As filed with the Securities and Exchange Commission on July 27, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 10, 1998
dELiA*s Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-21869 13-3914035
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
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435 Hudson Street
New York, New York 10014
(Address of principal executive offices) (Zip Code)
(212) 807-9060
(Registrant's telephone number, including area code)
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Certain statements contained herein are forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")). Forward-looking statements involve a number of
risks and uncertainties including, but not limited to, general economic
conditions, increases in materials, printing, paper, postage, shipping and labor
costs, timing of catalog mailings, customer response rates, levels of
competition, difficulties in integrating acquisitions and other factors outside
the control of the Company. These factors, and other factors that appear with
the forward-looking statements, or in the Company's other Securities and
Exchange Commission filings, including its Annual Report on Form 10-K for the
year ended January 31, 1998, could affect the Company's actual results and could
cause the Company's actual results to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company herein.
Item 2. Acquisition or Disposition of Assets.
On July 10, 1998, dELiA*s Inc. (the "Company"), through two wholly-owned
subsidiaries, acquired assets located in 20 retail stores operated under the
Screeem! and Jean Country names, as well as the leases for such stores, from
American Retail Enterprises, L.P. ("ARE") and certain affiliates of ARE. The
Company, through its subsidiaries, acquired assets located in six additional
Screeem! and Jean Country stores, as well as the lease for those stores, in
subsequent closings held on July 17 and July 24, 1998. The Company, through its
subsidiaries, also acquired the Screeem!, Jean Country and American Rocket
trademarks. The acquisition was completed pursuant to an Asset Purchase
Agreement dated June 1, 1998, as amended (the "Asset Purchase Agreement"). The
purchase price for the acquisition consisted of $10,025,000 in cash and 812,501
shares (the "Stock Consideration") of dELiA*s Inc. common stock ("Common
Stock").
Pursuant to the Asset Purchase Agreement, the Company agreed to register
the Stock Consideration for resale under the Securities Act of 1933. The Company
is required to register 604,167 shares of the Stock Consideration by September
15, 1998, and the remaining 208,334 shares by January 10, 2000.
In addition, pursuant to the Asset Purchase Agreement, in the event that
the mean of the intraday high and low bid prices for the Common Stock for the 20
consecutive trading days immediately preceding January 10, 1998 (the "18-Month
Price") is less than $18.00, the Company has agreed to issue that number of
additional shares of Common Stock that is equal to (i) the excess of (x) the
product of 208,334 shares (subject to adjustment) multiplied by $18.00 over (y)
the product of 208,334 shares multiplied by the greater of the 18-Month Price or
$10.00 divided by (ii) the 18-Month Price.
The acquired stores include 11 stores operating under the Screeem! name
and concept, as well as 15 stores currently operating under the Jean Country
name, the majority of which the Company intends to convert to Screeem! stores
over the next 12 months. The Screeem! stores provide a dynamic Soho-inspired
shopping experience, featuring live DJs, fashion models and promotional
appearances and events. Screeem! offers its customers progressive,
fashion-forward, unisex branded apparel focusing principally on denum and
fashion bottoms, t-shirts and tops, accessories, novelties and shoes. All of the
stores are located in major regional shopping malls in New York, New Jersey,
Connecticut, Pennsylvania, New Jersey and Masschussets.
The 26 stores, which range from approximately 3,000 to 5,500 square feet,
average in excess of $1.5 million in annual revenues each or roughly $400 per
square foot, and are expected to generate in excess of $40 million in 1998
sales. Actual results could differ depending upon factors outside of the
Company's control, including those referred to above.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
In accordance with Instruction 4 of this Item 7, financial statements
required by this item will be filed on a Form 8-K/A as soon as practicable, but
in no event later than 60 days after the date this Form 8-K is required to be
filed.
(b) Pro Forma Financial Information.
In accordance with Instruction 4 of this Item 7, pro forma financial
information required by this item will be filed on a Form 8-K/A as soon as
practicable, but in no event later than 60 days after the date this Form 8-K is
required to be filed.
(c) Exhibits.
Exhibit 2.1 Asset Purchase Agreement dated June 1, 1998 by and
among the Company, Screeem! Inc., American Retail
Enterprises, L.P., Retail Apparel Service Corp.,
Landmark Pants Corp. and the entities listed on Annex I
thereto (the ("Asset Purchase Agreement").*
Exhibit 2.2 Amendment No. 1 to the Asset Purchase Agreement.
Exhibit 2.3 Amendment No. 2 to the Asset Purchase Agreement.
Exhibit 2.4 Letter Agreement dated June 1, 1998, relating to the
Asset Purchase Agreement (the "Letter Agreement").
Exhibit 2.5 Amendment No. 1, dated July 10, 1998, to the Letter
Agreement.
* The table of contents to the Asset Purchase Agreement lists the exhibits and
schedules to the Asset Purchase Agreement. In accordance with Item 601(b)(2) of
Regulation S-K, the exhibits and schedules to the Asset Purchase Agreement have
been excluded; such exhibits and/or schedules will be furnished supplementally
upon request by the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
dELiA*s Inc.
(Registrant)
Date: July 27, 1998
By: /s/ Stephen I. Kahn
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Stephen I. Kahn
Chairman of the Board, President and
Chief Executive Officer
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Exhibit Index
2.1 Asset Purchase Agreement dated June 1, 1998 by and among the Company,
Screeem Inc., American Retail Enterprises, L.P., Retail Apparel Service
Corp., Landmark Pants Corp. and the entities listed on Annex I thereto (the
"Asset Purchase Agreement").
2.2 Amendment No. 1 to the Asset Purchase Agreement, dated July 9, 1998.
2.3 Amendment No. 2 to the Asset Purchase Agreement, dated July 10, 1998.
2.4 Letter Agreement dated June 1, 1998, relating to the Asset Purchase
Agreement (the "Letter Agreement").
2.5 Amendment No. 1, dated July 10, 1998, to the Letter Agreement.
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ASSET PURCHASE AGREEMENT
by and among
American Retail Enterprises, L.P.,
Retail Apparel Service Corp.,
Landmark Pants Corp.,
the entities listed on Annex I hereto,
Screeem! Inc. and dELiA*s Inc.
dated June 1, 1998
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INDEX
Page
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ARTICLE I General Provisions...............................................1
1.1 Definitions.........................................................1
1.2 Other Definitions and Meanings; Interpretation......................8
ARTICLE II Assets To Be Acquired............................................8
2.1 Acquisition and Transfer of Assets..................................8
2.2 Excluded Assets....................................................10
2.3 Assumed Liabilities................................................11
2.4 Employees..........................................................12
2.5 Apportionment......................................................13
2.6 Books and Records..................................................13
2.7 Possible Assumed Contracts.........................................14
ARTICLE III Consideration...................................................14
3.1 Amount and Form....................................................14
3.2 Adjustment of Purchase Price.......................................14
3.3 Collar Provisions..................................................16
3.4 Allocation of Purchase Price.......................................17
ARTICLE IV Closing.........................................................17
4.1 Schedule...........................................................17
4.2 HSR Filing.........................................................17
4.3 Proceedings........................................................18
ARTICLE V Representations and Warranties of the Companies.................18
5.1 Execution and Effect of Agreement..................................18
5.2 Requisite Action...................................................18
5.3 Organization, Good Standing, Authority.............................19
5.4 Restrictions.......................................................19
5.5 Pro Forma Financial Statements.....................................20
5.6 Intentionally Deleted..............................................20
5.7 Absence of Changes.................................................20
5.8 Taxes..............................................................22
5.9 Title to Properties; Absence of Encumbrances.......................22
5.10 Real Estate........................................................23
5.11 Patents, Trademarks, Copyrights and Other Intellectual Property....24
5.12 Contracts, Etc.....................................................25
5.13 Inventory..........................................................26
5.14 Authorizations; Compliance.........................................26
5.15 Company Employees..................................................27
5.16 Employee Benefit Plans.............................................27
5.17 Insurance..........................................................28
5.18 Litigation.........................................................28
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5.19 Environmental Matters..............................................28
5.20 Transactions with Affiliates.......................................29
5.21 Intentionally Deleted..............................................29
5.22 Illegal Payments...................................................29
5.23 No Brokers or Finders..............................................29
5.24 Lessees............................................................29
5.25 Investment Representation..........................................29
5.26 Disclosure.........................................................29
5.27 Equipment..........................................................30
5.28 No Other Representations or Warranties.............................30
ARTICLE VI Representations and Warranties of Purchaser.....................30
6.1 Organization and Good Standing.....................................30
6.2 Execution and Effect of Agreement..................................30
6.3 Restrictions.......................................................31
6.4 No Lawsuits........................................................31
6.5 No Brokers or Finders..............................................31
6.6 Filings with the Commission........................................32
6.7 Shares of Parent Common Stock......................................32
6.8 Offering of Shares of Parent Common Stock..........................32
6.9 Limitation on the Companies' Representations and Warranties........32
6.10 No Other Representations or Warranties.............................33
ARTICLE VII Covenants of the Companies......................................33
7.1 Access to Records and Properties of the Purchased Business;
Confidentiality.................................................33
7.2 Conduct of Business................................................34
7.3 Schedules..........................................................34
7.4 Standstill.........................................................34
7.5 Maintenance of Insurance...........................................35
7.6 Affidavit..........................................................35
7.7 Further Actions....................................................35
7.8 Annual Financial Statements........................................35
7.9 Lease Agreements...................................................36
7.10 Lock-Up............................................................36
7.11 Hiring.............................................................37
7.12 Cooperation Regarding Promotional Allowances, Etc..................37
7.13 Employment.........................................................37
7.14 Other Financial Statements.........................................38
ARTICLE VIII Covenants of Purchaser and Parent..............................38
8.1 Conduct of Business................................................38
8.2 Further Actions....................................................38
8.3 Registration Rights................................................39
8.4 Options............................................................40
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ARTICLE IX Conditions Precedent to Obligations of Purchaser and Parent......40
9.1 Representations and Warranties.....................................40
9.2 Performance of the Companies.......................................41
9.3 Certificate........................................................41
9.4 Board Approval.....................................................41
9.5 Sugarman Agreements................................................41
9.6 Escrow Agreement...................................................41
9.7 Transitional Services Agreement....................................41
9.8 Trademark License Agreement........................................41
9.9 Opinions of Counsel to the Companies...............................41
9.10 Consents...........................................................41
9.11 Litigation.........................................................42
9.12 HSR Act............................................................42
9.13 Tax Affidavit......................................................42
9.14 Absence of Material Adverse Effect.................................42
9.15 Bill of Sale.......................................................42
9.16 Assignment and Assumption..........................................42
9.17 New Jersey Environmental Matters...................................42
9.18 Real Estate Legal Requirements.....................................42
9.19 Other Documents....................................................42
9.20 Employees..........................................................42
9.21 Annual Financial Statements........................................43
ARTICLE X Conditions Precedent to Obligations of the Companies.............43
10.1 Representations and Warranties.....................................43
10.2 Performance by Purchaser and Parent................................43
10.3 Certificate........................................................43
10.4 Consideration......................................................43
10.5 HSR Act............................................................43
10.6 Minimum Stores.....................................................43
10.7 Employment Agreement...............................................43
10.8 Escrow Agreement...................................................43
10.9 Transitional Services Agreement....................................44
10.10 Trademark Agreement................................................44
10.11 Opinion of Counsel.................................................44
10.12 Consents...........................................................44
10.13 No Material Adverse Change.........................................44
10.14 Litigation.........................................................44
10.15 Assignment and Assumption Agreement................................44
10.16 New Jersey Environmental Matters...................................44
10.17 Other Documents....................................................44
ARTICLE XI Closing Deliveries...............................................45
11.1 Deliveries of the Companies........................................45
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11.2 Purchaser's Deliveries.............................................45
ARTICLE XII Restrictive Covenant............................................46
12.1 Restricted Activities..............................................46
12.2 Permitted Activities...............................................46
ARTICLE XIII Indemnification................................................47
13.1 Indemnification by the Companies...................................47
13.2 Indemnification by Parent and Purchaser............................47
13.3 Survival...........................................................48
13.4 Limitations........................................................48
13.5 Defense............................................................49
13.6 Reduction for Insurance............................................50
13.7 Acknowledgment.....................................................50
13.8 Escrow.............................................................51
13.9 Opportunity to Cure................................................51
ARTICLE XIV Termination....................................................51
14.1 Method.............................................................51
14.2 Effect.............................................................52
ARTICLE XV Miscellaneous..................................................52
15.1 No Public Announcements............................................52
15.2 Specific Performance...............................................52
15.3 Notices............................................................53
15.4 Entire Agreement...................................................53
15.5 Assignment; Binding Effect.........................................54
15.6 Severability.......................................................54
15.7 Governing Law......................................................54
15.8 Forum; Jurisdiction................................................54
15.9 Expenses...........................................................54
15.10 No Third-Party Beneficiaries.......................................55
15.11 Stock Legend.......................................................55
15.12 Counterparts.......................................................55
15.13 Parent Guaranty....................................................55
15.14 Companies' Agent...................................................56
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SCHEDULES AND EXHIBITS
Schedule A Purchased Stores
Schedule 2.1(a) Real Estate/Lease Agreements
Schedule 2.1(b) Equipment
Schedule 2.1(f) Intellectual Property
Schedule 2.1(h) Purchased Contracts
Schedule 2.4-A Non-Store Employees
Schedule 2.4-B Possible Future Employees
Schedule 2.4-D In-Store Employees
Schedule 2.7 Possible Assumed Contracts
Schedule 5.3 Jurisdictions/Names
Schedule 5.4 Consents
Schedule 5.5 Pro Forma Financial Statements
Schedule 5.7 Certain Changes
Schedule 5.8-1 Historic Tax Matters
Schedule 5.8-2 Current and Future Tax Matters
Schedule 5.9 Permitted Liens
Schedule 5.10 Assessments
Schedule 5.11 Certain Intellectual Property Matters
Schedule 5.13 Inventory Methodology
Schedule 5.14 Required Permits
Schedule 5.15 Employees of the Purchased Business
Schedule 5.16 Benefit Plans
Schedule 5.17 Insurance
Schedule 5.18 Litigation
Schedule 5.19 Environmental Matters
Schedule 5.20 Transactions with Affiliates
Schedule 5.24 Certain Lessees
Schedule 6.3 Purchaser and Parent Consents
Schedule 7.2 Permitted Interim Conduct
Exhibit 7.8 Form of Opinion of Patrusky, Mintz & Semel
Exhibit 9.5-1 Form of Employment Agreement
Exhibit 9.5-2 Form of Sugarman Lock-Up Agreement
Exhibit 9.6 Form of Escrow Agreement
Exhibit 9.7 Form of Transitional Services Agreement
Exhibit 9.8-1 Form of Trademark Agreement
Exhibit 9.8-2 Form of Trademark Assignment
Exhibit 9.10 Form of Lease Assignment, Assumption and Consent
Exhibit 9.15 Form of Bill of Sale
Exhibit 9.16 Form of Assignment and Assumption Agreement
Annex I Lessees
Annex 8.3 Registration Procedures
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ASSET PURCHASE AGREEMENT, dated June 1, 1998 (the "Agreement"), among
Screeem! Inc., a Delaware corporation ("Purchaser"), dELiA*s Inc., a Delaware
corporation ("Parent"), American Retail Enterprises, L.P., a New York limited
partnership (the "Company"), Retail Apparel Service Corp., a New York
corporation ("Retail Apparel"), Landmark Pants Corp., a New York corporation
("Landmark Pants"), and the entities listed on Annex I hereto (collectively,
with Retail Apparel and Landmark Pants, the "Lessees").
W I T N E S S E T H:
WHEREAS, the Company is engaged, inter alia, in the business of
distributing and selling young men's and "junior's" apparel through the SCREEEM!
and JEAN COUNTRY retail stores leased by the Lessees and set forth on Schedule A
(the "Purchased Stores"); and
WHEREAS, the Company and the Lessees (collectively, the "Companies") wish
to sell, assign, transfer, convey and otherwise deliver, and Purchaser wishes to
purchase, acquire and otherwise accept, all right, title and interest of the
Companies in, to and under certain assets relating to the Purchased Business, as
defined below, for the Purchase Price and upon the terms and subject to the
conditions described below; and
WHEREAS, the parties desire to make certain other and related arrangements,
including, without limitation, a restrictive covenant, as provided below;
NOW, THEREFORE, in consideration of the foregoing and in reliance on the
representations, warranties and agreements and subject to the terms and
conditions hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
General Provisions
1.1 Definitions. As used in this Agreement, the following terms have the
meanings indicated:
"Accountants" has the meaning set forth in Section 3.2(e)
"Additional Shares" is defined in Section 3.1(c) hereof.
"Adjusted Escrow Shares" has the meaning set forth in Section 3.3.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
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"Announcement Price" means the mean of the intraday high and low bid prices
for Parent Common Stock as reported by the Reliable Source for the 10
consecutive trading days immediately preceding the Public Announcement Date.
"Annual Financial Statements" is defined in Section 7.8 hereof.
"Applicable Registration Deadline" is defined in Section 8.3(a) hereof.
"Assignment and Assumption Agreement" is defined in Section 9.16 hereof.
