder and all claims thereunder have been filed in a due and timely
fashion.
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6.22 PENDING CLAIMS, LITIGATION AND GOVERNMENTAL PROCEEDINGS. Set forth on
SCHEDULE 6.22 is a list and description of each complaint, claim, suit, action,
arbitration or regulatory, administrative, or governmental proceeding or
investigation or any other proceeding or investigation filed against or
commenced by Widmann in the last year. Except as set forth on SCHEDULE 6.22, no
proceeding or investigation is pending or, to the knowledge of Widmann,
threatened against Widmann.
6.23 JUDGMENTS, ORDERS AND CONSENT DECREES. Widmann is not subject to any
judgment, ruling, injunction, order, writ or decree of, or agreement with, any
court, arbitrator or regulatory authority materially limiting, restricting or
adversely affecting the business operations of Widmann.
6.24 EMPLOYMENT/LABOR MATTERS. To Widmann's knowledge, attached hereto as
SCHEDULE 6.24 is a complete current list of the names and addresses of all sales
representatives, employees, agents, independent consultants (excluding attorneys
and accountants), and contractors currently providing services to Widmann
stating the rates of compensation payable to each of them and their titles or
job classifications.
(a) Except as set forth on SCHEDULE 6.24(a), To Widmann's knowledge,
Widmann is in compliance in all material respects with all
applicable laws regarding employment matters, including, without
limitation, laws related to the termination of employment.
(b) Except as disclosed in SCHEDULE 6.24(b), no unions or other
collective bargaining units have been, or are required to be,
certified or recognized by Widmann as representing Widmann's
employees, and no union organizing efforts exist with respect to
any employees of Widmann.
(c) Except as disclosed in SCHEDULE 6.24(c), there are no material
controversies pending or, to Valley Fair's knowledge, threatened
between Widmann and any of its employees. To Widmann's
knowledge, there has not been within the last year, nor was
there, or is there threatened or contemplated, any strike,
slowdown, picketing or work stoppage by any employees against
Widmann, wherever located, any lockout by Widmann of any of its
employees or any labor trouble or other occurrence, event or
condition of a similar character affecting or which affect
Widmann. To the knowledge of Widmann, it has complied in all
material respects with all laws relating to the employment of
labor, including, but not limited to, any provisions thereof
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relating to equal employment opportunities, civil rights,
working conditions, wages, hours, COBRA, WARN, and the payment
of social security and similar taxes, and Widmann is not liable
for any arrearage of wages or any taxes or penalties for failure
to comply with any of the foregoing.
6.25 CUSTOMER DEPOSITS. Except for customer layaway deposits, Widmann has not
received, and will not receive prior to the Closing Date, any deposits, payments
on account or similar payment with respect to any of its HBA Inventory,
contracts or orders, and no such deposits, payments on account or similar
payments are due or owing to Widmann.
6.26 PURCHASE ORDERS. Identified on SCHEDULE 6.26 are all unfulfilled purchase
commitments of Widmann as of the Effective Date (which Schedule shall be
furnished to Buyer at the same time as the Audited Stock Closing Statement).
6.27 COMPLIANCE WITH LAWS. To the knowledge of Widmann, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated thereunder; and, there are no pending or
threatened claims or notices of violation by Widmann of any such laws, statutes,
ordinances, rules and regulations or claims which are likely of assertion.
6.28 BROKER'S OR FINDER'S FEES. No person or firm other than Valley Fair,
Widmann and/or VCD (and their respective directors, officers, employees and
independent accountants and attorneys) have arranged, or participated in
arranging, on behalf of Valley Fair, the transactions provided for herein. There
are no broker's or finder's fees to be paid by Valley Fair, Widmann and/or VCD,
and except as described in this Section, Valley Fair, Widmann and/or VCD have no
knowledge of any claim (or the reasonable basis therefor) for a broker's or
finder's fee to be paid by Buyer in connection with the consummation of the
transactions provided for herein.
6.29 FULL DISCLOSURE. No representation or warranty by Valley Fair or Widmann
pursuant to this Agreement omits to state a material fact necessary to make the
representations and warranties of Valley Fair or Widmann under this Agreement
not misleading.
6.30 DUTY OF VALLEY FAIR TO MAKE INQUIRY. To the extent that any of the
representations and warranties made by Valley Fair in this Agreement is
qualified by the knowledge or belief of Valley Fair, Valley Fair represents and
warrants that it has made reasonable inquiry and investigation concerning the
matters to which such representations and warranties relate,
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including, without limitation, diligent inquiry of any relevant personnel of
Valley Fair or Widmann.
SECTION 7 - REPRESENTATIONS AND WARRANTIES OF MAZEL
In order to induce VCD to sell the Assets and perform its other
obligations hereunder and in order to induce Valley Fair to sell the Widmann
Stock and perform its other obligations hereunder, Mazel hereby makes the
following representations and warranties to Sellers, each of which shall be true
and correct as of the date hereof and shall be true and correct on the Effective
Date and which shall survive the Effective Date to the extent specified in
Section 14.
7.1 ORGANIZATION, QUALIFICATION AND AUTHORITY OF MAZEL
(a) DUE ORGANIZATION AND QUALIFICATION. Mazel is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Ohio and is qualified to transact business as a
foreign corporation in all jurisdictions where the nature of its
business or the ownership, leasing or operation of Mazel's
properties or assets requires qualification.
(b) POWER AND AUTHORITY TO CONDUCT BUSINESS. Mazel has the full
power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such
property is owned or leased and its business is conducted by it.
Mazel possesses all permits and licenses from state, local, or
Federal agencies or subdivisions necessary to operate its
business, all of which are in full force and effect.
(c) NO DEFAULTS OR VIOLATIONS. As of the Effective Date, the
execution and delivery of this Agreement, and the performance of
the obligations by Mazel under this Agreement: (i) will not
violate, contravene, be in conflict with, result in a breach of
or constitute (with or without notice or lapse of time or both)
a default under (A) any provision of law; (B) any order, rule or
regulation of any court, arbitrator or other agency of
government; (C) any provision of the Articles of Incorporation
or Code of Regulations of Mazel, or (D) any lease, indenture,
agreement or other instrument to which Mazel, or any of its
assets is or may be bound; (ii) will not result in the creation
or imposition of any Claim of any nature whatsoever upon the
assets of Mazel or Buyer.