"Assumed Contracts" means the Purchased Contracts that are assigned to, and
assumed by, Purchaser in accordance herewith.
"Assumed Liabilities" is defined in Section 2.3 hereof.
"Basic Shares" is defined in Section 3.1(b) hereof.
"Benefit Plans" is defined in Section 5.16(a) hereof.
"Benefits Adjustment" is defined in Section 3.2(c) hereof.
"Bill of Sale" is defined in Section 9.15 hereof.
"Book Value Adjustment" is defined in Section 3.2(a) hereof.
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in the City of New York.
"Cash Consideration" is defined in Section 3.1(a) hereof.
"Claims" is defined in Section 5.9 hereof.
"Closing" is defined in Section 4.1 hereof.
"Closing Date" is defined in Section 4.1 hereof.
"Closing Price" means the mean of the intraday high and low bid prices for
Parent Common Stock as reported by the Reliable Source for the 10 consecutive
trading days immediately preceding the trading day preceding the Closing Date
(or fewer days so that all such days are after the Public Announcement Date).
"Closing Statement" is defined in Section 3.2(a) hereof.
"COBRA" means the continuation coverage requirements of Section 601 through
609 of ERISA and Section 4980B of the Code.
"Code" is defined in Section 3.4 hereof.
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"Commission" means the Securities and Exchange Commission.
"Companies" means the Company and the Lessees, collectively.
"Companies' Agent" is defined in Section 15.14(a)(i) hereof.
"Company" means American Retail Enterprises, L.P., a New York limited
partnership.
"Company Transactional Representations" means the representations and
warranties of the Companies set forth in Sections 5.1, 5.2, 5.3, 5.4 and 5.9
hereof.
"Competing Transaction" is defined in Section 7.4 hereof.
"Consideration" is defined in Section 3.1 hereof.
"Corporation Governing Documents" is defined in Section 5.3(b).
"Current Price" means the mean of the intraday high and low bid prices for
the Parent Common Stock as reported by the Reliable Source for the 20 days
immediately preceding the giving of any written notice of a claim in accordance
with Section 13.8(b) hereof.
"Deadline Price" is defined in Section 8.3(b) hereof.
"Effective Date Price" is defined in Section 8.3(b) hereof.
"18-Month Date" means the 18-month anniversary of the Closing Date.
"18-Month Price" means the mean of the intraday high and low bid prices for
Parent Common Stock as reported by the Reliable Source for the 20 consecutive
trading days immediately preceding the 18-Month Date.
"Eligible Employees" is defined in Section 2.4(a) hereof.
"Employment Agreement" is defined in Section 9.5 hereof.
"Environmental Law" shall mean any federal, state, local or common law,
rule, regulation, ordinance, code, order or judgment (including any judicial or
administrative interpretations, guidance documents, directives, policy
statements or opinions) relating to the injury to, or the pollution or
protection of human health and safety or the environment.
"Equipment" is defined in Section 2.1(b) hereof.
"ERISA" is defined in Section 5.16(a) hereof.
"ERISA Affiliate" is defined in Section 5.16(a) hereof.
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"Escrow Agent" has the meaning set forth in the Escrow Agreement.
"Escrow Agreement" is defined in Section 9.6.
"Escrow Amount" means the sum of $3,750,000, as adjusted for Price
Adjustments pursuant to Section 3.2 hereof, for changes pursuant to Sections
7.11(a) and 8.2(b) hereof and for Losses indemnified by the Company pursuant
Article XIII hereof.
"Escrow Shares" means shares of Parent Common Stock deposited in escrow
with the Escrow Agent under the Escrow Agreement and in accordance with this
Agreement.
"Excluded Assets" is defined in Section 2.2 hereof.
"Excluded Stores" is defined in Section 2.2(a) hereof.
"Fixed Assets" is defined in Section 2.1(c) hereof.
"Fixed Damages" is defined in Section 8.3(a) hereof.
"General Partners" means Landmark Pants and The Pants Set, Inc., a Delaware
corporation.
"Governing Documents" means the Corporation Governing Documents and the
Partnership Governing Documents.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any Person, agency, entity or instrumentality
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Hazardous Substance(s)" shall mean petroleum, petroleum products,
petroleum-derived substances, radioactive materials, hazardous wastes, hazardous
materials, polychlorinated biphenyls, lead based paint, radon, urea
formaldehyde, friable asbestos or any materials containing friable asbestos, and
any chemicals, materials or substances regulated under or defined in any
Environmental Law, or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous constituents," "toxic substances,"
"pollutants," "contaminants" or any similar denomination intended to classify or
regulate substances by reason of toxicity, carcinogenicity, ignitability,
corrosivity or reactivity, under any Environmental Law.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Income Taxes" mean all income or corporate franchise taxes.
"Indemnified Party" is defined in Section 13.5(a) hereof.
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"Indemnifying Party" is defined in Section 13.5(a) hereof.
"Indemnity Payment" is defined in Section 13.6 hereof.
"Interim Period Covenants" mean, collectively, the agreements and covenants
contained in Articles VII and VIII hereof.
"Intellectual Property" is defined in Section 2.1(f) hereof.
"Inventory" is defined in Section 2.1(d) hereof.
"Issue Price" means the lesser of the Announcement Price or the Closing
Price, in either case subject to adjustment as provided in Section 14.1(e)
hereof.
"Knowledge of the Companies" means actual knowledge of William Siegel, Al
Cohen, Gary Sugarman and Ken Kolinsky after such reasonable investigation as
would be performed by a prudent businessperson under the circumstances
(including the applicable time constraints); it being understood that such
investigation shall not obligate any such Person (as a result of this Agreement)
to make any inquiry of any third party (i.e., any Person not employed or engaged
by or Affiliated with the Companies).
"Landmark Pants" means Landmark Pants Corp., a New York corporation.
"Lease Agreements" is defined in Section 2.1(a) hereof.
"Lessees" means the entities listed on Annex I hereto.
"Liability" means any indebtedness, liability or obligation (whether known
or unknown, whether accrued, absolute, contingent or otherwise, and whether due
or to become due), and includes Environmental Liability.
"Losses" has the meaning set forth in Article XIII.
"Market Damages" is defined in Section 8.3(a) hereof.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, results of operations, assets (whether tangible or intangible),
liabilities, obligations or condition (financial or otherwise) of the Purchased
Business or the Purchased Assets, (b) a material adverse effect on the legality,
validity or enforceability of the Seller's Documents, or (c) the impairment,
hindrance or adverse effect in any material respect upon the ability of any of
the Companies to perform any of its obligations under the Seller's Documents or
to consummate the transactions contemplated thereby.
"Most Recent Financial Statements" means all financial statements referred
to herein at, as of or for the four-month period ended April 25, 1998.
"No-Shop Period" is defined in Section 7.4 hereof.
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"Other Financial Statements" is defined in Section 7.14 hereof.
"Ordinary Course" means the ordinary course of the conduct of the Purchased
Business by the Company consistent with past practice.
"Parent Common Stock" means shares of common stock, par value $0.01 per
share, of Parent. All references in this Agreement or in any of Seller's
Documents or Purchaser's Documents to shares of Parent Common Stock shall be
equitably adjusted to account for stock splits, stock dividends and
recapitalizations, but not for issuances of stock for bona fide consideration
(including, for example and not by means of limitation, in an acquisition or
public offering or pursuant to any employee plan or policy).
"Partnership Governing Documents" is defined in Section 5.3(a) hereof.
"PBGC" is defined in Section 5.16(c) hereof.
"Permit" means any permit, approval, authorization, license, franchise,
variance, or permission required from or issued by a Governmental Authority.
"Person" means a natural person, partnership, corporation (including a
business trust), joint stock company, estate, trust, unincorporated association,
joint venture, limited liability company or other entity, or a Governmental
Authority.
"Plan" is defined in Section 5.16 hereof.
"Possible Assumed Contracts" is defined in Section 2.7 hereof.
"Post-Closing Employees" is defined in Section 2.4(a) hereof.
"Price Adjustments" is defined in Section 3.2(d) hereof.
"Pro Forma Financial Statements" is defined in Section 5.5 hereof.
"Public Announcement Date" means the date of the first public announcement
of this Agreement and the acquisition contemplated hereby.
"Purchase Price" has the meaning set forth in Section 3.1 hereof.
"Purchased Assets" has the meaning set forth in Section 2.1 hereof.
"Purchased Business" means the business of the Company with respect to
distributing and selling young men's and "junior's" apparel as conducted by the
Company through the Purchased Stores as of the date of this Agreement.
"Purchased Contracts" means the contracts set forth on Schedule 2.1(h)
hereof.
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"Purchased Stores" is defined in the recitals hereto.
"Purchaser Indemnified Parties" is defined in Section 13.1 hereof.
"Purchaser Transactional Representations" means the representations of
Purchaser and Parent set forth in Sections 6.1, 6.2 and 6.3.
"Purchaser's Documents" is defined in Section 6.2(a) hereof.
"Real Estate" is defined in Section 2.1(a) hereof.
"Real Estate Legal Requirements" is defined in Section 5.10 hereof.
"Registration Statement" is defined in Section 8.3(a) hereof.
"Reliable Source" means the Bloomberg Service.
"Required Permits" is defined in Section 5.14(a) hereof.
"Requirement of Law" means, as to any Person, the certificate of
incorporation, charter and by-laws or other organizational or governing
documents of such Person, and all federal, state and local laws, rules,
regulations, orders, decrees or other determinations of an arbitrator, court or
other Governmental Authority, including, without limitation, federal, state or
local anti-trust and licensing laws, any federal, state or local laws or
regulations concerning health and safety, all applicable trade laws and require
ments, including, without limitation, all disclosure requirements of the Federal
Trade Commission, ERISA and the Environmental Laws, in each case applicable to
or binding upon such Person or any of its Real Property or to which such Person
or any of its property is subject.
"Retail Apparel" means Retail Apparel Service Corp., a New York
corporation.
"Retained Liabilities" is defined in Section 2.3 hereof.
"Returns Adjustment" is defined in Section 3.2(b) hereof.
"Returns Period" is defined in Section 3.2(b) hereof.
"Seller Indemnified Parties" is defined in Section 13.2 hereof.
"Seller's Documents" is defined in Section 5.1 hereof.
"Service" means the Internal Revenue Service.
"Sugarman Lock-Up Agreement" is defined in Section 9.5 hereof.
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"Sugarman Shares" means the number of Escrow Shares representing Gary
Sugarman's pro rata indirect beneficial interest in the Escrow Shares.
"Tax Examination" is defined in Section 5.8 hereof.
"Taxes" means all taxes, including income, franchise, real property,
personal property, sales, use, employment, estimated, severance, occupation,
withholding, payroll, gross receipts, ad valorem, transfer, profit, excise,
stamp and other taxes, duties, fees, assessments and other similar governmental
charges.
"Trademark Agreement" is defined in Section 9.8 hereof.
"Trademark Assignments" is defined in Section 9.8 hereof.
"Transitional Services Agreement" is defined in Section 9.7 hereof.
"Termination Date" is defined in Section 14.1(c) hereof.
"Violations" is defined in Section 5.10 hereof.
"WARN Act" is defined in Section 2.4(e) hereof.
1.2 Other Definitions and Meanings; Interpretation. For purposes of this
Agreement, the term "parties" means (except where the context otherwise
requires) Purchaser, Parent and the Companies; and the words "hereof", "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
and any schedule or exhibit hereto or thereto or certificate delivered in
connection therewith. The table of contents and the headings of the Articles and
Sections of this Agreement have been included herein for convenience of
reference only and shall not be deemed to affect the meaning of the operative
provisions of this Agreement. All references to numbers of shares shall, if the
calculation otherwise would result in a fractional share amount, be rounded to
the next highest whole number of shares. All dollar amounts referred to herein
are in United States Dollars.
ARTICLE II
Assets To Be Acquired
2.1 Acquisition and Transfer of Assets. Upon the terms and subject to the
conditions hereinafter set forth, at the Closing, the Companies shall sell,
assign, transfer, convey and otherwise deliver to Purchaser, and Purchaser shall
purchase, acquire and otherwise accept from the Companies, all right, title and
interest of the Companies in, to and under the assets, properties, rights,
contracts, claims, operations and businesses of the Companies solely in
connection with the Purchased Business of every kind and description (other than
those specifically excluded pursuant to Section 2.2 hereof), solely to the
extent located in the Purchased Stores, whether tangible or intangible, real,
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personal or mixed, whether or not appearing on the books of the Companies, which
are used, reserved for use, or otherwise employed, by the Companies solely in
the conduct of the Purchased Business as of the Closing Date (collectively, the
"Purchased Assets"), including, without limitation, all of the Companies' right,
title and interest in and to the following assets, properties, rights,
contracts, claims, operations and businesses:
(a) all leasehold interests in the real estate used in the conduct of
the Purchased Business listed on Schedule 2.1(a) annexed hereto (the "Lease
Agreements") and any easements and rights-of-way and options to renew or
purchase under any such Lease Agreements (such leasehold interests, easements,
rights-of-way and options are collectively referred to herein as the "Real
Estate");
(b) all furnishings, fixtures and equipment in each case located in
the Purchased Stores (collectively, the "Equipment") (including furniture,
office supplies, equipment, POS equipment, screens, data processing equipment,
computers and telephone systems that are used, reserved for use, or otherwise
employed in the conduct of the Purchased Business, and including all of the
Companies' leasehold interests therein located in the Purchased Stores),
including, without limitation, the Equipment listed on Schedule 2.1(b) annexed
hereto;
(c) all fixed assets (other than Equipment) located in the Purchased
Stores (collectively, the "Fixed Assets") (including the Companies' leasehold
interests therein, which are used, reserved for use, or otherwise employed in
the conduct of the Purchased Business in each case located in the Purchased
Stores);
(d) all inventory located in the Purchased Stores (collectively, the
"Inventory") (including, without limitation, raw materials, work-in-process,
finished goods and supplies, used, reserved for use, or otherwise employed in
the conduct of the Purchased Business in each case located in the Purchased
Stores);
(e) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers, manufacturers and contractors in connection
with products or services solely to the extent used, reserved for use, or
otherwise employed in the conduct of the Purchased Business or otherwise
relating to the Purchased Assets, or affecting the Real Estate, Equipment, Fixed
Assets or Inventory;
(f) all rights and interests in and to trademarks, trade names, logos,
service marks, brands, franchises, licenses, designs, and all other intangible
intellectual property, assets, properties and rights and registrations and
applications for such trademarks, trade names and service marks (including,
without limitation, the trademark applications and registrations listed on
Schedule 2.1(f) annexed hereto), and all rights and interests of the Companies
in and to copyrights, and registrations and applications for such copyrights, in
each case used solely, or otherwise employed solely in the conduct of the
Purchased Business or otherwise relating solely to the Purchased Assets listed
on Schedule 2.1(f) hereto (collectively, the "Intellectual Property");
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(g) all Permits held or used, reserved for use, or otherwise employed
by the Companies solely in connection with the conduct of the Purchased Business
or the Purchased Assets that by their terms may be transferred hereunder;
(h) all contracts listed on Schedule 2.1(h) annexed hereto
(collectively, the "Purchased Contracts"), except to the extent that any
attempted assignment thereof, without a required consent thereto, would
constitute a breach thereof, until such time as such consent shall have been
obtained; provided, however, that if the provisions of any such Purchased
Contract would prohibit any attempted assignment thereof or impose a charge,
discount or penalty upon an assignment without such consent, even though such
assignment would not become effective until such consent was obtained, then
nothing in this Agreement shall be deemed an assignment of any such Purchased
Contract;
(i) to the extent they exist, all customer and vendor lists to the
extent used, reserved for use, or otherwise employed in the conduct of the
Purchased Business, and all files and documents (including credit information
and sales representative agreements) relating to customers and vendors of the
Purchased Business, including, without limitation, computer programs (including
computer modeling programs), manuals and data, sales and advertising materials,
sales distribution and purchase correspondence and trade association
memberships;
(j) all books and records (including in an electronic data form)
located at the Purchased Stores and relating to the Purchased Assets (as to
which the Company shall be entitled to retain a copy) and a copy of all other
books and records relating to the Purchased Assets;
(k) all right, title and interest of the Companies in and to the names
SCREEEM! and JEAN COUNTRY and all derivatives thereof, and the goodwill
pertaining thereto; and
(l) cash in registers of the Purchased Stores, limited to $300 per
Purchased Store.