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(d) POWER AND AUTHORITY TO ENTER INTO AGREEMENTS. Mazel has the
right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements
provided for herein by and on behalf of Mazel. No consent,
approval or authorization of, or registration, declaration, or
filing with any court, governmental authority (federal, state or
local), collective bargaining unit, lending institution or other
third party is required in connection with the execution and
delivery by Mazel of this Agreement or its performance of, or
compliance with, the terms, provisions, and conditions hereof.
(e) DUE EXECUTION AND ENFORCEABILITY. The execution, delivery and
performance of this Agreement and the other agreements provided
for herein by and on behalf of Mazel have been duly and validly
authorized and approved by the Board of Directors of Mazel.
Mazel has taken and will take all such other corporate action as
is necessary or required to enter into, execute and deliver this
Agreement and the other agreements provided for herein and to
perform its obligations hereunder and thereunder. This Agreement
and the other agreements provided for herein constitute the
valid and legally binding obligations of Mazel, enforceable
against Mazel in accordance with their respective terms and
conditions (except to the extent the same may be limited by
bankruptcy; insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by general
equitable principles).
7.2 JUDGMENTS, ORDERS AND CONSENT DECREES. Mazel is not subject to any judgment,
ruling, injunction, order writ or decree of , or Agreement with, any court,
arbitrator or regulatory authority limiting, restricting or adversely affecting
the performance by Mazel of its obligations under this Agreement and the other
agreements provided for herein.
7.3 BROKER'S OR FINDER'S FEES. No person or firm other than Mazel and its
affiliated companies (and their respective partners, directors, officers,
employees and independent accountants and attorneys) have arranged or
participated in arranging, on behalf of Mazel or Buyer, the transactions
provided for herein. There are no broker's or finder's fees to be paid by Mazel
or Buyer, and Mazel has no knowledge of any claim (or the reasonable basis
therefor) for a broker's or finder's fee to be paid by Buyer, VCD or Valley Fair
in connection with the consummation of the transactions provided for herein.
7.4 COMPLIANCE WITH LAWS. To the knowledge of Mazel, it has at all times
conducted its business in compliance and in conformity in all material respects
with all applicable federal, state and local laws, statutes and ordinances and
the rules and regulations promulgated
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thereunder; and, to the knowledge of Mazel, there are no pending or threatened
claims or notices of violation by Mazel of any such laws, statutes, ordinances,
rules and regulations or claims which are likely of assertion.
7.5 FULL DISCLOSURE. No representation or warranty by Mazel pursuant to this
Agreement omits to state a material fact necessary to make the representations
and warranties of Mazel under this Agreement not misleading.
7.6 DUTY OF MAZEL TO MAKE INQUIRY. To the extent that any of the representations
and warranties made by Mazel in this Agreement is qualified by the knowledge or
belief of Mazel, Mazel represents and warrants that it has made reasonable
inquiry and investigation concerning the matters to which such representations
and warranties relate, including, without limitation, diligent inquiry of any
relevant personnel of Mazel.
SECTION 8 - COVENANTS OF VCD, WIDMANN AND/OR VALLEY FAIR
8.1 CONDUCT AND PRESERVATION OF BUSINESS. From and after the date of this
Agreement and until the Effective Date, VCD, Valley Fair, and Widmann each
hereby covenant and agree as follows:
(a) FULL ACCESS. Buyer and its authorized representatives shall have
full access during normal business hours, but without
unreasonably interrupting business, to the premises and to all
books of account, financial records, contracts, pricing
practices and other business information of VCD, Valley Fair
and/or Widmann and to each of their respective personnel, and
each of VCD, Valley Fair and Widmann shall furnish or cause to
be furnished to Buyer and its authorized representatives all
information with respect to the business and affairs of VCD,
Valley Fair and Widmann as Buyer and its authorized
representatives may reasonably request in each case to the
extent that it relates to the Toy/Sports Departments or Widmann.
(b) COMPLIANCE WITH LAWS. VCD, Valley Fair and Widmann shall comply
in all material respects with all applicable statutes, laws,
ordinances, rules and regulations as may be required in
connection with the maintenance and operation of the Assets or
the operation of the business of Widmann or for the valid and
effective transfer to Buyer of the Assets or the Widmann Stock
and the consummation of the transactions contemplated by this
Agreement.
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8.2 INJUNCTIONS. If any court of competent jurisdiction over VCD, Valley Fair or
Widmann, as the case may be, or the Assets or Widmann Stock, issues or otherwise
promulgates any injunction order or decree that prohibits the sale of, or
otherwise adversely affects the Assets or the Widmann Stock, VCD, Valley Fair or
Widmann, as the case may be, shall use their best efforts to have such
injunction dissolved or otherwise eliminated as promptly as possible or,
alternatively, may terminate this Agreement, without liability to the other
parties..
8.3 CONDUCT PRIOR TO EFFECTIVE DATE. During the period from the date of this
Agreement to the Effective Date, and except as otherwise contemplated herein, or
consented to by Buyer, Valley Fair shall cause Widmann to use best efforts to
preserve intact its existing organization, properties, businesses and relations.