2.2 Excluded Assets. Notwithstanding anything to the contrary contained in
Section 2.1 hereof, the parties to this Agreement expressly understand and agree
that the Companies are not hereunder selling, assigning, transferring or
conveying to Purchaser the following assets, rights and properties of the
Companies (collectively, the "Excluded Assets"):
(a) any and all retail stores of the Company and its Affiliates, other
than the Purchased Stores (the "Excluded Stores");
(b) all right, title and interest of the Company and its Affiliates,
in, to and under all of the assets, properties, rights, contracts, claims,
operations and business of the Company related to the Excluded Stores, including
without limitation, all
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of the types of assets referred to in Sections 2.1(a), (b), (c), (d), (e), (f),
(g), (h), (j), (k) and (l) above with respect to the Excluded Stores;
(c) all right, title and interest of the Company and its Affiliates,
in, to and under its headquarters, warehouses and other centralized management
and overhead items, including, without limitation, the central computer system
and other centralized, or Company-wide assets, not specifically located in a
Purchased Store;
(d) any and all refunds, abatements and credits of any Taxes, whether
federal, state or local, whether pursuant to the Lease Agreements or otherwise;
(e) any and all certificates of limited partnership, partnership
agreements, evidence of limited partnership interests, minute books, stock books
and books of account and other documents relating to the organization,
maintenance and existence of the Companies and the General Partners;
(f) any and all claims or rights against third parties other than
those that arise after the Closing with respect to Purchased Assets; and
(g) any and all accounts receivable and notes receivable (whether
short-term or long-term) and all deposits with third parties arising out of the
conduct of the Purchased Business prior to the Closing or of the Companies
before or, other than with respect to Purchased Assets, after the Closing,
together with any unpaid interest accrued thereon from the respective obligors
and any security or collateral therefor, including recoverable deposits.
2.3 Assumed Liabilities.
(a) Anything herein to the contrary notwithstanding, neither Purchaser
nor Parent shall assume or otherwise become liable for any debts, claims,
Liabilities, obligations or expenses of the Companies other than (x) as may
arise with respect to periods from and after the Closing under the Assumed
Contracts to the extent assigned hereunder and (y) to perform and discharge
certain obligations with respect to returns store credit and gift certificates
as provided in Section 2.3(b) below (the "Assumed Liabilities"). Purchaser shall
assume and shall duly pay, perform and discharge the Assumed Liabilities as and
when due. For purposes of clarity, (i) other than as set forth in clause (y)
above, neither Purchaser nor Parent shall have any liability arising out of, or
in connection with, the conduct of the Purchased Business or the ownership,
operation or use of the Purchased Assets in each case prior to the Closing, all
of which liabilities shall remain the responsibility of the Companies, and (ii)
other than the Benefits Adjustment, none of the Companies shall have any
liability arising out of, or in connection with, the conduct of the Purchased
Business or the ownership, operation or use of the Purchased Assets in each case
from and after the Closing, all of which liabilities shall be the responsibility
of Parent and Purchaser. All Liabilities of the Companies other than the Assumed
Liabilities (collectively, the "Retained Liabilities") shall be paid, performed
and discharged by the Companies (or such of them as the case may be) as and when
due.
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(b) Purchaser shall accept the return of all finished goods inventory
actually sold by the Companies in bona fide sales at the Purchased Stores prior
to the Closing Date and that are returned in saleable condition by customers to
the Purchased Stores during the Returns Period, and shall give a cash refund,
store credit or exchange to such customers pursuant to Purchaser's policies.
Purchaser shall also accept, at face value, all gift certificates sold or issued
by the Company prior to the Closing Date which are properly redeemed at a
Purchased Store during the Returns Period. Purchaser shall also honor all store
credit granted to customers by the Company prior to the Closing Date which is
properly redeemed at a Purchased Store during the Returns Period.
2.4 Employees.
(a) Purchaser agrees to offer employment to each of the Persons set
forth on Schedules 2.4-A, 2.4-B and 2.4-D (collectively, the "Eligible
Employees") with such employment to begin as of the Closing Date, on terms and
conditions no less beneficial than as set forth for such Person on Schedule 5.15
(as delivered by the Company upon execution hereof). Other than the Eligible
Employees, Purchaser and Parent agree not to offer employment to, solicit or to
otherwise employ, any employees of the Companies without the prior written
consent of the Company, which consent may be withheld in the Company's sole
discretion. The Companies agree to cooperate with Parent and Purchaser by
permitting Parent and/or Purchaser throughout the period prior to the Closing
Date to meet with the Eligible Employees at such reasonable times as shall be
approved by a representative of the Companies and to distribute to the Eligible
Employees such forms and other documents relating to employment by Parent or
Purchaser after the Closing Date as Parent and/or Purchaser shall reasonably
request. The employment by Parent or Purchaser of any Eligible Employee who
accepts the terms and conditions of employment offered by Parent or Purchaser
will commence on the Closing Date (or at such later date specified by Parent or
Purchaser with respect to Persons on Schedule 2.4-B). For purposes hereof,
Eligible Employees who accept employment with Parent or Purchaser as of the
Closing Date (or at such later date specified by Parent or Purchaser with
respect to Persons on Schedule 2.4-B) are hereinafter referred to as
"Post-Closing Employees". Nothing in this Section 2.4 shall be deemed to require
Parent and/or Purchaser to retain any of the Post-Closing Employees for any
period of time or at any particular compensation rate or in any particular
position or prevent Parent or Purchaser from being able to continue, modify or
establish such benefits and conditions of employment as it shall determine in
its sole discretion.
(b) Neither Parent nor Purchaser will assume any of the Benefit Plans,
or any rights, duties, obligations or liabilities thereunder, nor shall it
become a successor employer or be responsible in any way for the participation
of any of the Companies or an ERISA Affiliate in or obligations or
responsibilities with respect to any Benefit Plan, nor shall it be obligated by
this Agreement to make any provision with respect to employee benefits after the
Closing Date.
(c) Purchaser and Parent shall be responsible for any severance
payments required to be made to (i) any Post-Closing Employees and (ii) any of
the
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Persons set forth on Schedule 2.4-D, regardless of whether such Persons are
Post-Closing Employees, in each case regardless of whether such obligation would
be an obligation of the Companies.
(d) The Companies shall be responsible for any severance, change of
control or similar payments required to be made (in accordance with the
severance plan(s) or agreements described on Schedules 5.15 and 5.16) to any
Eligible Employees who are not Post-Closing Employees, except for the Persons
set forth on Schedule 2.4-D.
(e) The Companies shall be solely responsible for compliance with the
Workers Adjustment and Retraining Notification Act (the "WARN Act") with respect
to the Eligible Employees and former employees of the Purchased Business (other
than Post- Closing Employees and Persons set forth on Schedule 2.4-D). Purchaser
and Parent, and not the Companies, shall be responsible for compliance with the
WARN Act with respect to (i) Post-Closing Employees and (ii) Persons on Schedule
2.4-D.
(f) No provision of this Section 2.4 shall create any third-party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Companies or any ERISA Affiliate in
respect of continued employment (or resumed employment) with either Parent,
Purchaser, the Companies or any of their affiliates, and no provision of this
Section 2.4 shall create any such rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under any Benefit Plan or
any plan or arrangement that may be established by Parent, Purchaser or any of
their affiliates. No provision of this Agreement shall constitute a limitation
on the right to amend, modify, or terminate any such plans or arrangements of
Parent, Purchaser, the Companies or any of their respective Affiliates.
2.5 Apportionment. All Taxes (other than Income Taxes), deferred and
prepaid charges and items, accrued, unpaid and prepaid payrolls, rents, prepaid
items, deposits, power and utility charges, agreements to be assigned to
Purchaser and expenses, and similar items affecting the Purchased Stores, shall
be allocated between the Companies, on the one hand, and Parent and Purchaser,
on the other, as of 11:59 p.m., New York time, on the day immediately preceding
the Closing Date, based on whether the benefit associated with the item is
receivable by the Companies prior to the Closing or by Purchaser or Parent
thereafter. Nothing in this provision shall obligate (a) Purchaser or Parent to
discharge any items allocated to the Companies, or (b) the Companies to
discharge any items allocated to Purchaser or Parent pursuant to this provision,
except as set forth in Section 2.3 hereof. These apportionments shall be
determined (effective as of the Closing Date) and payment made accordingly from
the Companies to Purchaser or from Purchaser to the Company, as the case may be,
at the same time as the Price Adjustments, as provided in Article III below. Any
dispute as to the amounts due under this paragraph shall be determined by the
Accountants in accordance with the procedures set forth in Section 3.2(e)
hereof.
2.6 Books and Records. The Company shall retain the originals of the books
and records that Purchaser is to be given a copy of pursuant to Section 2.1(j)
hereof and to the extent that such books and records cannot be separated from
other
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proprietary or confidential books and records of the Company, the Company will
not deliver such copies, but will make such books and records available for
review, inspection and, where appropriate, copying by Parent or Purchaser (at
the Companies' expense) for a period of three years from the Closing Date upon
reasonable written notice and during normal business hours.
2.7 Possible Assumed Contracts. Parent shall give notice to the Company on
or prior to June 7, 1998 as to whether it will accept assignment of the
contracts set forth on Schedule 2.7 hereto (the "Possible Assumed Contracts").
Contracts as to which Purchaser gives notice that it will accept assignment
shall thereupon (a) be deemed to be Purchased Contracts as if such contracts
were listed on Schedule 2.1(h) and (b) be deemed to be listed on Schedule
2.1(h). Notwithstanding anything to the contrary contained herein, the Companies
may supplement or amend Schedule 2.7 in accordance with Section 7.3 hereof but
may not supplement or amend Schedule 2.1(h).
ARTICLE III
Consideration
3.1 Amount and Form. The aggregate consideration (the "Consideration") for
the acquisition of the Purchased Assets shall consist of the Purchase Price
(subject to adjustment as provided herein) and the assumption of the Assumed
Contracts (to the extent assigned in accordance with Article II above) and the
assumption of the Assumed Liabilities. Subject to Section 8.2(b) hereof and
subject to adjustment as provided in this Article III, the "Purchase Price"
shall consist of, and be payable to the Company at Closing, as follows:
(a) The sum of $9,400,000 (the "Cash Consideration") shall be payable
by wire transfer of immediately available funds to such account(s) as the
Company may specify in writing at least two Business Days prior to the Closing
Date;
(b) Purchaser shall deliver to the Company certificates registered in
the name of the Company representing that number of shares of Parent Common
Stock determined by dividing $10,250,000 by the Issue Price (the "Basic
Shares"); and
(c) Purchaser shall deliver to the Escrow Agent (to be held pursuant
to the Escrow Agreement) certificates registered in the name of the Company
representing that number of shares of Parent Common Stock determined by dividing
$3,750,000 by the Issue Price (the "Additional Shares").
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3.2 Adjustment of Purchase Price.
(a) In the event that the book value of the Purchased Assets (other
than cash) at the Closing Date as shown on a statement of net assets of the
Purchased Assets prepared on the same basis as, and using the same methods and
procedures used to prepare, the Most Recent Financial Statements (the "Closing
Statement") is less than or greater than the book value of the Purchased Assets
(other than cash) as shown on the face of the Most Recent Financial Statements,
the Purchase Price shall be adjusted, upwards (if the book value on the Closing
Statement exceeds that on the Most Recent Financial Statements) or downwards (if
the book value on the Closing Statement is less than that on the Most Recent
Financial Statements), by the amount of such difference (the "Book Value
Adjustment").
(b) The Purchase Price shall also be adjusted downwards (i.e.,
decreased) by an amount (the "Returns Adjustment") equal to the sum of: (i) the
actual gross profit represented by saleable inventory sold by the Company prior
to the Closing Date which is returned by customers to the Purchased Stores
during the 90-day period following the Closing for which a cash refund or store
credit (but not an exchange) is given properly pursuant to Purchaser's policies
(the "Returns Period"); (ii) the actual cost of goods sold represented by
unsaleable inventory sold by the Company prior to the Closing Date which is
returned by customers to the Purchased Stores during the Returns Period; (iii)
the face value of all gift certificates sold or issued by the Company prior to
the Closing Date which are properly redeemed at a Purchased Store during the
Returns Period; and (iv) the amount of all store credit granted to customers by
the Company prior to the Closing Date which is properly redeemed at a Purchased
Store during the Returns Period.
(c) The Purchase Price shall also be adjusted downwards (i.e.,
decreased) by the aggregate amount of vacation time, sick pay and bonuses
accrued or earned by or with respect to employees of the Company prior to the
Closing and offered by Purchaser to such employees who become employees of
Purchaser (with the approval of the Company, not to be withheld unreasonably) in
an effort to retain them after the Closing Date, but only to the extent that
such employees would have been entitled to receive such vacation time, sick pay
or bonuses at the time of payment to such employee under the policies of the
Company in effect immediately prior to the Closing (the "Benefits Adjustment").
(d) If the Book Value Adjustment, the Returns Adjustment and the
Benefits Adjustment, in the aggregate (collectively, the "Price Adjustments"),
result in an upwards adjustment of (i.e., an increase in) the Purchase Price,
Parent shall cause the number of shares of Parent Common Stock as is equal to
the amount of the aggregate Price Adjustment divided by the Issue Price to be
deposited in escrow under the Escrow Agreement as provided above within five
Business Days following final determination of the Price Adjustments as provided
below. If the Price Adjustments result in a downwards adjustment of (i.e., a
decrease in) the Purchase Price, Purchaser shall be entitled to cause the
release of the number of Escrow Shares as is equal to the amount of such
aggregate Price Adjustments divided by the Issue Price to Purchaser within five
Business Days following final determination of the Price Adjustments as provided
below; provided, that in
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the event that such a downwards Price Adjustment exceeds the Escrow Amount, the
Company shall deliver to Purchaser, within five Business Days following the
determination of such adjustment as provided below, Basic Shares (valued at the
Issue Price) or cash, as determined by the Company in its sole discretion, equal
to the amount of such excess over the Escrow Amount.
(e) As promptly as practicable (but in no event later than 120 days)
following the Closing, Purchaser shall prepare and deliver to the Company the
proposed Closing Statement, together with a calculation of any proposed Price
Adjustments, including a separate calculation of the Book Value Adjustment, the
Returns Adjustment and the Benefits Adjustment. The Closing Statement and the
Price Adjustments so proposed by Purchaser shall be final and binding on the
parties unless, within 30 days after its receipt thereof, the Company gives
written notice to Purchaser of the Company's objection(s) in reasonable detail.
During the 30 calendar day period following the Company's receipt of the Closing
Statement, the Company and its accountants will be permitted to review the work
papers of Purchaser and Purchaser's accountants relating to the Closing
Statement. If Purchaser and the Company are unable to reach agreement within an
additional 30 days after Purchaser's receipt of such notice of objection, the
dispute shall be resolved by a firm of independent accountants of nationally
recognized standing selected by Purchaser and the Company using the same
methodology as in the Pro Forma Financial Statements, or if they are unable to
agree on the selection of such a firm within such second 30-day period, a
similar firm selected according to AAA Commercial Arbitration Rules. Such firm
as is selected pursuant to this provision is referred to herein as the
"Accountants". The Company and Purchaser shall be required to make all
submissions to the Accountants within 30 days of the commencement of such
arbitration, and the Accountants shall be required to render a decision within
an additional 30 days. The resolution of the dispute by the Accountants shall be
final and binding on, and shall not be subject to appeal or review by, the
parties; provided, that the determination of a remaining disputed item will
neither be more favorable to Purchaser than reflected in the Closing Statement
nor more favorable to the Company than reflected in the written notice of
dispute delivered with respect thereto. The fees and disbursements of the
Accountants will be allocated between the Company and Purchaser in such a manner
so that the Company will be responsible for such fees and expenses in the same
proportion that the aggregate dollar amount of such remaining disputed items so
submitted to the Accountants that is unsuccessfully disputed by the Company (as
finally determined by the Accountants) bears to the total amount of such
remaining disputed items so submitted, and Purchaser and Parent will be
responsible for any remaining fees and disbursements. Notwithstanding the
foregoing, there shall be a final Benefits Adjustment as of the earlier of the
18-Month Date and the 30th day following the expiration of the Transitional
Services Agreement, in either case according to the foregoing procedures;
provided, that no such final adjustment shall duplicate a previous adjustment
expressly provided for in this Section 3.2.
3.3 Collar Provisions. On the 18-Month Date, the number of Escrow Shares
then held in escrow pursuant to the Escrow Agreement less the Sugarman Shares
(the "Adjusted Escrow Shares") shall be adjusted as follows:
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(a) In the event the Issue Price exceeds the 18-Month Price, Purchaser
shall promptly cause to be delivered to the Company certificates representing
that number of additional shares of Parent Common Stock that is equal to (i) the
excess of (x) the product of (A) the Adjusted Escrow Shares multiplied by (B)
the Issue Price over (y) the product of (A) the Adjusted Escrow Shares
multiplied by (B) the greater of the 18- Month Price or $10.00 divided by (ii)
the 18-Month Price.
(b) In the event the 18-Month Price is equal to or greater than 120%
of the Issue Price, the Company shall promptly return to Purchaser (and
Purchaser shall be entitled to cause the release from escrow of) that number of
Escrow Shares equal to (I) the product of (i) the Adjusted Escrow Shares and
(ii) the excess of (x) the lesser of the 18-Month Price or $40.00 over (y) 120%
of the Issue Price, divided by (II) the 18- Month Price.
(c) In the event the 18-Month Price exceeds the Issue Price, but is
less than 120% of the Issue Price, there shall be no adjustment pursuant to this
Section.
3.4 Allocation of Purchase Price. The consideration for the Purchased
Assets shall be allocated among the Purchased Assets as the Company and
Purchaser shall agree in writing prior to Closing. The parties hereto agree to
prepare and file all federal, state and local Income Tax returns and other
filings reflecting the transactions contemplated by this Agreement on a basis
consistent with such allocation, and to cooperate with each other in good faith
in preparing any and all statements required to be included in such filings,
including IRS Form 8594 and any required exhibits thereto (or other forms
required pursuant to Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"), or other applicable federal, state or local Tax laws),
reflecting such allocation.