Without limiting the generality of the foregoing, except as otherwise
contemplated herein or consented to by Buyer, Valley Fair shall cause Widmann to
conduct its business only in the ordinary course and shall not permit Widmann,
to:
(a) issue, sell or deliver any shares of its capital stock or issue
or sell any securities convertible into its capital stock or
warrants to purchase or other rights to subscribe for or acquire
any shares of its capital stock;
(b) declare or pay any dividend or distribution in cash or other
property, effect any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization, other
than the distribution prior to the Closing Date to Valley Fair
as a dividend of Widmann's entire right and interest in the
Excluded Widmann Assets;
(c) amend its Articles of Incorporation or Bylaws (or similar
governing documents);
(d) merge or consolidate with, acquire the capital stock of, or
acquire substantially all of the assets of any other entity;
(e) sell, transfer, lease, or encumber a material amount of assets,
other than the sale of inventory in the ordinary course;
(f) grant to any officer, employee, or consultant any material
increase in compensation or benefits, except in the ordinary
course of business, consistent with past practice;
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(g) grant any severance or termination pay to, or enter into or
materially amend any employment or severance agreement with, any
person;
(h) adopt any new or amend any existing Plan;
(i) incur any amount of debt above the amounts currently available
to Widmann and Valley Fair under existing lending arrangements
(in this regard, the parties acknowledge that Widmann will
borrow on its bank line to pay intercompany liabilities to
Valley Fair on or prior to the Effective Date);
(j) make any change in the accounting principles or methods from
those currently employed, except as required by GAAP;
(k) grant any mortgage or security interest in, or make any pledge
of, or permit any Claim to be placed on, any of its assets or
properties;
(l) make any capital expenditures in excess of $25,000 per project
or $100,000 in the aggregate.
(m) accelerate, terminate or cancel any material contract;
(n) terminate, cancel or fail to renew any insurance coverage
maintained by or for the benefit of Widmann which is not
replaced by insurance coverage that is at least as broad in
scope, with limits as high as the limits on the insurance being
replaced, maintained with or provided by reputable insurers, and
deductibles or retentions no higher than those being replaced,
or amend any insurance coverage maintained by or for the benefit
of Widmann unless such amendment enhances, broadens, or
increases the limits of such insurance coverage;
(o) establish any new facilities;
(p) settle or compromise any claims in excess of $50,000 but not in
the aggregate amount of more than $100,000; or
(q) agree to any of the foregoing.
8.4 RESIGNATIONS. Valley Fair shall cause to be delivered to Buyer at the
Closing duly signed resignations, effective immediately upon the Effective Date
of all directors and officers of Widmann not being retained by Buyer.
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8.5 FURTHER ASSURANCES. On and after the Closing, the parties will take all
appropriate action and execute all documents, instruments or conveyances of any
kind which may reasonably be necessary or advisable to carry out any of the
provisions of this Agreement.
8.6 WIDMANN TAX COVENANTS.
(a) VALLEY FAIR CONSOLIDATED GROUP. Valley Fair and Buyer agree that
Widmann will be included in the consolidated Federal income tax return filed by
Valley Fair (or Other Group Member) for the period from February 2, 1997,
through the Effective Date and Valley Fair shall be responsible for making all
required payments associated with such return.
(b) TAX LIABILITY PRORATION.
(i) Valley Fair shall indemnify and hold Buyer harmless against
any and all Taxes of the affiliated group of which Valley Fair and Widmann are
members for federal income tax purposes or similar provision of state, local or
foreign law or of Widmann for any taxable year or period ending on or before the
Effective Date, and Valley Fair shall be entitled to all refunds of such Taxes.
Taxes attributable to intercompany transactions recognized or taken into account
by reason of this sale of Widmann (including restoration of deferrals) under the
provisions of Code Section 1502 or the regulations thereunder by Valley Fair,
Widmann, or any Other Group Member (as defined in Section 6.10) or any prior
consolidated return of them (and similar Taxes under state and local tax laws),
and Taxes attributable to adjustments under Code Section 481 (or any predecessor
Code or similar provisions of other tax laws) with respect to pre-sale changes
of accounting methods shall be treated as Taxes for a taxable year or period
ending on or before the Effective Date.
(ii) Buyer shall indemnify and hold Valley Fair harmless against any and
all Taxes, interest, and penalties due by Widmann or any affiliated group of
which Widmann becomes a member after the Effective Date for any taxable year or
period beginning on or after the Effective Date and Buyer shall be entitled to
all refunds of such Taxes.
(iii) The Taxes of Widmann for a taxable year or period that begins
before and ends after the Effective Date shall be apportioned between Buyer and
Valley Fair, with Buyer responsible for Taxes attributable to the post-sale
portion of such period and Valley Fair responsible for taxes attributable to the
pre-sale portion of such period. The determination of the Taxes attributable to
each portion shall be made by assuming that Widmann had two taxable periods,
with the pre-sale portion representing the first such period and the post-sale
portion representing the second such period. Exemptions, allowances or
deductions that are
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calculated on an annual basis, such as the deduction for depreciation, shall be
apportioned on a daily basis. If necessary, the actual tax for such taxable year
or period shall be apportioned between the two portions of such year or period
in proportion to the ratio of taxes that would result for such portions if such
portions were separate taxable periods.
(c) PREPARATION OF TAX RETURNS.
(i) Buyer shall file or cause to be filed when due all returns
in respect of Taxes of Widmann for taxable years or periods ending after the
Effective Date and shall pay or cause to be paid the taxes shown to be due on
any such return. Upon notification and satisfactory documentation from the
Buyer, Valley Fair shall pay to Buyer the Taxes to be paid with such return that
Valley Fair is liable for pursuant to Section 8.6(b) of this Agreement.
(ii) Valley Fair agrees that it shall be responsible for the
preparation of all returns in respect of Taxes for Widmann for taxable years or
periods ending on or before the Effective Date. To the extent that any such
return requires a tax payment, Valley Fair shall deliver such return to Buyer
who will pay or cause to be paid the amount due with the return and file the
return with the proper tax authority. Buyer's responsibility for the payment of
such Taxes shall be limited to amounts as to which Valley Fair has set up an
adequate reserve on the Audited Stock Closing Statement of Widmann. Buyer also
agrees that it will be responsible for payment of all other Taxes as to which
Valley Fair has set up an adequate reserve on the Audited Stock Closing
Statement of Widmann. To the extent any Taxes payable hereunder by Buyer exceed
such reserve, Valley Fair shall reimburse Buyer such excess amount prior to the
due date of such Taxes.
(d) ASSISTANCE AND COOPERATION. After the Closing Date, Buyer and Valley
Fair agree to:
(i) assist the other party and cooperate in preparing any Tax
Returns or other tax filings in connection with or resulting from
the transactions contemplated by this Agreement or with respect to
Widmann.