ARTICLE IV
Closing
4.1 Schedule. The Closing of the transactions contemplated by this
Agreement (the "Closing"), shall be held at the offices of Proskauer Rose LLP,
1585 Broadway, New York, New York, at 10:00 A.M., New York City time, as soon as
practicable (and in no event later than three Business Days) after satisfaction
of all applicable conditions to Closing (the "Closing Date"), but in no event
later than the Termination Date, unless Parent and the Company shall mutually
agree upon a later date. The parties shall use all commercially reasonable
efforts to cause the Closing to occur prior to June 15, 1998.
4.2 HSR Filing. The parties shall use their respective best commercial
efforts to prepare and file the Notification and Report Form for Certain Mergers
and Acquisitions and related documentation (together with any necessary exhibits
thereto) required under the HSR Act with the Federal Trade Commission and the
Department of
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Justice no later than the second Business Day following the date of this
Agreement. Thereafter, the parties shall use their respective commercially
reasonable efforts to cause the applicable waiting period under the HSR Act to
be terminated as early as possible, including promptly furnishing such
additional materials or information as shall be requested in connection
therewith, promptly responding to all inquiries and using all such efforts to
overcome any objections which may be raised by the Federal Trade Commission or
the Department of Justice. Purchaser shall pay the $45,000 filing fee required
under the HSR Act.
4.3 Proceedings. All proceedings to be taken and all documents to be
executed and delivered at the Closing in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the parties hereto. All proceedings to be taken and all documents
to be executed and delivered by all parties at the Closing shall be deemed to
have been taken and executed simultaneously and no proceedings shall be deemed
taken nor any documents executed or delivered until all have been taken,
executed and delivered.
ARTICLE V
Representations and Warranties of the Companies
The Companies jointly and severally represent and warrant to Purchaser and
Parent as follows:
5.1 Execution and Effect of Agreement. The Company has the requisite
partnership power and authority to enter into and perform this Agreement and all
other agreements, certificates and documents executed or delivered, or to be
executed or delivered, by the Company in connection herewith (collectively, with
this Agreement, "Seller's Documents"). Each of the Lessees has the requisite
corporate power and authority to enter into and perform this Agreement and all
other Seller's Documents. Subject to obtaining the consents set forth on
Schedule 5.4, as of the date hereof and on the Closing Date, the Company and the
Lessees will have the full right, power and authority to sell, assign, transfer
and deliver the Purchased Assets owned or leased by them as provided in this
Agreement. Except as set forth on Schedule 5.4 hereto, no consent, approval,
authorization or waiver is required in connection with the execution, delivery
and performance of this Agreement by the Company or the Lessees or the sale,
assignment, transfer and delivery of the Purchased Assets contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and each Lessee, and Seller's Documents are (or when executed and delivered will
be) legal, valid and binding obligations of the Company and each Lessee,
enforceable in accordance with their respective terms, except as such
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that the availability of the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
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5.2 Requisite Action. The execution, delivery and performance by the
Company of this Agreement and the other Seller's Documents has been duly
authorized by all requisite partnership action of the Company and by all
requisite corporate action of the General Partners. The execution, delivery and
performance by each Lessee of this Agreement and the other Seller's Documents
has been duly authorized by all requisite corporate action of such Lessee.
5.3 Organization, Good Standing, Authority.
(a) The Company is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of New York, and has
full power and authority to own and lease its assets and properties and to
conduct its business as it is now being conducted. The Company is duly
qualified, authorized or licensed to do or conduct business and is in good
standing as a foreign limited partnership under the laws of those jurisdictions
listed on Schedule 5.3 hereto, constituting each jurisdiction in which the
conduct of the Purchased Business or the ownership or leasing of the Purchased
Assets requires such qualification, except where the failure to be so qualified,
authorized or licensed would not have a Material Adverse Effect. The copies of
the Certificate of Limited Partnership (certified by the Secretary of the State
of New York), and Partnership Agreement of the Company as amended through and
including the date hereof, which have been previously delivered to Purchaser
(the "Partnership Governing Documents"), are correct and complete, have not been
amended, modified or rescinded in any respect and are in full force and effect.
Except as set forth on Schedule 5.3, the Company conducts, and since December
27, 1997, has conducted the Purchased Business only through the Company and the
Lessees.
(b) Each of the General Partners and the Lessees is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has full power and authority to own and
lease its assets and properties and to conduct its business as it is now being
conducted. Each of the General Partners and the Lessees is duly qualified,
authorized or licensed to do or conduct business and is in good standing as a
foreign corporation under the laws of those jurisdictions listed on Schedule 5.3
hereto, constituting each jurisdiction in which the conduct of its business or
the ownership or leasing of its assets requires such qualification, except where
the failure to be so qualified, authorized or licensed would not have a Material
Adverse Effect. The copies of the Certificate of Incorporation (certified by the
Secretary of State of the State of the jurisdiction of its incorporation), and
By-Laws of each of the General Partners and the Lessees, as amended through and
including the date hereof, which have been previously delivered to Purchaser
(the "Corporation Governing Documents"), are correct and complete, have not been
amended, modified or rescinded in any respect and are in full force and effect.
5.4 Restrictions. The authorization, execution, delivery and performance of
Seller's Documents by the Companies and the consummation of the transactions
contemplated hereby and thereby by the Companies do not and will not (a) violate
any provision of any of the Governing Documents or (b) subject to obtaining the
consents and making the filings set forth on Schedule 5.4 hereto, violate,
conflict with, result in a
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breach of or constitute a default under, require any notice or consent under,
give rise to a right of termination of, accelerate the performance required by,
or result in the imposition of any Claim any terms or provisions of any
agreement, instrument or writing of any nature to which any Company is a party
or by which it is bound, in each case which would have a Material Adverse
Effect, or to which any of the Purchased Assets or any aspect of the Purchased
Business is subject, or (c) subject to obtaining the consents and making the
filings set forth on Schedule 5.4 hereto, other than pursuant to the HSR Act,
violate, or result in a breach of, conflict with, or require any notice, filing
or consent under, any Requirement of Law or Permit applicable to any Company, in
each case which would have a Material Adverse Effect, or the Purchased Assets or
the Purchased Business, or any of them (including under the Purchased
Contracts), or (d) subject to obtaining the consents and making the filings set
forth on Schedule 5.4 hereto, result in the creation of any Claim against any
Company, which would have a Material Adverse Effect, or the Purchased Assets or
the Purchased Business, or any of them.
5.5 Pro Forma Financial Statements. Attached hereto as Schedule 5.5 are the
following pro forma financial statements of the Purchased Assets (collectively,
the "Pro Forma Financial Statements"): (a) statements of net assets to be
acquired at and as of December 27, 1997; (b) the statement of revenues and
direct expenses before interest, taxes and allocated expenses for the year ended
December 27, 1997; (c) the statement of net assets to be acquired as of April
25, 1998; and (d) the statement of revenues and direct expenses before interest,
taxes and allocated expenses for the period commencing December 28, 1997 and
ended April 25, 1998. The foregoing financial statements have been prepared in
accordance with the books and records of the Company relating to the Purchased
Assets and in accordance with generally accepted accounting principles applied
on a consistent basis and maintained throughout the periods covered thereby
(except, in the case of the Most Recent Financial Statements, for the absence of
footnotes and normal year-end adjustments that will not, individually or in the
aggregate, be material) and present fairly, in all material respects, the net
assets, revenues and direct expenses before interest, taxes and allocated
expenses as of the dates and for the periods indicated, except that (a) the Most
Recent Financial Statements will not necessarily be indicative of the results to
be expected for the full year and (b) no physical inventory has been taken at
the end of such periods in connection with the preparation of any such
statements. Purchaser and Parent hereby acknowledge and agree that (a) the Most
Recent Financial Statements have been prepared at the request of Purchaser and
Parent, (b) at the request of Purchaser and Parent, the Most Recent Financial
Statements use methodologies for the allocation of expenses which vary from
those used historically by the Companies, and (c) the financial results
presented in the Most Recent Financial Statements will be materially different
than the financial results presented in the Company's financial statements
prepared using the methodology used historically by the Companies (and from the
financial results contained in the Other Financial Statements). Purchaser and
Parent further acknowledge and agree that they have reviewed and understand the
point of sale markdown policies and practices, the inventory valuation policies
and practices and the inter-store inventory transfer policies and practices.
5.6 Intentionally Deleted.
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5.7 Absence of Changes. Since December 27, 1997 or such other date as
expressly indicated below, and except as set forth on Schedule 5.7 hereto or as
indicated on the Most Recent Financial Statements, the Purchased Business has
been operated only in the Ordinary Course and the Companies, to the extent in
connection with the Purchased Business or the Purchased Assets, have not:
(a) experienced any damage, destruction or loss (whether or not
covered by insurance) adversely affecting any property of the Companies which
would have a Material Adverse Effect;
(b) experienced any Material Adverse Effect;
(c) incurred any Liability relating to, connected with, arising out of
or otherwise affecting the Purchased Assets or the Purchased Business other than
in the Ordinary Course and which are similar in kind and amount as those set
forth in the Pro Forma Financial Statements which would have a Material Adverse
Effect;
(d) incurred any indebtedness for borrowed money relating to,
connected with, arising out of or otherwise affecting the Purchased Assets or
the Purchased Business;
(e) to the extent it relates to the Purchased Business, experienced
any strike or work stoppage or slowdown or loss of employees which adversely
affects the Purchased Business or operations thereof;
(f) sold, assigned, mortgaged, transferred, encumbered or granted a
security interest in any Purchased Asset, tangible or intangible, to or in favor
of any party except for payments of third-party obligations incurred in the
Ordinary Course in accordance with the regular payment practices of the
Companies with respect to the Purchased Business, dispositions of inventory in
the Ordinary Course and dispositions of equipment in the Ordinary Course in an
aggregate amount of not more than $50,000; nor sold, assigned, transferred or
let lapse or otherwise disposed of any Intellectual Property;
(g) permitted any write-down of the value of any material amount of
inventory of the Purchased Business, except for write-downs in the Ordinary
Course and not involving material amounts in excess of those in past fiscal
years;
(h) except in the Ordinary Course: (i) incurred any general increase
in the compensation of, or benefits for, employees or independent contractors
performing services for any of the Companies in connection with the Purchased
Business (including, without limitation, any increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment); or (ii) specifically
granted any increase in any compensation or benefits payable to any individual
officer, manager, employee, consultant, agent or broker engaged solely in the
Purchased Business having annual remuneration in excess of $60,000;
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(i) incurred any forward purchase commitments involving more than
$50,000, except for purchase orders in the Ordinary Course;
(j) except for the implementation of the allocation methodology
applicable to expenses (other than direct expenses) used in the preparation of
the Annual Financial Statements and the Pro Forma Financial Statements,
implemented any change in the accounting methods or practices followed by the
Companies (including, without limitation, any change in the method of valuing
its inventory) with respect to the Purchased Business or the Purchased Assets or
any change in depreciation or amortization policies or rates theretofore adopted
with respect to the Purchased Business or the Purchased Assets;
(k) entered into, made any amendment of or terminated any Purchased
Contract that is listed, or that should have been listed, on any Schedule
hereto, except to the extent such amendment or termination is expressly listed
on such Schedule;
(l) suffered any loss or become aware of any prospective loss of any
key personnel of the Purchased Business;
(m) except as set forth on Schedules to this Agreement, since December
27, 1997, entered into any transaction with respect to the Purchased Business
other than in the Ordinary Course consistent with past practice;
(n) agreed to or permitted any of the foregoing; or
(o) not entered into any contract involving any restriction with
respect to the geographical area of operations or scope of the Purchased
Business or use of any of the Purchased Assets.
5.8 Taxes. Each of the Companies has properly filed or will file within the
time prescribed by law all federal, foreign, state, local and other Tax and
information returns and reports, if any, which are required to be filed by it,
except for unclaimed or abandoned property reports, and has paid all amounts due
thereon or with respect thereto. Except as set forth on Schedule 5.8 hereto,
none of the Companies has received a nexus questionnaire or similar inquiry from
any jurisdiction other than the States of New York, Pennsylvania, Connecticut,
Massachusetts and New Jersey. Except as set forth in Schedule 5.8-1 (which will
be delivered at least two days prior to the Closing), none of the Companies has
been since January 1, 1995, under examination for federal, foreign, state or
local income, sales, use, payroll or excise taxes (a "Tax Examination"). Except
as set forth on Schedule 5.8-2, none of the Companies is currently under a Tax
Examination and none of the Companies is in receipt of or has Knowledge of any
notification or pending or prospective Tax Examination.
5.9 Title to Properties; Absence of Encumbrances. The Companies have good
and marketable title to or, in the case of properties subject to leases
(including fixtures) or licenses, valid and subsisting leasehold interests or
licenses in, all of the Purchased Assets (other than the Intellectual Property,
as to which a representation is
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made in Section 5.11), including, without limitation, all properties and assets
that are shown on the Pro Forma Financial Statements (except for assets sold in
the Ordinary Course of business since the respective dates thereof), free and
clear of any and all liens, pledges, security interests, options, rights of
first refusal, mortgages, indentures, encumbrances, charges, agreements or
claims of any kind whatsoever ("Claims"), except as set forth in Schedule 5.9
hereto and except for liens for current Taxes not yet due and payable (which the
Companies or the General Partners, as the case may be, shall promptly pay when
due). Subject to obtaining the consents and making the filings set forth on
Schedule 5.4, the sale, assignment, transfer and delivery of the Purchased
Assets (other than the Intellectual Property, as to which a representation is
made in Section 5.11) pursuant to this Agreement will convey to Purchaser good
and marketable title, in the case of Purchased Assets (other than the
Intellectual Property, as to which a representation is made in Section 5.11)
owned by the Companies, and valid and subsisting leasehold interests or rights
under subletting licenses, in the case of Purchased Assets (other than the
Intellectual Property, as to which a representation is made in Section 5.11)
leased or licensed by the Companies, and, in each case, free and clear of any
and all Claims, except as set forth in Schedule 5.9 hereto and except for liens
for current Taxes not yet due and payable (which the Companies or the General
Partners, as the case may be, shall promptly pay when due). All of the Purchased
Assets are held by, and all Purchased Contracts have been entered into, incurred
and conducted by, the Companies, and not by any of their respective Affiliates.
Schedule 2.1(b) hereto will, as at the Closing also contain a complete and
correct list and brief description of all equipment, machinery, computers,
furniture, leasehold improvements, vehicles and other personal property owned or
leased by the Purchased Business which would be typically found in the Purchased
Stores and all interests therein. All of the Equipment, whether leased or owned
by the Companies, is in good operating condition and repair, subject to ordinary
wear and tear which does not have a Material Adverse Effect.
5.10 Real Estate.
(a) With respect solely to the Purchased Business, the Companies do
not own any fee interests in real estate. Schedule 2.1(a) contains a list and
description (including a brief description of the use to which such property is
being employed, the annual rental and the termination date) of all Real Estate.
Schedule 2.1(a) also lists all guarantees of such Lease Agreements given by the
Company, any partner of the Company or any other person or entity. True and
complete copies of the Lease Agreements listed on Schedule 2.1(a) have been
furnished to Purchaser. Each such Lease Agreement is legal, valid and binding as
between the appropriate Lessee and the other party or parties thereto free of
any default or breach whatsoever by such appropriate Lessee and such Lessee
quietly enjoys the premises provided for therein. Each rental and other payment
due from such appropriate Lessee thereunder has been duly made; each act
required to be performed by such appropriate Lessee has been duly performed; and
no act forbidden to be performed by such appropriate Lessee has been performed
thereunder. To the Knowledge of the Companies, (i) there is no default or breach
of any Lease Agreement by the other party or parties thereto, (ii) there is no
failure by the other party or parties to any Lease Agreement to perform any acts
required to be performed by such other party or parties thereunder and (iii) no
other party or parties to any Lease Agreement has
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performed any act forbidden to be performed thereunder. Except as set forth on
Schedule 2.1(a) hereto, as of the date of this Agreement, none of the Companies
nor any partner of the Company has received any written notice of (A) any
violations (collectively, "Violations", and individually, a "Violation") of any
applicable statute, rule or regulation or requirements of any federal, state or
municipal department or agency having jurisdiction against or affecting the Real
Estate or the construction, management, ownership, maintenance, operation, use,
improvement, acquisition or sale thereof (including, without limitation,
building, health, safety, zoning and Environmental Laws (collectively, "Real
Estate Legal Requirements")) whether or not such Violation has been officially
noted or issued, or (B) any material condition relating to the Real Estate
and/or the property covered by the Lease Agreements which would constitute a
Violation which the Companies are obligated to cure. The Real Estate is and on
the Closing Date shall be in compliance in all material respects with any and
all applicable Real Estate Legal Requirements with which the Companies are
obligated to comply under the applicable Lease Agreements. The Company shall
give Purchaser notice of any Violations of which any of the Companies shall
obtain written notice between the date of this Agreement and the Closing. The
Companies shall be responsible for the removal of all Violations, if any, issued
or existing with respect to the Real Estate which relate to the period up to and
including the Closing Date for which the Companies are responsible under the
Lease Agreement.