(ii) assist and cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding any tax returns or other
tax filings in connection with or resulting from the transactions
contemplated by this Agreement or with respect to Widmann.
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(iii) make available to the other and to any taxing authority as
reasonably requested all relevant information, records and documents
relating to Taxes with respect to Widmann; and
(iv) retain and maintain accounting and tax records used in
preparing any Tax Returns or other tax filings contemplated by this
Agreement until such time as Valley Fair and Buyer reasonably agree
that such retention and maintenance is no longer necessary.
(e) DISPUTES.
(i) Buyer shall notify Valley Fair in writing promptly after
learning of any governmental inquiry, examination or proceeding (a
"tax proceeding") that could result in a determination with respect
to Taxes due or payable by Buyer for which Valley Fair is liable or
against which Valley Fair may be required to reimburse or indemnify
Buyer pursuant to the terms of this Agreement. Valley Fair shall
exercise at its cost and expense control over the handling,
disposition and settlement of any such tax proceeding for any tax
period ending on or prior to the Effective Date; PROVIDED that Buyer
may participate at its cost and expense, in the handling,
disposition and settlement thereof; and PROVIDED, FURTHER, that
Valley Fair shall not enter into any compromise or agreement with
respect to any such tax proceeding without the prior written consent
of Buyer, which consent shall not be unreasonably withheld or
delayed. Buyer shall exercise at its cost and expense control over
the handling, disposition and settlement of any such tax proceedings
for any tax period ending after the Effective Date, provided, that
Valley Fair may participate at its sole cost and expense in the
handling, disposition and settlement thereof and PROVIDED, FURTHER,
the Buyer shall not enter into any compromise or agreement with
respect to any such tax proceeding if such compromise or agreement
would give rise to an indemnification obligation for Valley Fair
hereunder without the prior written consent of Valley Fair, which
consent shall not be unreasonably withheld or delayed. Each of Buyer
and Valley Fair shall cooperate with the other party and the
affiliates of such other party during the course of any such tax
proceeding.
(ii) If Buyer and Valley Fair are unable to agree on any issue
arising in connection with any Tax Return that either Buyer or
Valley Fair is entitled to review hereunder, then Buyer and Valley
Fair shall each submit their position with respect to the Tax Return
to the accounting firm of Arthur Anderson or
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another national certified public accounting firm reasonably
satisfactory to Buyer and Valley Fair (the "Deciding CPA's"). The
Deciding CPA's shall be instructed by Valley Fair and Buyer to
determine and report to the parties within twenty (20) business days
after submission of such remaining disputed items (or as soon
thereafter as the Deciding CPA's deem practicable), and such report
shall be final, binding and conclusive on the parties hereto. The
fees and disbursements of the Deciding CPA's shall be allocated
between Valley Fair and Buyer in the same proportion that the
aggregate amount of the disputed amounts, as finally determined by
the Deciding CPA's, bears to the total sum of disputed amounts. The
Deciding CPA's shall have no right, authority or discretion to
employ any accounting standard or principles except for those used
by Widmann in accordance with GAAP.
SECTION 9 - CONDITIONS PRECEDENT TO BUYER'S
OBLIGATION TO CLOSE
Each and every obligation of Buyer to be performed on the Effective Date
shall be subject to the satisfaction on or prior thereto of each of the
following conditions any one or more of which conditions may be waived by Buyer
in writing in its sole and absolute discretion:
9.1 REPRESENTATIONS AND WARRANTIES TRUE ON EFFECTIVE DATE. The representations
and warranties made by VCD, Valley Fair and Widmann in this Agreement and in the
Schedules and Exhibits hereto shall be true and correct in all material respects
on and as of the Effective Date as though such representations and warranties
had been made again and reaffirmed on and as of the Effective Date.
9.2 COMPLIANCE WITH AGREEMENT. Each of VCD, Valley Fair and Widmann shall have
performed and complied in all material respects with all of their respective
obligations under this Agreement which are to be performed or complied with by
them on or prior to the Effective Date.
9.3 SECRETARY'S CERTIFICATE. Each of VCD and Valley Fair shall have delivered to
Buyer the certificate of their respective Secretary or Assistant Secretary
certifying as of the Effective Date to the authorization and approval of this
Agreement and the transactions provided for herein by duly adopted resolutions
of each of their Boards of Directors and the shareholders of Valley Fair.
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9.4 COMPLIANCE CERTIFICATE. Each of VCD and Valley Fair shall have delivered to
Buyer the certificate of the President and/or Chief Executive Officer of each of
them certifying, as of the Effective Date, the fulfillment of the conditions set
forth in Sections 9.1, 9.2, 9.3, 9.15, and 9.16 hereof.
9.5 NO LITIGATION. No investigation, suit, action or other proceeding shall be
pending or threatened before or by any court of governmental agency which in the
reasonable opinion of Buyer, may adversely affect this Agreement or the
consummation of the transactions provided for herein.
9.6 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings, corporate or
otherwise, to be taken by each of VCD, Valley Fair and Widmann, respectively, in
connection with the transactions provided for herein, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Buyer; and
each of VCD, Valley Fair and Widmann shall have made available to Buyer for
examination the originals or true and correct copies of all documents which
Buyer may reasonably request in connection with said transactions.
9.7 CONSENTS AND APPROVALS. All of the parties hereto shall have obtained all
necessary and material authorizations, consents and approvals required for the
valid consummation of the transactions provided for in this Agreement, and each
of them shall be in full force and effect.
9.8 DAMAGE OR DESTRUCTION. There shall not have been any damage to or
destruction of a material portion of the Assets; the HBA Inventory, the Widmann
Warehouse Facility or any other material properties of Widmann (whether or not
covered by insurance).
9.9 NO MATERIAL ADVERSE CHANGE. Since the date of execution of this Agreement,
there shall not be any event or condition that materially and adversely affects
the Assets, or the operations of the Toys/Sports Department.
9.10 WAREHOUSE ARRANGEMENTS. Buyer and the respective landlords shall have
entered into the VCD Warehouse Facilities Leases and the Widmann Warehouse
Facility Lease.