(b) Except as set forth on Schedule 5.10, to the Knowledge of the
Companies, as to the Real Estate, there is no pending imposition of any special
or other assessments for public betterments or otherwise, and there are no
proposed or pending special assessments affecting the Real Estate or any portion
thereof or any penalties or interest due with respect to Taxes assessed against
all or any such property in each case for which the Lessee is liable under the
Lease Agreements.
(c) As to the Real Estate, the Companies have not received any written
notice or written request from any insurance company or Board of Fire
Underwriters (or organization exercising functions similar thereto) or from any
mortgagee requesting the performance of any work or alteration in respect of the
Real Estate for which the Lessee is liable under the Lease Agreements.
(d) As to the Real Estate, there has been no damage to any portion of
the Real Estate caused by fire or other casualty which has not been fully
repaired or restored which would have a Material Adverse Effect.
(e) All buildings and other structures located on the Real Estate for
which the Companies are responsible under the Lease Agreements are in good
condition and repair, subject to ordinary wear and tear which would not have a
Material Adverse Effect.
5.11 Patents, Trademarks, Copyrights and Other Intellectual Property. A
list and brief description of applications for registration and registrations
for all trademarks, copyrights and patents, which are presently being used in
the Purchased Business, and all licenses, contracts, rights and arrangements
with respect to the foregoing, are set forth in
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Schedule 2.1(f) hereto, respectively. The Company has furnished to Purchaser
true and complete copies of each of the foregoing. Except as set forth in
Schedule 5.11, solely to the extent used in the Purchased Business within the
geographic area in which such Purchased Business is currently being conducted,
the Companies own the entire, unencumbered right, title and interest to all such
respective properties listed on Schedule 2.1(f) free and clear of all liens,
pledges, security interests, options, rights of first refusal, mortgages,
indentures, encumbrances, charges or agreements of any kind whatsoever, and,
except as set forth in Schedule 5.11 and except for unregistered trademarks and
tradestyles, no rights or licenses to others have been granted by the Companies
with respect to any of such properties. Except as set forth in Schedule 5.11,
the trademarks and service marks set forth on Schedule 2.1(f) have been duly
registered with the U.S. Patent and Trademark Office. Except as set forth in
Schedule 5.11, the Companies possess the right to use within the geographic area
in which such Purchased Business is currently being conducted the trademarks and
servicemarks listed on Schedule 2.1(f), without any known conflict with or
infringement of the rights of others. Except as set forth in Schedule 5.11, none
of the Companies has received any written notice of any claimed conflict with
respect to any of the foregoing. To the Knowledge of the Companies, there is no
default or alleged default on the part of any party in the performance of any
obligation to be performed or paid by any party under any licenses, contracts,
agreements or arrangements referred to in or submitted as a part of Schedule
5.11.
5.12 Contracts, Etc. Schedule 2.1(h) hereto sets forth a correct and
complete list of all of the Purchased Contracts, which list includes, solely to
the extent relating to the Purchased Business any (a) contract not made in the
Ordinary Course; (b) contract for the employment of any officer or employee; (c)
advertising agreement; (d) franchise, distributorship, service, license, royalty
or sales agency agreement; (e) contract for the future purchase of materials,
supplies, services, merchandise or equipment not capable of being fully
performed or not terminable by the Companies within a period of one year from
the date hereof or in excess of normal operating requirements; (f) agreement for
the sale or lease of any of the assets of the Companies other than inventory in
the Ordinary Course; (g) contract, understanding or commitment of expenditures
in excess of $50,000; (h) mortgage, pledge, conditional sales contract, security
agreement, factoring agreement, or other agreement encumbering any of the
Purchased Assets; (i) lease of Real Estate, machinery or equipment where the
total payments under such lease are in excess of $50,000 on an annual basis; (j)
agreement with a labor union or labor association; (k) loan agreement,
promissory note issued by it, guarantee, subordination or similar type of
agreement wherein the Companies received or extended credit; (l) consulting
agreement; (m) joint venture, partnership or similar type of arrangement; (n)
retainer arrangement with an attorney, accountant, actuary, consultant or other
professional; (o) contract or other arrangement in which any partner, officer,
director or shareholder of the Companies has a material interest; or (p)
contract, agreement or arrangement which is material to the conduct of the
Purchased Business. Complete and correct copies of each Purchased Contract have
been furnished or made available to Purchaser. Except as set forth in Schedule
2.1(h) hereto, the Companies have performed all of the obligations required to
be performed by it to date and is not in default under any Purchased Contract.
Except as set forth in Schedule 2.1(h) hereto, to the
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Knowledge of the Companies no person with whom any of the Companies has a
Purchased Contract which is of material importance to the Purchased Business is
in default thereunder. Except as disclosed herein or in Schedule 2.1(h) hereto,
none of the Companies is a party to any non-compete or similar agreement which
in any way restricts the operation of the Purchased Business or the Purchased
Assets.
5.13 Inventory. Schedule 5.13 sets forth a description of the methodology
used by the Company to record inventory on the Most Recent Financial Statements.
The inventory of the Companies included in the Purchased Assets is in good and
marketable condition, subject to defects consistent with the prior defect
history of the Companies. The Companies reasonably expect that such inventory is
saleable in the normal course of the Purchased Business as currently conducted,
in accordance with current pricing and markdown policies of the Companies
consistent with those used to calculate the December 27, 1997 closing inventory
in the Annual Financial Statements as at and for the period ended December 27,
1997 and within normal inventory "turn" experience for the Companies, subject
only to the reserve for inventory writedown (if any) used in the calculation of
inventory for the Most Recent Financial Statements, as adjusted for inventory
sold and acquired in the Ordinary Course through the Closing Date, in accordance
with the past custom and practice of the Purchased Business. Nothing in this
provision is intended to imply or create any obligation or representation of the
Companies with respect to, or how saleability of the inventory may be affected
by, the operation of the Purchased Business by Purchaser and/or Parent from and
after the Closing Date, to the extent that the Purchased Business is operated
differently from and after the Closing Date than before the Closing Date.
5.14 Authorizations; Compliance.
(a) The Companies have all necessary Permits required for the
ownership or occupancy of the Purchased Assets, and the carrying on of the
Purchased Business (the "Required Permits"). Schedule 5.14 hereto contains a
complete and correct list of all Required Permits (except motor vehicle
licenses). Each such Required Permit is valid and in full force and effect, and,
except as set forth on Schedule 5.14 hereto, will not be terminated or revoked
by the transactions contemplated hereby, and the Companies have not received
written notice that revocation is being considered with respect to any such
Required Permit. The Companies are in compliance in all material respects with
all Requirements of Law and has not received any written notice or charge
asserting any violation of any Requirement of Law which has not been cured,
except in each case which would not have a Material Adverse Effect.
(b) The Companies have furnished to Purchaser copies of all written
reports of inspections relating to the Purchased Business from January 1, 1997
through the date hereof under the Occupational Safety and Health Act and the
Equal Employment Opportunity Act or comparable state or local legislation and
the regulations promulgated thereunder. The deficiencies, if any, noted on such
reports or any deficiencies noted by inspection through the Closing Date have
been corrected or have been adequately reserved against on the Most Recent
Financial Statements, as the case may be. Except as listed on Schedule 5.14, to
the Knowledge of the Companies, there is
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no anti-competitive, discrimination or employment claim relating to the
Purchased Business.
5.15 Company Employees.
(a) Schedule 5.15 sets forth the names of all Eligible Employees,
together with each Eligible Employee's current salary, most recent bonus, years
of credited service for purposes of severance, vacation benefits, date of birth
and date of employment, as of April 25, 1998. Schedule 5.15 also lists the names
of all independent contractors regularly engaged by the Companies in connection
with the Purchased Business as of April 25, 1998, and all employment, consulting
or other agreements with such Persons. Since December 27, 1997, no Person listed
on Schedule 5.15 who is considered a key employee has specifically informed the
Company of a desire to terminate his or her employment, or any intention to
terminate his or her employment upon a sale of the Purchased Business.
(b) No Person listed on Schedule 5.15 is or since January 1, 1997 has
been represented by any labor or trade union and no movement to designate a
collective bargaining unit to represent any of such Persons exists or is
threatened. The Companies, except as set forth on Schedule 5.14, have complied
with all applicable wage and hour, equal employment, safety and other
Requirements of Law relating to such Persons in all material respects.
5.16 Employee Benefit Plans.
(a) Schedule 5.16 sets forth a list of (A) each employee benefit plan,
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and (B) to the extent not covered under (A) above,
each fringe benefit, stock option, bonus, incentive compensation, deferred
compensation, excess, supplemental executive compensation, employee stock
purchase, vacation, health, sickness or disability, workers' compensation,
severance or separation, restricted stock or other employee benefit plan,
agreement, policy or arrangement, whether written or oral, (1) which is or has
been maintained or contributed to within the last three years by the Company or
any entity, trade or business which together with the Company would be
considered a single employer under Section 414 of the Code (an "ERISA
Affiliate") for the benefit of the Persons listed on Schedule 5.15 or (2) under
which any of the Companies has or may have any material liability or obligation
(the "Benefit Plans"). Except as disclosed on Schedule 5.16, no Benefit Plan
provides health, dental, life insurance or other welfare benefits (whether on an
insured or self-insured basis) to the Persons listed on Schedule 5.15 after the
retirement of such Persons or other termination of employment (other than
continuation coverage required under COBRA which may be purchased at the sole
expense of such Persons). Except as disclosed on Schedule 5.15, no Benefit Plan
is subject to Section 412 of the Code, or Section 302 of ERISA. Neither the
Company nor any ERISA Affiliate has ever maintained, contributed to or incurred
any obligation or liability with respect to (i) any "multiemployer plan", as
defined in Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code
(either as an employer or a joint employer) or (ii) any plan subject to Title IV
of ERISA.
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(b) With respect to each Benefit Plan, the Company has heretofore
delivered to Purchaser true and complete copies of the text of the Benefit Plan.
(c) With respect to each employee benefit plan or arrangement
(including the Benefit Plans) maintained or contributed to by the Company or any
ERISA Affiliate, (i) there is no actual or contingent liability of the Company
or any ERISA Affiliate under Title IV of ERISA or the Code to any person or
entity, including the Pension Benefit Guaranty Corporation (the "PBGC"), the
Service, any such plan or the participants (or their beneficiaries) in any such
plan (other than the obligation to pay routine benefit claims when due under the
terms of such plan), (ii) the assets of the Purchased Business have not been
subject to a lien under ERISA or the Code and (iii) there is no basis for such
liability or the assertion of any such lien with respect to the assets of the
Purchased Business as the result of or after the consummation of the
transactions contemplated by this Agreement.
5.17 Insurance. Schedule 5.17 hereto contains a complete and correct list
of all policies of insurance of any kind or nature covering or related to the
Purchased Business, including, without limitation, policies of life, fire,
theft, casualty, product liability, workmen's compensation, business
interruption, employee fidelity and other casualty and liability insurance,
indicating the type of coverage, name of insured, the insurer, the premium, the
expiration date of each policy and the amount of coverage. All such policies (a)
are in full force and effect; and (b) are sufficient for compliance with all
Requirements of Law applicable to the Purchased Business and of all Purchased
Contracts. Complete and correct copies of such policies have been furnished to
Purchaser.
5.18 Litigation. Schedule 5.18 hereto contains a complete and correct list
of all actions, suits, proceedings, claims or governmental investigations
pending or, to the Knowledge of the Companies, threatened against, the Companies
or any of their respective assets, or, in connection with the Purchased
Business, any officer, director or employee of the Companies, in each case,
which would have a Material Adverse Effect. Except as set forth on Schedule 5.18
hereto, the Companies are not subject or party to any judgment, order, or other
direction of or stipulation with any Governmental Authority, or in violation of
any other Requirements of Law, in each case, which would have a Material Adverse
Effect.
5.19 Environmental Matters. Except as disclosed on Schedule 5.19: (i) the
Companies' operations of the Purchased Business comply, in all material
respects, with all applicable Environmental Laws; (ii) the Companies are not in
breach of any of their obligations, covenants or agreements in the Lease
Agreements relating to Environmental Laws, Hazardous Substances, the maintenance
and cleaning of the Real Estate, or any other environmental matters; (iii) the
Companies have not engaged in any activities that have resulted in, or otherwise
caused there to be present, any Hazardous Substances on, in, under or from any
of the Real Estate that are reasonably likely to require any investigation,
remediation, monitoring or clean-up activities to be undertaken; and (iv) the
Company has provided to Purchaser and Parent all material environmental reports,
assessments, audits, studies, investigations, data, environmental Permits, and
other
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material written environmental information in its custody, possession or control
concerning any of the Purchased Assets, the Purchased Business or the Real
Estate.
5.20 Transactions with Affiliates. Except as set forth in Schedule 5.20
hereto and except for ordinary dealings with their employees, since December 27,
1997, the Companies, solely with respect to the Purchased Business, have not had
any direct or indirect dealings (including, without limitation, any
transactions, relationships, contracts, arrangements, understandings,
commitments or agreements) with any partner of the Company (other than its
General Partners) or with any of their respective Affiliates or relatives.
Schedule 5.20 reasonably describes the nature and extent of any products,
services or benefits provided to the Purchased Business by any Affiliate of the
Companies without a corresponding charge equal to the fair market value of such
products, services or benefits.
5.21 Intentionally Deleted.
5.22 Illegal Payments. None of the Companies nor any of their respective
officers and employees (including, without limitation, the partners of the
Company) have made any illegal payments to, or provided any illegal benefit or
inducement for, any Governmental Authority, supplier, customer or other person,
in an attempt to influence any such person to take or to refrain from taking any
action relating to the Companies; provided, however, that employees of the
Companies may from time to time have made customary holiday gifts of nominal
value to suppliers or customers.
5.23 No Brokers or Finders. No person or entity is entitled to any
brokerage commission, finder's fees, advisory or other like payment from the
Companies in connection with this Agreement or the transactions contemplated
hereby for which Purchaser or Parent could become liable.
5.24 Lessees. Except for the Lessees set forth on Schedule 5.24, other than
entering into and holding the Lease Agreements, or as may arise directly
therefrom, the Lessees have no assets, properties or liabilities of any kind.
Except for the Lessees set forth on Schedule 5.24, the Lessees have no employees
or operations of any kind. All payments required of the Lessees and other
obligations of the Lessees under the Lease are and have been funded or provided
by the Company and its Affiliates.
5.25 Investment Representation. The Company possesses such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the portion of the Consideration consisting of shares of
Parent Common Stock. The Company is fully aware of the restrictions on resale of
such shares pursuant to applicable securities laws prior to registration thereof
(as contemplated by Section 8.3 hereof).
5.26 Disclosure. The representations and warranties by the Companies, and
as each has been amended or supplemented in accordance herewith or therewith, in
this Agreement or in any other Seller's Documents, taken as a whole do not
contain or will not contain any untrue statement of a material fact or omit or
will omit to state a
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material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading, taken as a
whole, and as each has been amended or supplemented in accordance herewith or
therewith.
5.27 Equipment. The Equipment located in the Purchased Stores as of the
date hereof is substantially the same as the Equipment located in the Purchased
Stores on April 25, 1998.
5.28 No Other Representations or Warranties. The Companies acknowledge and
agree that (i) the representations and warranties contained in Article VI of
this Agreement are the only representations and warranties made by Purchaser and
Parent and such representations and warranties expressly supersede and replace
any and all other representations or warranties of Purchaser and Parent, whether
written or oral, express or implied, whenever or however made and (ii) they are
not relying and have no remedy or recourse with respect to any information,
agreements, materials, financial information or documents previously provided by
Purchaser and Parent and/or their representatives, all of which are expressly
superseded by the representations and warranties contained in Article VI of this
Agreement.
ARTICLE VI
Representations and Warranties of Purchaser
Each of Purchaser and Parent represents and warrants to the Companies that:
6.1 Organization and Good Standing. Each of Purchaser and Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
6.2 Execution and Effect of Agreement.
(a) Purchaser has the requisite corporate power and authority to enter
into and perform this Agreement and all other agreements, certificates and
documents executed or delivered or to be executed or delivered by Parent or
Purchaser in connection herewith (collectively, with this Agreement,
"Purchaser's Documents"). The execution, delivery and performance by Purchaser
of Purchaser's Documents have been duly authorized by all necessary corporate
action of Purchaser. Subject to expiration or earlier termination of the
applicable waiting period under the HSR Act, no consent, approval, authorization
or waiver is required in connection with the execution, delivery and performance
of this Agreement by Purchaser. This Agreement has been duly executed and
delivered by Purchaser and Purchaser's Documents are (or when executed and
delivered by Purchaser will be) legal, valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms, except as such
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that the
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availability of the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) Parent has the requisite corporate power and authority to enter
into and perform this Agreement. Subject to the approval of Parent's Board of
Directors, the execution, delivery and performance by Parent of Purchaser's
Documents have been duly authorized by all necessary corporate action of Parent.