9.11 INJUNCTIONS. There shall not be in effect any injunctions, decrees or
orders prohibiting the sale of, or otherwise adversely affecting, the Assets or
the operations of Widmann.
9.12 LICENSE AGREEMENTS. Buyer and VCD shall have entered into the Toy/Sports
License Agreement and Buyer and VCD or Valley Fair (as the case may be) shall
have entered into the HBA License Agreements.
46
<PAGE> 54
9.13 INSURANCE ARRANGEMENTS. Buyer shall have obtained adequate product
liability insurance coverage for the Toys/Sports Department Inventory and the
HBA Inventory as is customary for retailers of such goods.
9.14 VALLEY FAIR STORE LEASE. Buyer shall have entered into the Valley Fair
Store Lease.
9.15 DISSOLUTION OF WIDMANN. Except as otherwise agreed upon, Valley Fair and
Buyer have prepared, executed and filed all necessary documents to cause Widmann
to merge into Buyer or dissolve immediately upon Buyer's acquisition of Widmann
hereunder.
9.16 GOOD STANDING CERTIFICATES. Buyer shall have received good standing
certificates from the respective states of incorporation of each of VCD, Valley
Fair and Widmann, copies of articles of incorporation (or similar charter
documents) certified by their respective states of incorporation; and by-laws
(or similar governing documents) of each entity certified by the secretary or
assistant secretary of each entity.
9.17 CORPORATE AUTHORITY. Buyer shall have received certified copies of
resolutions adopted by the Board of Directors of VCD and Valley Fair,
respectively, and Shareholders of Valley Fair approving the execution, delivery
and performance of this Agreement.
SECTION 10 - CONDITIONS PRECEDENT TO VCD'S AND VALLEY FAIR'S
OBLIGATION TO CLOSE
Each and every obligation of VCD and Valley Fair to be performed on the
Effective Date shall be subject to the satisfaction on or prior thereto of each
of the following conditions any one or more of which conditions may be waived in
writing by VCD or Valley Fair, in their sole and absolute discretion:
10.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE EFFECTIVE DATE. The
representations and warranties of Mazel contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Date as
though such representations and warranties had been made again and reaffirmed on
and as of the Effective Date.
10.2 COMPLIANCE WITH AGREEMENT. Buyer and Mazel shall have each performed and
complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with by it on or prior to the
Effective Date.
10.3 NO LITIGATION. No investigation, suit, action or other proceeding shall be
pending or threatened before or by any court or governmental agency which in the
reasonable opinion
47
<PAGE> 55
of VCD or Valley Fair may adversely affect this Agreement or the consummation of
the transactions provided for herein.
10.4 LICENSE AGREEMENTS. Buyer and VCD shall have entered into the Toys/Sports
License Agreement and Buyer and VCD or Valley Fair (as the case may be) shall
have entered into the HBA License Agreement.
10.5 WAREHOUSE ARRANGEMENTS. Buyer shall have entered into the VCD Warehouse
Facilities Leases and the Widmann Warehouse Facility Lease.
10.6 INSURANCE ARRANGEMENTS. Buyer shall have obtained adequate product
liability insurance coverage for the Toys/Sports Department Inventory and the
HBA Inventory as is customary for retailers of such goods.
10.7 VALLEY FAIR STORE LEASE. Buyer shall have entered into the Valley Fair
Store Lease.
10.8 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings to be taken by
Buyer and Mazel in connection with the transactions provided for herein, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to VCD and Valley Fair; and Buyer and Mazel shall make available to
VCD and Valley Fair for examination the originals or true and correct copies of
all documents that VCD and Valley Fair reasonably request in connection with
said transactions.
10.9 CONSENTS AND APPROVALS. All of the parties hereto shall have obtained all
necessary and material authorizations, consents and approvals required for the
valid consummation of the transactions provided for in this Agreement, and each
of them shall be in full force and effect.
SECTION 11 - FURTHER AGREEMENTS OF THE PARTIES
11.1 EMPLOYEES.
(a) VCD agrees to notify Buyer prior to terminating, laying off or
otherwise taking any action directly affecting the employment status
of the VCD Employees. Buyer may, but shall not be obligated pursuant
to this Agreement or for any other reason, to offer full or part-time
employment to any present or future employees of VCD on such terms and
conditions as Buyer, in its sole discretion, may determine. Buyer may
communicate with the VCD Employees prior to the Closing upon
reasonable prior notice to VCD. VCD shall not directly or indirectly
induce, suggest or recommend to the VCD Employees that they reject
offers of employment or other association with
48
<PAGE> 56
Buyer. VCD shall cooperate with Buyer in all reasonable respects in
connection with any offers of employment or other association that
Buyer may make to the VCD Employees and to transition any such
employees from VCD's employment to possible association with Buyer.
(b) VCD hereby agrees that it will not, without the prior written consent
of Buyer, notify, promise, represent, advise, state or otherwise
communicate to any employee of VCD that Buyer will be hiring any or
all such employees or make any offer of employment or other
association on behalf of Buyer.
(c) Widmann agrees to notify Buyer prior to terminating, laying off or
otherwise taking any action directly affecting the employment status
of Widmann employees. Buyer may, but shall not be obligated pursuant
to this Agreement or for any other reason, to offer full or part-time
employment to any present employee of Widmann on such terms and
conditions as Buyer, in its sole discretion, may determine. Buyer may
communicate with the Widmann employees, or their representatives,
prior to the Closing upon reasonable prior notice to Widmann. Widmann
shall not directly or indirectly induce, suggest or recommend to the
Widmann employees that they reject offers of employment or other
association with Buyer. Widmann shall cooperate with Buyer in all
reasonable respects in connection with any offers of employment or
other association that Buyer may make to the Widmann employees and to
transition any such employees from Widmann's employment to possible
association with Buyer.
(d) Widmann hereby agrees that it will not, without the prior written
consent of Buyer, notify, promise, represent, advise, state or
otherwise communicate to any employee of Widmann that Buyer will be
hiring any or all such employees or make any offer of employment or
other association on behalf of Buyer.
(e) After the Effective Date, Buyer will be responsible for complying with
all applicable laws regarding employment matters relating to employees
of Widmann and the VCD Employees retained by Buyer, including, without
limitation, laws relating to the termination of employment, e.g.,
WARN.
11.2 NONDISCLOSURE. Each of the parties shall not disclose, directly or
indirectly, the terms of this Agreement to any person, firm or entity other than
their respective attorneys, accountants, lenders, and representatives who are
required to be informed thereof in connection with their representation of the
parties in connection with the transactions
49
<PAGE> 57
contemplated hereby. No press release or governmental notification, report or
other filing by any of the parties shall be made without the prior written
approval of the content thereof by all parties. The parties will issue a joint
press release upon the consummation of the transactions contemplated by this
Agreement.
SECTION 12 - RISK OF LOSS
12.1 RISK OF LOSS. Risk of Loss with respect to the Assets and the assets of
Widmann being transferred on the Effective Date shall pass to Buyer effective as
of the end of August 2, 1997 (i.e., the Effective Date).
SECTION 13 - TERMINATION AND ABANDONMENT
13.1 TERMINATION. This Agreement may be terminated forthwith upon the receipt of
notice of termination as provided for in Section 13.2 hereof, and the purchase
and sale and the other transactions provided for by this Agreement may be
abandoned, without liability on the party of either party to the other:
(a) By mutual written consent of the parties hereto;
(b) By Buyer, if any of the conditions of Section 9 of this Agreement have
not been satisfied on the Closing Date and have not been waived by
Buyer in writing;
(c) By VCD, Valley Fair or Widmann, if any of the conditions of Section 10
of this Agreement have not been satisfied on the Closing Date and have
not been waived by Sellers in writing;
(d) By any party hereto, if any of them files on or before the Closing
Date a petition in bankruptcy, reorganization, liquidation or
receivership or a petition in bankruptcy, reorganization, liquidation
or receivership is filed on or before the Closing Date against such
other party.
13.2 NOTICE OF TERMINATION. In the event of termination and abandonment by any
party as provided in Section 13.1 hereof, prompt written notice thereof shall
forthwith be given to the other party.
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<PAGE> 58
SECTION 14 - INDEMNIFICATION AND REIMBURSEMENT
14.1 INDEMNIFICATION BY VCD AND VALLEY FAIR.
(a) In order to induce Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of VCD and
Valley Fair covenants and agrees severally and not jointly, to
indemnify Buyer and its members, officers, employees and agents, and
their successors and assigns (collectively, the "Buyer Interests") and
shall hold the Buyer Interests harmless against and with respect to
any and all Damages incurred in connection with or arising out of or
resulting from or incident to:
(i) any misrepresentation, omission, breach of warranty,
representation or covenant, or non-fulfillment of any obligation on
the part of VCD, Valley Fair or Widmann, respectively, under this
Agreement, any certificate, Schedule or Exhibit, or other instrument
furnished to Buyer in connection with this Agreement;
(ii) any debt, liability or obligation of Widmann with respect to any
matter, transaction or event that existed, arose or occurred on or
prior to the Effective Date other than (A) the liabilities expressly
identified on the Audited Closing Stock Statement, which are assumed
only up to the amount as finally determined pursuant to Section
3.3(c), (B) Buyer's Product Liability Obligations, (C) any continuing
contractual obligations disclosed in the Agreement, and the Schedules
and Exhibits attached hereto for goods and services to be provided
after the Effective Date, and (D) the Specified Losses, which shall be
indemnified only to the extent and as provided in Section 3.3(e)
herein;
(iii) the filing (or failure to file) or payment (or non-payment) of
any Taxes by VCD, Valley Fair or the Other Group Members,
respectively, any deficiencies in any taxes payable by or on behalf of
VCD, Valley Fair or the Other Group Members;
(iv) the filing (or failure to file) or payment (or non-payment) of
any Taxes by Widmann as provided in Section 8.6;
(v) any and all suits, actions, liabilities, or claims arising under
or resulting from any Plan of VCD, Widmann or any Related Entity of
VCD and/or of
51
<PAGE> 59
Widmann pertaining to periods on or prior to the Effective Date and
not accrued on the Audited Stock Closing Statement, including, but not
limited to, any suit, action, liability or claim arising out of the
allegation or imposition of successor employer status upon Buyer, any
suit, action, liability or claim for benefits or contributions, or any
suit, action, liability or claim for taxes, including without
limitation, income taxes, excise taxes, penalties or interest with
regard to any Plan; and
(vi) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses
incident to any of the foregoing.
(b) The indemnification of this Section shall survive the Effective Date
for a period of two (2) years except that matters relating to Taxes
shall survive until the expiration of any applicable statute of
limitations pertaining thereto.
14.2 INDEMNIFICATION BY BUYER AND MAZEL.
(a) In order to induce VCD and Valley Fair to enter into this Agreement
and to consummate the transactions contemplated hereby, each of Buyer
and Mazel covenants and agrees severally and not jointly, to indemnify
each of VCD and Valley Fair, their shareholders, directors, officers,
employees, agents, successors and assigns (collectively, the "VCD
Interests") and shall hold the VCD Interests harmless against and with
respect to any and all Damages, incurred in connection with or arising
out of or resulting from or incident to:
(i) any misrepresentation, omission, breach of warranty,
representation or covenant, or non-fulfillment of any obligation on
the part of Buyer or Mazel, respectively, under this Agreement, any
certificate, Schedule or Exhibit, or other instrument furnished to VCD
or Valley Fair in connection with this Agreement;
(ii) Buyer's Product Liability Obligations;
(iii) the failure of Buyer to pay or perform any of the VCD Assumed
Liabilities; and
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<PAGE> 60
(iv) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses
incident to any of the foregoing.
(b) The indemnification in this Section shall survive the Effective Date
for a period of two (2) years, except that matters relating to Taxes
shall survive until the expiration of any applicable statute of
limitations pertaining thereto.