Subject to expiration or earlier termination of the applicable waiting period
under the HSR Act, no consent, approval, authorization or waiver is required in
connection with the execution, delivery and performance of this Agreement by
Parent. This Agreement has been duly executed and delivered by Parent and is (or
when executed and delivered by Parent will be) legal, valid and binding
obligations of Parent, enforceable in accordance with its respective terms,
except as such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that the availability
of the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
6.3 Restrictions. The authorization, execution, delivery and performance of
Purchaser's Documents by Parent and Purchaser and the consummation of the
transactions contemplated hereby and thereby by Parent and Purchaser do not and
will not (a) violate any of the provisions of the Certificate of Incorporation
or By-Laws of Purchaser or Parent, (b) violate, conflict with, result in a
breach of or constitute a default under, require any notice or consent under,
give rise to a right of termination of, or accelerate the performance required
by, or result in the imposition of any Claim, any terms or provisions of any
agreement, instrument or writing of any nature to which Purchaser or Parent is a
party or is bound, in each case which would have a material adverse effect on
Parent or Purchaser, other than the consents set forth on Schedule 6.3 hereto,
(c) violate, or result in a breach of, conflict with or require any notice,
filing or consent under, any Requirement of Law or Permit applicable to
Purchaser or Parent (other than pursuant to the HSR Act), or (d) result in the
creation of any Claim against Purchaser or Parent which would have a material
adverse effect on Parent or Purchaser.
6.4 No Lawsuits. There is no lawsuit, proceeding or investigation pending
or, to the knowledge of Purchaser or Parent, threatened against Purchaser or
Parent which might question the validity or propriety of this Agreement or the
consummation of any of the transactions contemplated hereby. Except as otherwise
disclosed in Parent's filings with the Commission, there are no actions, suits,
mediations, arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to the actual knowledge
of the Chief Executive Officer, Chief Financial Officer or General Counsel of
Parent or Purchaser (having made such inquiry, if any, as is reasonable under
the circumstances), threatened against Parent or Purchaser or other events which
would have a material adverse effect on the business, operating assets,
liabilities, results of operation, cash flows or financial condition of
Purchaser or Parent taken as a whole.
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6.5 No Brokers or Finders. No person or entity is entitled to any brokerage
commission, finder's fees, advisory or other like payment from Purchaser or
Parent in connection with this Agreement or the transactions contemplated hereby
for which the Companies could become liable or obligated.
6.6 Filings with the Commission. Parent has filed and made available to the
Company all reports it has filed with the Commission for the past two (2) years.
Such reports: (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Exchange Act of 1934, as amended; and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such reports or necessary in order to make the
statements in such reports, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of Parent included in such reports complied when filed as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, and
were, (x) when filed, in accordance with the books and records of Parent, (y)
complete and accurate in all material respects, and (z) present fairly in all
material respects the consolidated financial position and the consolidated
results of operations, changes in stockholders' equity and cash flows of Parent
and its subsidiaries as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles, subject in the case of
interim financial statements to normal year-end adjustments and the absence of
certain footnote information.
6.7 Shares of Parent Common Stock. The shares of Parent Common Stock to be
issued and delivered to the Company pursuant to this Agreement are, or will be,
duly issued, fully paid and non-assessable. At the Closing, Parent will transfer
to the Company good and marketable title to such shares of Parent Common Stock,
free and clear of all Claims (except as expressly provided herein or in the
Transitional Services Agreement, the Escrow Agreement or, with respect to the
Sugarman Shares, the Sugarman Lock-Up Agreement), and, as of the Closing, the
Company will be the record owner of all such shares of Parent Common Stock.
6.8 Offering of Shares of Parent Common Stock. Neither Parent nor Purchaser
has offered to sell any of the shares of Parent Common Stock to be issued and
delivered hereunder in a manner which would require the sale hereunder to be
registered under the Securities Act of 1933, as amended.
6.9 Limitation on the Companies' Representations and Warranties. Parent and
Purchaser acknowledge and agree that the Purchased Assets, the Purchased Stores
and the employees listed on Schedule 2.4 are not sufficient to operate the
Purchased Business as operated by the Companies immediately prior to the Closing
Date, and that Parent and Purchaser will need to obtain certain additional
assets, service and employees in order to operate the Purchased Business as
operated by the Companies immediately prior to the Closing Date. Purchaser and
Parent further acknowledge that the
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Purchased Business has never been operated as a separate stand-alone business
prior to the Closing Date.
6.10 No Other Representations or Warranties. Purchaser and Parent
acknowledge and agree that (i) the representations and warranties contained in
Article V of this Agreement are the only representations and warranties made by
the Companies and such representations and warranties expressly supersede and
replace any and all other representations or warranties of the Companies,
whether written or oral, express or implied, whenever or however made and (ii)
they are not relying and have no remedy or recourse with respect to any
information, agreements, materials, financial information or documents
previously provided by the Companies and/or their representatives, all of which
are expressly superseded by the representations and warranties contained in
Article V of this Agreement.
ARTICLE VII
Covenants of the Companies
The Companies jointly and severally covenant and agree with Purchaser and
Parent that:
7.1 Access to Records and Properties of the Purchased Business;
Confidentiality. From and after the date hereof until the Closing Date, the
Companies shall afford and, with respect to clause (ii) below, shall cause their
certified public accountants to afford, (i) to the officers, accountants,
counsel, financial advisors and other representa tives or agents of Purchaser
and Parent, full access at all reasonable times to the assets, properties,
contracts, premises, books and records (including tax returns filed and those in
preparation) of the Purchased Business in order that Purchaser and Parent may
have full opportunity to make investigation of the assets and affairs of the
Companies, and to such additional financial and operating data and other
information about the business and properties of the Purchased Business as
Purchaser and Parent shall from time to time reasonably request; and (ii) to the
accountants of Purchaser and Parent full (but confidential) access at all times
to work papers and other records of the certified public accountants of the
Companies relating to the Companies. Such access shall include, with consent of
the Company (such consent not to be withheld unreasonably), but shall not be
limited to, the placing of one or more employees and authorized representatives
at any office or premises of the Company for the purpose of enabling such
employees and representatives to become familiar with the Purchased Business.
The Company shall coordinate access by Purchaser and Parent to employees of the
Companies; provided, however, that the such access shall be required only to
those persons who (x) are listed on Schedules 2.4-A, 2.4-B and 2.4-D hereto, (y)
will perform services for Purchaser and/or Parent under the Transitional
Services Agreement or (z) prepared or were responsible for preparing any due
diligence materials delivered to Purchaser or Parent in connection with this
Agreement. The terms and provisions of the Confidentiality Agreement dated
February 1998 between Retail Apparel and Parent shall remain in full force and
effect, applicable to the Companies (as if references to Retail Apparel were
also to the Companies) and to
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Purchaser (as if references to Parent were also to Purchaser) thereunder, and
deeming all information obtained pursuant to this Agreement to be Evaluation
Material as defined therein.
7.2 Conduct of Business. From and after the date hereof until the Closing
Date, the Purchased Business shall be conducted only in the Ordinary Course. The
Companies shall not, except as set forth on Schedule 7.2, without the prior
written consent of Purchaser, take or commit to take any of following actions:
(a) amend its certificate of limited partnership or partnership agreement, (b)
enter into any employment agreement with, or become liable for any bonus,
profit-sharing or incentive payment to, or increase the compensation or benefits
of, any of its employees listed on Schedule 2.4, except pursuant to presently
existing plans, arrangements or agreements disclosed herein or in a Schedule
hereto, (c) sell, transfer, encumber or acquire any of the Purchased Assets
other than inventory sold in the Ordinary Course, (d) solely in respect of the
Purchased Business make any material changes in its customary method of
operations, including marketing, selling and pricing policies and maintenance of
business premises, fixtures, furniture and equipment, (e) modify, amend or
cancel any Purchased Contracts other than in the Ordinary Course, (f) enter into
any loan agreements or modify, amend or cancel any existing loan agreements
(other than as contemplated by Section 9.13, or (g) take any other action which
would cause any of the representations and warranties in Seller's Documents made
by the Company not to be true and correct on and as of the Closing Date with the
same force and effect as if such representations and warranties had been made on
and as of the Closing Date.
7.3 Schedules.
(a) The Company will notify Parent and Purchaser of any matter that
existed as of the date of this Agreement and should have been set forth or
described in the Schedules hereto and any matter hereafter arising which, if
existing on the date of this Agreement, would have been required to be set forth
or described in the Schedules hereto, by delivery of appropriate amendments or
supplements to all such Schedules no later than two Business Days prior to the
Closing, except in the event of an unforeseen occurrence during such period, in
which event the Company may deliver an additional amendment or supplement after
such date, and Purchaser or Parent may thereupon delay the Closing for a
reasonable period. No such supplement or amendment shall be given effect for
purposes of determining the satisfaction of the conditions set forth in Articles
IX or X of this Agreement; provided, however, that such supplements or
amendments shall be effective for purposes of determining a party's entitlement
to indemnification under Sections 13.1 or 13.2.
(b) The Companies, Parent and Purchaser agree that any fact, matter or
information disclosed in any part of this Agreement or on any Schedule hereto or
in any other Seller's Document or on any schedule thereto shall be deemed to
have been disclosed in each other Seller's Document, this Agreement, and each
schedule hereto and thereto, in each other place where such disclosure may be
appropriate.
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7.4 Standstill. From the period from the date hereof and ending on June 30,
1998 (the "No-Shop Period"), the Companies and their fiduciaries, employees,
advisers or other representatives retained by them directly or indirectly shall
not (a) pursue, solicit, initiate or encourage any inquiry or offer, or accept
any unsolicited offers, to (i) purchase three or more (in the aggregate) of the
Purchased Stores, other than sales of inventory in the Ordinary Course, (ii)
purchase any partnership interest of the Company or stock of its partners or of
the Lessees, other than transfers among existing partners or shareholders and
their family members, or (iii) merge, reorganize or engage in a similar
transaction involving any of the partners of the Company (or shareholders of
such partners) or the Lessees (or their shareholders) in each case with any
non-affiliated third party (each such transaction, a "Competing Transaction") or
(b) furnish any confidential information with respect to the Companies to any
person regarding any such inquiries or offers, or participate in any discussions
or negotiations regarding any such inquiries or offers. In the event that (x)
any of the Companies breaches the provisions of the preceding sentence, (y) any
of the Companies enters into a binding written agreement with a third party with
respect to a Competing Transaction prior to January 15, 1999, and (z) such
Company consummates such Competing Transaction with such third party, the
Company shall pay to Purchaser an amount in cash equal to $1,610,000, within two
Business Days of consummation of such a transaction.
7.5 Maintenance of Insurance. From and after the date hereof until the
Closing Date, each of the Companies shall maintain in full force and effect all
of its presently existing insurance coverage, or insurance comparable to such
existing coverage on the Purchased Assets.
7.6 Affidavit. Prior to the Closing Date, Purchaser shall have received an
affidavit from the Companies, in a form satisfactory to Purchaser, stating,
under penalty of perjury, the Companies' United States taxpayer identification
number and that the Company is not a foreign person within the meaning of
Section 1445(b)(2) of the Code.
7.7 Further Actions. From and after the date hereof until the Closing Date,
the Company shall (a) execute and deliver such instruments and take such other
actions as Purchaser may reasonably require to carry out the intent of this
Agreement, (b) use its commercially reasonable efforts to obtain consents of all
third parties and Governmental Authorities necessary for the consummation of the
transactions contemplated by this Agreement, (c) diligently support this
Agreement in any proceeding before any regulatory authority whose approval of
the transaction contemplated hereby is required, (d) give written notification
to Parent of the existence of any event or circumstance which the Company
asserts permits it to refuse to consummate the transactions contemplated by this
Agreement, promptly upon becoming aware of such item.
7.8 Annual Financial Statements. The Company shall deliver to the Purchaser
and Parent, not later than two business days prior to the Closing, the following
financial statements of the Purchased Assets: (collectively, the "Annual
Financial Statements"): (a) statements of net assets to be acquired at and as of
December 27, 1997; and (b) the statement of revenues, direct expenses and
allocated expenses before
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interest and taxes for the year ended December 27, 1997, with the opinion of
Patrusky, Mintz & Semel, independent certified public accountants, in the form
of Exhibit 7.8 attached hereto. The Company covenants and warrants that each of
the Annual Financial Statements have been prepared in accordance with the books
and records of the Company relating to the Purchased Assets and in accordance
with generally accepted accounting principles applied on a consistent basis and
maintained throughout the periods covered thereby and present fairly, in all
material respects, the net assets, revenues, direct expenses and allocated
expenses before interest and taxes as of the dates and for the periods
indicated. Purchaser and Parent acknowledge and agree that they have reviewed
and understand the point of sale markdown policies and practices, the inventory
valuation policies and practices and the inter-store inventory transfer policies
and practices.
7.9 Lease Agreements.
(a) The Company shall provide to Purchaser all reasonable cooperation
(without having to expend any funds) that Purchaser may from time to time
request (including after the Closing) to effectuate an amendment to or a
restatement of any Lease Agreement for a Purchased Store that is actually
acquired by Purchaser hereunder (i.e., a Lease Agreement that becomes an Assumed
Contract), or to obtain from any holder of a mortgage encumbering the premises
subject to any such Lease Agreement a non-disturbance agreement with Purchaser.
In connection with obtaining any landlord consent, Parent will, to the extent
required to obtain such consent without additional consideration, if any, agree
to guarantee the obligations of Purchaser under the applicable Lease Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
the Company and the Lessees shall have the right to disclose the name of
Purchaser and Parent and the terms and existence of this Agreement and the
transaction contemplated hereby, in connection with obtaining the consent to the
transaction of the landlords under the Lease Agreements. In addition, the
Companies shall endeavor to include representatives of Parent and Purchaser in
meetings and discussions with such landlords for such purposes and otherwise in
furtherance of this Agreement where appropriate.
7.10 Lock-Up.
(a) From the date hereof, the Company shall not dispose of any Escrow
Shares prior to the 18-Month Date except as such transfer may occur (i) in a
merger by operation of law, (ii) in acceptance of an offer to purchase all or
substantially all the outstanding shares of Parent Common Stock or (iii) in
connection with the sale of all or substantially all of Parent's assets. The
Company shall not dispose of any Basic Shares until two trading days after
Parent's public announcement of its earnings for the quarter ended July 31,
1998, which Parent agrees to make no later than 45 days following the end of
such quarter.
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(b) The Company shall use its best efforts to cause Gary Sugarman not
to dispose any of his Additional Shares prior to the third anniversary of the
Closing.
(c) The Company, its partners and their stockholders and their
respective Affiliates shall not sell any shares of Parent Common Stock acquired
hereunder other than in an orderly fashion using BT Alex. Brown, Hambrecht &
Quist, NationsBank Montgomery Securities or CIBC Oppenheimer or another
broker-dealer acceptable to Parent until such time as the Company and such
Persons referred to above collectively own fewer than 20,000 shares of Parent
Common Stock acquired hereunder that may be sold without restriction under
applicable securities laws. For this purpose, a block trade shall be deemed to
be a sale made in an orderly fashion. Notwithstanding the foregoing, in the
event that a Registration Statement is not declared effective by the Applicable
Registration Deadline, (i) any sale made in accordance with Rule 144 promulgated
by the Commission under the Securities Act of 1933, as amended, and (ii) any
private resale shall be deemed to have been made in an orderly fashion.
(d) Anything in this Section to the contrary notwithstanding, the
Company may distribute shares of Parent Common Stock to its partners and their
shareholders and such shareholders' family members; provided, that (i) such
distributees shall be held to the same restrictions as the Company (including
the restrictions provided in this Agreement) with respect to such shares, (ii)
at the time of each such distribution, legal counsel to the Company reasonably
acceptable to Purchaser and Parent shall issue a legal opinion to be relied upon
by legal counsel to Parent and Purchaser and by the transfer agent and registrar
for the Parent Common Stock to the effect that such transfer is exempt from
Section 5 under the Securities Act of 1933, as amended, which opinion shall be
in form and substance reasonably satisfactory to Purchaser and Parent, and (iii)
prior and subsequent to any transfers, the certificates representing such shares
shall bear appropriate restricted legends with respect to the lock-up of such
shares. For purposes of the foregoing provision, Richards Spears Kibbe & Orbe is
deemed acceptable to Parent and Purchaser.
(e) The Company shall not sell or otherwise transfer any shares of
Parent Common Stock in violation of the Securities Act of 1933, as amended, or
any other applicable Requirement of Law.
7.11 Hiring. Neither the Company nor any of its Affiliates will, by act or
omission, interfere with efforts of Purchaser and/or Parent to hire Gary
Sugarman and any employees selected by Purchaser and/or Parent from those
persons specified on Schedule 2.4 and all store-level personnel employed at or
associated with the Purchased Stores (to the extent actually acquired
hereunder).
7.12 Cooperation Regarding Promotional Allowances, Etc. The parties hereto
acknowledge that suppliers of inventory often provide, on a negotiated basis,
"markdown money" (as such term is commonly used in the apparel industry) in the
form of discounts on future orders, promotional allowance, marketing funds or
otherwise. To the extent that such "markdown money" is negotiated after the
Closing Date with respect
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to inventory sold by such vendors to the Companies prior to the Closing Date,
the parties hereto agree to allocate such "markdown money" equitably between
Purchaser, on the one hand, and the Companies, on the other.