14.3 CLAIMS FOR REIMBURSEMENT. In the event that the Buyer Interests or the VCD
Interests shall have suffered any Damages (as hereinabove defined) with respect
to any liability or claim to which the foregoing indemnities relate, the party
seeking indemnity hereunder (the "Indemnified Party"), shall give the party from
whom indemnity is sought (the "Indemnifying Party"), prompt written notice of
the nature and amount of such Damages and the Indemnified Party's claim for
reimbursement therefor. The Indemnifying Party shall have thirty (30) days from
the date of said notice to investigate and dispute the nature, validity or
amount of any such claim. During said 30-day period, the Indemnifying Party
shall have reasonable access, during normal business hours, to the books and
records of the Indemnified Party for the purpose of such investigation. In the
event that the Indemnifying Party shall dispute the nature, validity or amount
of said claim, the Indemnifying Party shall give the Indemnified Party written
notice of such dispute within said 30-day period, and the parties shall attempt
in good faith to resolve such dispute.
In the absence of a dispute, the Indemnifying Party shall promptly, and in
any event not later than the expiration of said 30-day period, reimburse the
Indemnified Party in full for any such Damages, as set forth in the Indemnified
Party's notice. In the event that the Indemnifying Party shall dispute only the
amount of the claim, the Indemnifying Party shall, concurrently with the
delivery of its notice of dispute, pay to the Indemnified Party the undisputed
portion of the claim.
14.4 DEFENSE OF THIRD-PARTY CLAIMS. If any lawsuit or enforcement action is
filed against an Indemnified Party by a third party and the Indemnified Party is
entitled to indemnification pursuant to this Agreement, written notice thereof
shall be given to the Indemnifying Party as promptly as practicable (and in any
event within thirty (30) days after the service of the citation or summons);
PROVIDED, HOWEVER, that the failure of any Indemnified Party to give timely
notice shall not affect rights to indemnification hereunder except to the extent
that the Indemnifying Party demonstrates actual damages caused by such failure,
if (i) such failure to give timely notice does not materially affect the ability
or right of the Indemnifying Party to participate in the defense of such lawsuit
or enforcement action, (ii) actual notice is given to the Indemnifying Party
within a reasonable time, and (iii) to the extent that such failure
53
<PAGE> 61
to give timely notice causes the Indemnifying Party to incur additional expense
with respect to such lawsuit or enforcement action, the Indemnified Party
promptly reimburses the Indemnifying Party for such additional expense.
After such notice, if the Indemnifying Party shall acknowledge in writing
to such Indemnified Party that such Indemnifying Party may be obligated under
the terms of its indemnity hereunder in connection with such lawsuit or action,
then the Indemnifying Party shall be entitled, if it so elects, to take control
of the defense and investigation of such lawsuit or action, and to employ and
engage attorneys of its own choice to handle and defend the same, at the
Indemnifying Party's cost, risk and expense; and such Indemnified Party shall
cooperate in all reasonable respects, at its cost, risk and expense, with the
Indemnifying Party and such attorneys in the investigation, trial and defense of
such lawsuit or action any appeal arising therefrom. No such lawsuit or action
shall be settled without the prior written consent of the Indemnified Party. If
a firm written offer is made to settle any such lawsuit or action and the
Indemnifying Party proposes to accept such settlement and the Indemnified Party
refuses to consent to such settlement, then: (i) the Indemnifying Party shall be
excused from, and the Indemnified Party shall be solely responsible for, all
further defense of such third party claim, demand, action or proceeding; (ii)
the maximum liability of the Indemnifying Party relating to such lawsuit or
action shall be the amount of the proposed settlement if the amount thereafter
recovered from the Indemnified Party on such lawsuit or action is greater than
the amount of the proposed settlement; and (iii) the Indemnified Party shall pay
all attorney's fees and legal costs and expenses incurred after rejection of
such settlement by the Indemnified Party, but if the amount thereafter recovered
by such third party from the Indemnified Party is less than the amount of the
proposed settlement, the Indemnified Party shall be reimbursed by the
Indemnifying Party for such attorneys' fees and legal costs and expenses up to a
maximum amount equal to the difference between the amount recovered by such
third party and the amount of the proposed settlement.
14.5 PROVISIONS REGARDING INDEMNITIES.
(a) INSURANCE RECOVERIES. The amounts of Damages for which an Indemnifying
Party shall be liable under this Agreement shall be net of any
insurance proceeds and tax benefits actually received by the
Indemnified Party in connection with the facts giving rise to the
right of indemnification.
(b) EXCLUSIVITY. The rights of indemnity provided by this Section 14 of
this Agreement shall be exclusive of all other rights of indemnity or
contribution, whether created by Law or otherwise, either before or
after the Closing, relating in any way to the subject matter of this
Agreement.
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<PAGE> 62
(c) TERMINATION OF RIGHTS. The termination of the rights of an Indemnified
Party to receive indemnity under this Agreement shall not affect that
party's right to prosecute to conclusion any claim made by that party
in writing in accordance with Section 14.3 of this Agreement prior to
the time that the relevant right of indemnity terminates.
(d) LIMITATIONS ON LIABILITY. Except in the case of the Specified Losses,
which shall not be indemnified by Sellers and which the provisions of
Section 3.3(e) shall control, the liability of an Indemnifying Party
under this Agreement shall be recoverable only if and to the extent
the cumulative damages suffered by the party for all indemnifiable
breaches under this Section 14 exceed Five Hundred Thousand Dollars
($500,000). An Indemnified Party shall not be entitled to more than
one recovery for any single loss, Damage, cost, expense, liability,
obligation or claim even though such may have resulted from the breach
or inaccuracy of more than one of the representations, warranties or
provisions of this Agreement.
(e) WAIVER OF CONSEQUENTIAL AND PUNITIVE DAMAGES. Each party hereby waives
and agrees to forfeit any right it may have to seek consequential or
punitive damages under or related to this Agreement.