7.13 Employment. Pending the Closing, the Companies shall use their
respective commercially reasonable efforts to retain the services of the
Eligible Employees.
7.14 Other Financial Statements. The Company shall deliver to Purchaser and
Parent, not later than 30 days after the Closing Date, the following unaudited
pro forma financial statements of the Purchased Assets (collectively, the "Other
Financial Statements"): the statement of net assets to be acquired as of March
28, 1998 and the statements of revenues, direct expenses and allocated expenses
before interest and taxes for the 13-week periods ended March 28, 1998 and March
29, 1997. The Companies warrant that the Other Financial Statements will be
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and maintained throughout the periods covered thereby (except
for the absence of footnotes and normal year-end adjustments that will not,
individually or in the aggregate, be material) and will present fairly in all
material respects, the net assets to be acquired, revenues, direct expenses and
allocated expenses before interest and taxes as of and for the periods
indicated, except that (a) the Other Financial Statements will not necessarily
be indicative of the results to be expected for the full year and (b) no
physical inventory has been taken at the end of such periods in connection with
the preparation of any such statements. Purchaser and Parent hereby acknowledge
and agree that (a) the Other Financial Statements have been prepared at the
request of Purchaser and Parent, (b) at the request of Purchaser and Parent, the
Other Financial Statements use methodologies for the allocation of expenses
which vary from those used historically by the Companies, and (c) the financial
results presented in the Other Financial Statements will be materially different
than the financial results presented in the Company's financial statements
prepared using the methodology used historically by the Companies (and from the
financial results contained in the Most Recent Financial Statements). Purchaser
and Parent further acknowledge and agree that they have reviewed and understand
the point of sale markdown policies and practices, the inventory valuation
policies and practices and the inter-store inventory transfer policies and
practices.
ARTICLE VIII
Covenants of Purchaser and Parent
8.1 Conduct of Business. Each of Purchaser and Parent covenants and agrees
with the Companies that between the date hereof and the Closing, it will not
take any action which would cause any of the representations and warranties made
by it in Purchaser's Documents not to be true and correct in all material
respects on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date.
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8.2 Further Actions. Each of Purchaser and Parent agrees with the Company
that Purchaser and Parent will (i) execute and deliver such instruments and take
such other actions as the Company may reasonably require to carry out the intent
of this Agreement, (ii) use its commercially reasonable efforts to obtain
consents of any third party or Governmental Authority necessary for the
consummation of the transactions contemplated by this Agreement, (iii)
diligently support this Agreement in any proceeding before any Governmental
Authority from which approval of the transactions contemplated hereby is
required, (iv) give written notification to the Company of the existence of any
event or circumstance which Purchaser or Parent asserts permits it to refuse to
consummate the transactions contemplated by this Agreement, immediately upon
becoming aware of such item.
8.3 Registration Rights.
(a) Parent shall use best commercial efforts to file with the
Commission at least 60 days prior to the applicable Registration Deadline and
cause to become effective a shelf registration statement on Form S-3 covering
the public resale of the Basic Shares by the 90th day following the Closing and
a shelf registration statement on Form S-3 covering the public resale of the
Additional Shares by the 18-Month Date (each such shelf registration statement,
a "Registration Statement"). In the event that a Registration Statement has not
been declared effective by the Commission on or prior to the applicable
registration deadline described in the preceding sentence (the "Applicable
Registration Deadline"), Parent shall pay to the Company as liquidated damages
an amount (the "Fixed Damages") equal to the sum of (i) the amount of $3,333.33
for each of the first 90 days after such deadline that such Registration
Statement has not been declared effective by the Commission and (ii) $6,666.66
for each day after the first 90 days after such Applicable Registration Deadline
that such Registration Statement has not been declared effective by the
Commission; it being agreed that the Company's damages in such event might be
impossible to ascertain and that such amounts constitute fair and reasonable
measures of damages under the circumstances, and not a penalty. In the event
that a Registration Statement has not been declared effective by the Commission
on or prior to the Applicable Registration Deadline solely due to an act of god,
review of the Registration Statement by the Commission, or a delay in the
Commission's review of the Registration Statement caused by a government
shutdown, slowdown or strike, Purchaser shall (in lieu of the Fixed Damages) pay
to the Company as liquidated damages an amount (the "Market Damages") equal to
the product of: (i) 0.002% of the product of (x) the number of shares of Basic
Stock multiplied by (y) the Issue Price, (ii) the sum of (x) one plus (y) the
number of full, 90-day periods that have elapsed since the Applicable
Registration Deadline and (iii) the number of days after such deadline that such
Registration Statement has not been declared effective by the Commission;
provided, further, that Purchaser shall use its best commercial efforts to cause
the Commission's review of such Registration Statement to be concluded as
quickly as reasonably practicable (with the result that the Registration
Statement be declared effective) and, if Purchaser fails to use such efforts,
Purchaser shall be obligated to pay to the Company the Fixed Damages (in lieu of
the Market Damages); it being agreed that the Company's damages in such event
might be impossible to ascertain and that such amounts constitute fair and
reasonable measures of damages under the circumstances, and not a penalty.
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Any amounts of Fixed Damages or Market Damages payable pursuant to this Section
shall accrue daily and shall be payable in cash promptly following each 30-day
period after the Applicable Registration Deadline. The Fixed Damages and the
Market Damages, as the case may be, provided in this provision are intended to
be the exclusive remedy of the Company in the event that a Registration
Statement does not become effective on or prior to the Applicable Registration
Deadline.
(b) Anything in this Agreement to the contrary notwithstanding: (i)
the Company shall not be entitled to any further Fixed Damages, Market Damages
or any other liquidated or other form of damages hereunder with respect to that
number of shares of Parent Common Stock with respect to the failure of any
Registration Statement to be declared effective prior to the Applicable
Registration Deadline from and after the date on which such shares of Parent
Common Stock may be traded or resold under Rule 144 promulgated by the
Commission under the Securities Act of 1933, as amended; and (ii) if the mean of
the intraday high and low bid prices for the Parent Common Stock on the date the
Registration Statement is declared effective (the "Effective Date Price")
exceeds the mean of the intraday high and low bid prices for the Parent Common
Stock on the Applicable Registration Deadline (the "Deadline Price"), the
Company's entitlement to Fixed Damages, Market Damages or any other liquidated
or other form of damages hereunder with respect to the failure of any
Registration Statement to be declared effective prior to the Applicable
Registration Deadline shall be reduced by an amount equal to the product of (a)
the number of shares of Parent Common Stock that were to be included in such
Registration Statement, multiplied by (b) the excess, if any, of (i) the
Effective Date Price, over (ii) the Deadline Price.
(c) Purchaser shall keep each Registration Statement effective for two
years after the filing thereof.
(d) The parties shall be bound by the additional terms and provisions
set forth on Annex 8.3 hereto.
8.4 Options. Following the Closing, Parent shall grant options to purchase
up to an aggregate of 75,000 shares of Parent Common Stock to employees of the
Purchased Business, which options shall be granted no earlier than July 14,
1998, shall have an exercise price equal to the closing price per share of
Parent Common Stock on the applicable date of grant and shall be given to such
employees and in such numbers (subject to the foregoing aggregate limit) as
Parent shall determine in consultation with Gary Sugarman.
ARTICLE IX
Conditions Precedent to Obligations of Purchaser and Parent
The obligations of Purchaser and Parent to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before the
Closing, of
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each of the following conditions, any of which may be waived by Purchaser and
Parent in writing:
9.1 Representations and Warranties. Each of the representations and
warranties of the Company in the Seller's Documents shall be true and correct on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date after giving effect to any amendments or supplements to
the Schedules pursuant to Section 7.3 hereof.
9.2 Performance of the Companies. The Companies shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by the Seller's Documents to be performed or complied with by any of
them at or before the Closing.
9.3 Certificate. Purchaser shall have received a certificate executed by
the Company, dated as of the Closing Date, certifying, in such detail as
Purchaser may reasonably request, as to the fulfillment of the conditions set
forth in Sections 9.1 and 9.2 hereof as amended and supplemented.
9.4 Board Approval. The Board of Directors of Parent shall have approved
the transactions contemplated by this Agreement.
9.5 Sugarman Agreements. Gary Sugarman shall have entered into an
employment agreement with Purchaser in the form of Exhibit 9.5-1 hereto (the
"Employment Agreement") and a Lock-Up Agreement with Purchaser in the form of
Exhibit 9.5-2 hereto (the "Sugarman Lock-Up Agreement").
9.6 Escrow Agreement. The Company and the Escrow Agent shall have entered
into the Escrow Agreement in the form of Exhibit 9.6 hereto (the "Escrow
Agreement").
9.7 Transitional Services Agreement. The Company shall have entered into a
transitional services agreement with Purchaser and Parent in the form of Exhibit
9.7 hereto (the "Transitional Services Agreement").
9.8 Trademark License Agreement. The Company shall have entered into the
Trademark License Agreement with Purchaser in the form of Exhibit 9.8-1 hereto
(the "Trademark Agreement") and shall have executed a Trademark Assignment in
the form of Exhibit 9.8-2 hereto for each applicable trademark (collectively,
the "Trademark Assignments").
9.9 Opinions of Counsel to the Companies. The Company shall have delivered
to Purchaser an opinion of (a) Richards Spears Kibbe & Orbe, special counsel to
the Companies, dated the Closing Date and (b) Semel & Patrusky, counsel to the
Companies, dated the Closing Date, in each case reasonably satisfactory to
Purchaser and Parent.
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9.10 Consents. The Companies shall have obtained all consents, approvals or
waivers from Governmental Authorities and third parties necessary for the
execution, delivery and performance of Sellers' Documents and the transactions
contemplated hereby and thereby, all without material cost or other material
adverse consequences to the Purchased Business, and, in the case of consents
relating to the Lease Agreements, in the form of Exhibit 9.10 or as otherwise
approved by Purchaser.
9.11 Litigation. No action or proceeding shall be pending or threatened
before any court, tribunal or Governmental Authority, and no claim or demand
shall have been made against Purchaser, Parent or the Companies, as the case may
be, seeking to restrain or prohibit or to obtain damages or other relief in
connection with the consummation of the transactions contemplated by Seller's
Documents or Purchaser's Documents, or which might materially affect the
business of the Company, which in the reasonable opinion of Purchaser makes it
inadvisable to consummate such transactions.
9.12 HSR Act. The applicable waiting period under the HSR Act shall have
expired or been terminated early.
9.13 Tax Affidavit. The Companies shall have furnished Purchaser with the
affidavit referred to in Section 7.6 and Purchaser shall not have actual
knowledge nor shall Purchaser have received notice pursuant to Section 1445(d)
of the Code that any of such affidavits are false.
9.14 Absence of Material Adverse Effect. There shall not have occurred
since December 27, 1997 any Material Adverse Effect.
9.15 Bill of Sale. Purchaser shall have received from the Company a duly
executed Bill of Sale in the form of Exhibit 9.15 (the "Bill of Sale").
9.16 Assignment and Assumption. Purchaser shall have received from the
Companies a duly executed Assignment and Assumption Agreement in the form of
Exhibit 9.16 (the "Assignment and Assumption Agreement").
9.17 New Jersey Environmental Matters. For each Real Estate located in the
State of New Jersey, the Companies will comply with the obligations imposed by
the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. by
securing and providing a copy to Purchaser of a letter of non-applicability from
the New Jersey Department of Environmental Protection.
9.18 Real Estate Legal Requirements. The Real Estate and the premises
covered by the Lease Agreements will be in compliance in all material respects
with all Real Estate Legal Requirements, to the extent the Companies are
obligated under the Lease Agreements to comply therewith or to cure Violations
thereof.
9.19 Other Documents. The Companies shall have delivered to Purchaser such
other certificates, instruments and other documents as Purchaser shall
reasonably require in connection with the transactions contemplated by this
Agreement.
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9.20 Employees. The employees of the Company designated as "Required
Employees" on Schedules 2.4-A, 2.4-B and 2.4-D shall have agreed to become
employees of Purchaser.
9.21 Annual Financial Statements. The Annual Financial Statements shall not
disclose that the financial position of the Purchased Business is materially
worse than the financial position disclosed in the Pro Forma Financial
Statements.
ARTICLE X
Conditions Precedent to Obligations of the Companies
The obligations of the Companies to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before the
Closing, of each of the following conditions, any of which may be waived by the
Company in writing:
10.1 Representations and Warranties. The representations and warranties of
Purchaser and Parent in Purchaser's Documents shall be true and correct on and
as of the Closing Date with the same force and effect as though the same had
been made on and as of the Closing Date.
10.2 Performance by Purchaser and Parent. Purchaser and Parent shall have
performed and complied in all material respects with the agreements, covenants
and conditions required by Purchaser's Documents to be performed or complied
with by them at or before the Closing.
10.3 Certificate. The Company shall have received a certificate executed by
Purchaser and Parent, dated the Closing Date, certifying, in such detail as the
Company may reasonably request, as to the fulfillment of the conditions set
forth in Sections 10.1 and 10.2.
10.4 Consideration. The (a) Cash Consideration shall have been paid as
provided in Section 3.1(a) hereof, (b) the Basic Shares have been issued to the
Company as provided in Section 3.1(b), and (c) the Additional Shares shall have
been delivered to the Escrow Agent as provided in Section 3.1(c) and Escrow
Agent shall have acknowledged receipt thereof.
10.5 HSR Act. The applicable waiting period under the HSR Act shall have
expired or been terminated early.
10.6 Minimum Stores. Purchaser shall purchase at least 18 Purchased Stores.
10.7 Employment Agreement. Purchaser shall have entered into the Employment
Agreement.
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10.8 Escrow Agreement. Parent and Purchaser shall have entered into the
Escrow Agreement.
10.9 Transitional Services Agreement. Parent and Purchaser shall have
entered into the Transitional Services Agreement.
10.10 Trademark Agreement. Parent and Purchaser shall have entered into the
Trademark Agreement.
10.11 Opinion of Counsel. Parent and Purchaser shall have delivered to the
Company an opinion of the General Counsel of Parent dated the Closing Date,
reasonably satisfactory to the Company.
10.12 Consents. The Companies shall have obtained all consents, approvals
or waivers from Governmental Authorities and third parties necessary for the
execution, delivery and the transactions contemplated hereby and thereby, all
and performance of Seller's Documents without material cost or other material
adverse consequences to the Purchased Business.
10.13 No Material Adverse Change. Since April 30, 1998, there shall not
have occurred (a) a material adverse effect upon the business, results of
operations, assets (whether tangible or intangible), liabilities, obligations or
condition (financial or otherwise) of Purchaser or Parent, (b) a material
adverse effect on the legality, validity or enforceability of the Purchaser's
Documents, or (c) the impairment, hindrance or adverse effect in any material
respect upon the ability of Purchaser or Parent to perform any of their
obligations under the Purchaser's Documents or to consummate the transactions
contemplated thereby.
10.14 Litigation. No action or proceeding shall be pending or threatened
before any court, tribunal or Governmental Authority, and no claim or demand
shall have been made against Parent, Purchaser or the Companies, seeking to
restrain or prohibit or to obtain material damages or other relief in connection
with the consummation of the transactions contemplated by Seller's Documents
which in the reasonably exercised opinion of the Company makes it inadvisable to
consummate such transactions.
10.15 Assignment and Assumption Agreement. The Companies shall have
received an Assignment and Assumption Agreement duly executed by Purchaser and
Parent.
10.16 New Jersey Environmental Matters. For each Real Estate located in the
State of New Jersey, Purchaser and Parent will comply with the obligations
imposed by the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq.
by securing and providing a copy to the Companies of a letter of
non-applicability from the New Jersey Department of Environmental Protection.
10.17 Other Documents. Purchaser and Parent shall have delivered to the
Companies such other certificates, instruments and other documents as the
Company
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shall reasonably require in connection with the transactions contemplated by
this Agreement.
ARTICLE XI
Closing Deliveries
11.1 Deliveries of the Companies. At the Closing, the Company shall
deliver, or shall cause to be delivered, to Purchaser the following:
(a) The certificate referred to in Section 9.3 hereof, duly executed
by the Company;
(b) The Annual Financial Statements;
(c) The Transitional Services Agreement, duly executed by the Company;
(d) The Trademark Agreement and the Trademark Assignments, duly
executed by the Company;
(e) Copies of the consents, approvals or waivers referred to in
Section 9.10 hereof to the extent obtained;
(f) The Escrow Agreement, duly executed by the Company;
(g) The Section 1445(d) tax affidavits referred to in Section 9.13
hereof, duly executed by or on behalf of the Companies;
(h) The Bill of Sale, duly executed by the Company; and
(i) The Assignment and Assumption Agreement, duly executed by the
Company.
11.2 Purchaser's Deliveries. At the Closing, Purchaser and Parent shall
deliver or cause to be delivered to the Company or the Escrow Agent, as the case
may be the following:
(a) The certificate referred to in Section 10.3 hereof, duly executed
by Purchaser;
(b) The Cash Consideration, as provided in Section 3.1(a) hereof;
(c) Certificates representing the shares of Parent Common Stock to be
issued at Closing as provided herein;
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(d) The Employment Agreement, duly executed by Purchaser and Parent;
(e) The Escrow Agreement, duly executed by Purchaser and Parent;
(f) The Transitional Services Agreement, duly executed by the
Purchaser;
(g) The Trademark Agreement, duly executed by Purchaser and Parent;
and
(h) The Assignment and Assumption Agreement, duly executed by
Purchaser and Parent.