SECTION 15 - MISCELLANEOUS PROVISIONS
15.1 COSTS AND EXPENSES.
Each party covenants and agrees that its respective costs and expenses in
connection with, or arising out of, the negotiation and execution of this
Agreement and consummation of the transactions provided for herein, including,
but not limited to, any and all sales or transfer taxes applicable to the
transfer of Assets provided for herein shall be paid by the Buyer as an expense
of the acquisition of the Assets and Widmann Stock.
15.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only in writing executed by each of the parties hereto.
15.3 NO ASSIGNMENT. No party hereto shall assign, in whole or in part, this
Agreement or its respective rights and obligations hereunder without the prior
written consent of the other party hereto, not to be unreasonably withheld or
delayed, and, absent such consent, any assignment (including, without
limitation, any assignment by merger, death, dissolution or operation of law)
shall be null and void.
55
<PAGE> 63
15.4 NOTICES. All notices, requests, demands or other communications hereunder
must be in writing executed by an authorized representative of the party
responsible therefor, and must be given either by hand or telex, telecopy,
telefax or other telecommunications device capable of creating a written record
(confirmed by registered or certified mail or by overnight courier) as follows
or to such other person or place as any party shall furnish to the others in
writing:
To VCD: Value City Department Stores, Inc.
3241 Westerville Road
Columbus, Ohio 43224
Attn.: Robert M. Wysinski,
Senior Vice President
Telecopier No.: 614-337-4681
With a copy to: Irwin A. Bain, Esq.
c/o Schottenstein Stores Corporation
1800 Moler Road
Columbus, Ohio 43207
Telecopier No.: 614-443-0972
To Valley Fair or Thomas R. Ketteler, Vice President
Widmann: c/o Schottenstein Store Corporation
1800 Moler Road
Columbus, Ohio 43207
Telecopier No.: 614-443-0972
To Buyer: VCM, Ltd.
c/o Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attn.: Reuven D. Dessler, Chairman
Telecopier No.: (216) 349-1543
With a copy to: Kahn, Kleinman, Yanowitz & Arnson, Co., L.P.A.
1301 East 9th Street, Suite 2600
Tower at Erieview
Cleveland, Ohio 44114
Attn.: Marc H. Morgenstern
Telecopier No.: (216) 696-1009
56
<PAGE> 64
To Mazel: c/o Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attn.: Reuven D. Dessler, Chairman
Telecopier No.: (216) 349-1543
15.5 COUNTERPARTS. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
15.6 HEADINGS. Section and paragraph headings in this Agreement are provided for
convenience of reference only and shall not be deemed to constitute a part
hereof.
15.7 RECITALS, EXHIBITS AND SCHEDULES. The recitals contained at the beginning
of this Agreement and all Schedules and Exhibits attached hereto shall be deemed
an integral part of this Agreement and shall be incorporated herein by
reference.
15.8 SCHEDULES AND EXHIBITS. Any Schedules and Exhibits which are to be attached
hereto at Closing or thereafter, updated as of the Closing Date or thereafter,
or delivered separately upon execution hereof or on the Closing Date or
thereafter shall be initialed by the parties hereto and shall be deemed
delivered under this Agreement.
15.9 WAIVER; REMEDIES. No waiver of any breach of any provision of this
Agreement shall be held to be a waiver of any other subsequent breach, and the
failure of a party to enforce at any time any provision hereof shall not be
deemed a waiver of any right of such party to subsequently enforce such
provision or any other provision hereof. All remedies afforded in this Agreement
shall be taken and construed as cumulative, that is, in addition to every other
remedy provided herein or by law.
15.10 GOVERNING LAW. This Agreement shall be construed, interpreted and enforced
in accordance with the laws of the State of Ohio and applicable federal law.
15.11 SEVERABILITY. In the event that any provision or any portion of any
provision of this Agreement shall be held invalid, illegal or unenforceable
under applicable law, the remainder of this Agreement shall remain valid and
enforceable to the maximum extent permitted by law.
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<PAGE> 65
15.12 ENTIRE AGREEMENT. This Agreement, the Schedules and Exhibits hereto and
the ancillary documents executed hereunder set forth the entire agreement and
understanding between the parties hereto with respect to the transactions
provided for herein and supersede and cancel any and all prior discussions,
correspondence, agreements or understandings (whether oral or written) between
the parties hereto with respect to such matters (including, but not limited to,
the Letter of Intent dated as of April 9, 1997.
[THIS SPACE INTENTIONALLY LEFT BLANK]
58
<PAGE> 66
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
caused this Agreement to be executed by their authorized representatives on and
as of the date first above set forth.
VCM, LTD.
By: /s/ J. L. Schottenstein
--------------------------------------------
J. L. Schottenstein, Director
By: /s/ Robert M. Wysinski
--------------------------------------------
Robert M. Wysinski, Director
By: /s/ Reuven D. Dessler
--------------------------------------------
Reuven D. Dessler, Director
By: /s/ Brady Churches
--------------------------------------------
Brady Churches, Director
MAZEL STORES, INC.
By: /s/ Reuven D. Dessler
--------------------------------------------
Reuven D. Dessler, Chairman
By: /s/ Brady Churches
--------------------------------------------
Brady Churches, President
59
<PAGE> 67
L.F. WIDMANN, INC.
By: /s/ Jay L. Schottenstein
--------------------------------------------
Jay L. Schottenstein, Director
VALLEY FAIR
By: /s/ Jay L. Schottenstein
--------------------------------------------
Jay L. Schottenstein, Director
VALUE CITY DEPARTMENT STORES, INC.
and its direct and indirect subsidiaries:
Value City of Michigan, Inc. a Michigan
corporation
VC Retailers, Inc., a Delaware corporation
GB Retailers, Inc., a Delaware corporation
Westerville Road GP, Inc., a Delaware
corporation, as general partner of Value City LP,
an Ohio limited partnership
By: /s/ Jay L. Schottenstein
--------------------------------------------
Jay L. Schottenstein, Director
By: /s/ Robert M. Wysinski
--------------------------------------------
Robert M. Wysinski Sr. Vice President
60
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JUL-26-1997
<CASH> 1,752
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<RECEIVABLES> 18,298
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<INVENTORY> 51,798
<CURRENT-ASSETS> 76,203
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0
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<SALES> 92,181
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