ARTICLE XII
Restrictive Covenant
12.1 Restricted Activities. Subject to Section 12.2, the Company, the
Lessees and each of their Affiliates shall not participate in the junior's or
young men's or junior's and young men's retail clothing business which is
competitive with the Purchased Business as conducted on the date hereof under
any name during the period from 210 days after the Closing through the third
anniversary of the Closing. The Companies shall not operate more than three
stores under the SCREEEM! name during the period from the Closing Date to
September 30, 1998 and no stores under the SCREEEM! or JEAN COUNTRY names after
September 30, 1998 (except for nine JEAN COUNTRY stores designated by the
Company). The Companies shall permanently cease all operations under the names
JEAN COUNTRY and REVOLUTION by January 31, 1999, provided, however, that if a
landlord of a JEAN COUNTRY or REVOLUTION store that is not a Purchased Store
refuses to consent to a change of use of such store, the deadline by which the
Companies are required to comply with the obligations under the first part of
this sentence may be extended by not more than 120 days.
12.2 Permitted Activities.
(a) The Companies may operate SID'S PANTS, LAW APPAREL and ZACHARY'S
stores, regardless of the names under which such businesses are conducted and
the manner in which such stores may be expanded so long as such stores do not
compete with the Purchased Business as conducted by the Companies on the date
hereof. Purchaser and Parent acknowledge and agree that SID'S PANTS, LAW APPAREL
and ZACHARY'S stores do not compete with the Purchased Business as conducted on
the date hereof.
(b) The Company may liquidate any and all inventory it owns in a JEAN
COUNTRY or SCREEEM! store as of the date such store closes in accordance with
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Section 12.1 hereof; provided, however, that the Companies may not sell such
inventory under the JEAN COUNTRY name after the closing of the last JEAN COUNTRY
store or under the SCREEEM! name after the closing of the last SCREEEM! store.
ARTICLE XIII
Indemnification
13.1 Indemnification by the Companies. Subject to the terms and conditions
of Section 15 of this Agreement, the Companies shall indemnify, defend and hold
harmless Purchaser, Parent and their Affiliates, and their respective
controlling persons, stockholders, officers, directors, employees,
representatives and agents (collectively, the "Purchaser Indemnified Parties")
promptly upon demand at any time and from time to time, against any and all
losses, Liabilities, Claims, actions, suits, Taxes, penalties, fines, fees,
obligations, encumbrances, damages and expenses, including, without limitation,
reasonable attorneys' fees and disbursements (collectively, "Losses"), arising
out of or in connection with any of the following: (a) any misrepresentation or
breach of any warranty made by the Companies in any of Seller's Documents
(including, without limitation, any schedule or exhibit thereto or certificate
delivered in connection therewith); (b) any breach or nonfulfillment of any
covenant or agreement made by the Companies in any of Seller's Documents
(including, without limitation, any schedule or exhibit thereto or certificate
delivered in connection therewith); (c) any non-compliance with any applicable
Requirement of Law relating to "bulk sales"; (d) the ownership or operation of
the Purchased Business or the Purchased Assets prior to the Closing Date (except
to the extent included in the Assumed Contracts); (e) any benefit plan or
arrangement (including the Benefit Plans) sponsored, maintained or contributed
to by the Company or an ERISA Affiliate; (f) any obligation or liability to any
Person listed on Schedule 5.15 or other present or former employee of the
Company, or to any dependent, survivor or beneficiary thereof, arising out of or
relating to any such person's employment with the Company or an ERISA Affiliate,
except for matters Purchaser and Parent are responsible for under Section 2.4
hereof; (g) any other Losses arising out of the Retained Liabilities; and (h)
any non-compliance with any applicable Requirement of Law relating to abandoned
or unclaimed property.
13.2 Indemnification by Parent and Purchaser. Subject to the terms and
conditions of Section 15 of this Agreement, Purchaser and Parent shall jointly
and severally indemnify, defend and hold harmless the Companies and their
Affiliates (including, without limitation, any guarantors of the Lease
Agreements), and their respective controlling persons, stockholders, partners,
officers, directors, employees, representatives and agents (collectively, the
"Seller Indemnified Parties"), promptly upon demand at any time and from time to
time, against any and all Losses arising out of or in connection with any of the
following: (a) any misrepresentation or breach of any warranty made by Purchaser
or Parent in any of Purchaser's Documents (including, without limitation, any
schedule or exhibit thereto or certificate delivered in connection therewith);
(b) any breach or nonfulfillment of any covenant or agreement made by Purchaser
or Parent in Purchaser's Documents (including, without limitation, any schedule
or exhibit
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thereto or certificate delivered in connection therewith); (c) the Assumed
Liabilities; (d) the ownership or operation of the Purchased Business or the
Purchased Assets from and after the Closing Date (except as provided herein with
respect to the Benefits Adjustment or the Returns Adjustment) and (e) except as
otherwise provided in Section 2.4, any obligation or liability to any
Post-Closing Employee or to any Person set forth on Schedule 2.4-D, or to any
dependent, survivor or beneficiary thereof, arising out of or relating to any
such person's employment with Purchaser or any entity, trade or business which
together with Purchaser would be considered a single employer under Section 414
of the Code.
13.3 Survival.
(a) All representations, warranties, indemnities, covenants and
agreements made by the Companies in Seller's Documents (including, without
limitation, any schedule or exhibit thereto or certificate delivered in
connection therewith) shall survive until May 1, 2000, except that with respect
to all such representations, warranties, indemnities, covenants and agreements
with respect to matters concerning Taxes (including Section 5.8) and
environmental matters (including Section 5.19) shall survive until the earlier
of the fourth anniversary of the Closing Date or the expiration of the
applicable statute of limitations.
(b) All representations, warranties, indemnities, covenants and
agreements made by Purchaser or Parent in Purchaser's Documents (including,
without limitation, any schedule or exhibit thereto or certificate delivered in
connection therewith) shall survive until May 1, 2000 (except covenants and
agreements to be performed after Closing and the indemnities specifically
relating thereto shall survive until fully performed).
13.4 Limitations.
(a) The indemnifications provided in this Article XIII shall be the
sole and exclusive remedy of the parties to this Agreement with respect to the
transactions contemplated by this Agreement regardless of the legal theory
(whether under contract, in tort, under applicable securities laws or otherwise)
other than as specifically provided with respect to adjustment of the
Consideration (in Article III and Sections 7.11(a) and 8.2(b)) and with respect
to the matters set forth in Section 8.3, which provisions shall be the exclusive
remedies for the matters set forth therein; provided, however, that in no event
shall this provision limit any party's right to specific performance, injunctive
relief or any other equitable remedy otherwise available to such party. In no
event shall any Purchaser Indemnified Party be entitled to recover for any Loss
under Section 13.1 to the extent that such Loss has been reflected in the Book
Value Adjustment or in the Annual Financial Statements.
(b) Notwithstanding anything in this Agreement to the contrary, a
Purchaser Indemnified Party shall be entitled to indemnification under Section
13.1 for Losses only to the extent that the aggregate amount of all Losses
exceeds $100,000 and then only for Losses in excess of $100,000, except that
such limitation shall not apply to indemnification for Losses under clause (h)
of Section 13.1 and such Losses under clause (h) shall not count towards amounts
referred to in the first part of this Section 13.4(b).
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(c) In no event shall the Companies' cumulative liability to indemnify
for Losses under Section 13.1 (other than Losses relating to breach of (or
misrepresentation under) any of the Company Transactional Representations or
failure to comply with the conditions of the Escrow Agreement) exceed
$5,500,000. In no event shall the Companies' cumulative liability to indemnify
for Losses under Section 13.1 relating to breach of (or misrepresentation under)
any of the Company Transactional Representations (other than Section 5.25
(Investment Representations)) or for failure to comply with the conditions of
the Escrow Agreement exceed the amount of the Purchase Price. In no event shall
the Companies' cumulative liability to indemnify for Losses under Section 13.1
relating to breach of (or misrepresentation under) Section 5.25 (Investment
Representations) exceed $14,000,000 less the amount of any reduction of the
Purchase Price allocated to Basic Shares or Additional Shares pursuant to
Section 8.2(b) hereof (such reduction to be equal to the total number of Basic
Shares and Additional Shares not delivered pursuant to that Section multiplied
by the Issue Price), which reduction is not subsequently (i.e., within the 120
days following the Closing Date) restored pursuant to that Section.
(d) In no event shall the cumulative liability of Purchaser and Parent
to indemnify for Losses under Section 13.2 (other than Losses relating to: (i)
the failure by Purchaser or Parent to pay any portion of the Purchase Price as
and when due; (ii) failure by Purchaser or Parent to comply with the conditions
of the Escrow Agreement; or (iii) breach of (or misrepresentation under) any of
the Purchaser Transactional Representations) exceed $10,250,000 less the amount
of any reduction of the Purchase Price allocated to Basic Shares pursuant to
Section 8.2(b) hereof (such reduction to be equal to the total number of Basic
Shares not delivered pursuant to that Section multiplied by the Issue Price),
which reduction is not subsequently (i.e., within the 120 days following the
Closing Date) restored pursuant to that Section. In no event shall the
cumulative liability of Purchaser and Parent to indemnify for Losses under
Section 13.2 relating to: (i) the failure by Purchaser or Parent to pay any
portion of the Purchase Price as and when due; (ii) failure by Purchaser or
Parent to comply with the conditions of the Escrow Agreement; or (iii) breach of
(or misrepresentation under) any of the Purchaser Transactional Representations
exceed the amount of the Purchase Price.
(e) Anything in Sections 13.4(c) and (d) to the contrary
notwithstanding, each limitation on indemnification set forth therein is
intended to be reduced by the aggregate amount of all other payments actually
and previously made in respect of an obligation of the applicable indemnitor
(i.e., the Companies, under Section 13.4(c), and Parent and Purchaser, under
Section 13.4(d)), whether subject to such limitation or otherwise. For purposes
of clarity, and by means of example only, the result of this provision could
(and is intended to) be that payment of a $10,000,000 indemnity under the second
sentence of Section 13.4(c) would preclude any indemnity under the first
sentence of Section 13.4(c).
13.5 Defense. The procedures to be followed by any party with respect to
indemnification hereunder regarding claims by third persons shall be as follows:
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(a) Promptly after receipt by any party of notice of the commencement
of any action or the assertion of any claim by a third person which the party
receiving such notice has reason to believe may result in a claim by it for
indemnity pursuant to this Agreement, such party (each, an "Indemnified Party")
shall give a notice of such action or claim to the other party against whom
indemnification pursuant hereto is sought (each, an "Indemnifying Party"),
setting forth in reasonable detail the nature of such action or claim, including
copies of any written correspondence from such third party to such Indemnified
Party. The failure to give notice as required by the immediately preceding
sentence shall not result in a waiver of any right to indemnification hereunder
except to the extent the Indemnifying Party is actually and materially
prejudiced by reason of such failure or delay. The indemnifying Party may, at
its own expense, assume and control the defense of any claim for which it has
received notice in accordance with this Section 13.5 and notify the Indemnified
Party of such assumption. The Indemnified Party shall be entitled to participate
therein after such assumption, the costs of such participation following such
assumption to be at its own expense. Upon assuming such defense, the
Indemnifying Party shall have full rights to enter into any monetary compromise
or settlement which is dispositive of the matters involved; provided, however,
that no such settlement shall be made without the prior written consent of the
Indemnified Party, which shall not be unreasonably withheld;
(b) If the Indemnifying Party does not assume the defense of any claim
promptly after receiving notice thereof by the Indemnified Party, the
Indemnified Party may assume and control the defense of and contest such action
with counsel chosen by it and approved by the Indemnifying Party, which approval
shall not be unreasonably withheld. The Indemnifying Party shall be entitled to
participate in the defense of such action, the cost of such participation to be
at its own expense. The Indemnifying Party shall be obligated to pay the
reasonable attorneys' fees and expenses of the Indemnified Party to the extent
that such fees and expenses relate to claims as to which indemnification is due
under this Section 13.5(b). The Indemnified Party shall have full rights to
dispose of such action and enter into any monetary compromise or settlement;
provided, however, that no such settlement shall be made without the prior
written consent of the Indemnifying Party, which shall not be unreasonably
withheld; and
(c) Both the Indemnifying Party and the Indemnified Party shall
reasonably cooperate fully (but not including the waiver of any privileged
communication) with one another in connection with the defense, compromise or
settlement of any such claim or action.
13.6 Reduction for Insurance. The amount which an Indemnifying Party is
required to pay to, for or on behalf of any Indemnified Party pursuant to this
Article XIII will be reduced (including, without limitation, retroactively) by
any insurance proceeds which may reasonably be recovered by or on behalf of the
Indemnified Party in reduction of the related Loss. Amounts required to be paid,
as so reduced, are hereinafter sometimes called an "Indemnity Payment". If an
Indemnified Party has received, or if an Indemnifying Party has paid on its
behalf, an Indemnity Payment in respect of a Loss and subsequently receives,
directly or indirectly, insurance proceeds in respect of such Loss,
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then such Indemnified Party will promptly pay to the Indemnifying Party the
amount of such insurance proceeds, or, if less, the amount of the Indemnity
Payment.
13.7 Acknowledgment. Parent and Purchaser hereby acknowledge that William
Siegel, and (except with respect to the Employment Agreement and the Sugarman
Lock-Up Agreement) Gary Sugarman have negotiated the Letter of Intent and this
Agreement in their capacities as officers of the General Partners, on behalf of
the Company, or as officers of the Lessees, and not in their individual
capacities. Parent and Purchaser hereby acknowledges that Phyllis Recine did not
participate in the negotiation of the Letter of Intent and this Agreement.
13.8 Escrow.
(a) On or prior to the Closing Date, the Company, Parent and the
Purchaser will enter into the Escrow Agreement, in the form attached hereto as
Exhibit 9.6, with Chase Manhattan Bank.
(b) In order to secure the obligations of the Companies (i) to
indemnify Parent and the Purchaser under Section 13.1, and (ii) to satisfy any
Price Adjustments under Section 3.2 payable by the Company, on the Closing Date,
Parent will deposit the Additional Shares with the Escrow Agent, to be held by
the Escrow Agent in accordance with the Escrow Agreement. Such Additional Shares
will be deposited into an account to be managed and paid out by the Escrow Agent
in accordance with the terms of the Escrow Agreement. To the extent an
indemnification claim is made against such account, the number of shares of
Parent Common Stock to be disbursed shall be determined by dividing the dollar
amount of such claim (as finally determined hereunder and in accordance with the
provisions of the Escrow Agreement) by the Current Price.
13.9 Opportunity to Cure. Anything in this Article XIII to the contrary
notwithstanding, an Indemnified Party shall, prior to making a formal claim for
indemnification hereunder, notify the Indemnifying Party or Indemnifying Parties
of the Indemnified Party's intent to make such a claim, in order to afford the
Indemnifying Party or Parties a reasonable opportunity (not to exceed 30 days)
to cure or otherwise resolve the state of facts or condition giving rise to the
subject Loss(es); provided, however, that if such state of facts or condition is
not reasonably subject to cure, or if such cure cannot reasonably be completed
within 30 days of such notice, no such notice need be given. The failure to give
such a notice shall not prejudice any rights or remedies of the Indemnified
Party, but neither shall such failure affect the ability of the Indemnifying
Party (or Parties) to commence and complete such a cure within such 10-day
period.
ARTICLE XIV
Termination
14.1 Method. This Agreement may be terminated at any time prior to the
Closing Date:
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<PAGE>
(a) by mutual consent of the Company, Parent and Purchaser;
(b) by either Purchaser or Parent, on the one hand, or the Company, on
the other hand, if there has been a material breach by the other of any
representation, warranty, covenant or agreement contained in this Agreement;
(c) by Purchaser, Parent or the Company, if the Closing has not
occurred by June 30, 1998 (the "Termination Date"), other than where the failure
to consummate the transactions contemplated by this Agreement on or before such
date is a result of a breach of this Agreement by the party then seeking
termination;
(d) by Purchaser or Parent, if the Issue Price is (or otherwise would
be) less than $18.00; or
(e) by the Company, if the Issue Price is (or otherwise would be)
greater than $28.00, unless Purchaser elects, in its sole discretion by written
notice to the Company within five Business Days following Purchaser's receipt of
written notice of the Company's election to terminate, to issue such number of
Basic Shares as would be required to be issued under Section 3.2(c) hereof were
the Issue Price $28.00, in which case the Company's termination shall not be
effective, and the Issue Price for all purposes hereof shall be $28.00.
14.2 Effect. In the event of termination of this Agreement pursuant to
Section 14.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party other than (x) the parties'
respective confidentiality obligations set forth in Section 7.1 hereof; (y)
solely to the extent this Agreement is terminated by the Purchaser pursuant to
Section 14.1(b) due to the breach by the Company, the obligations of the
Companies under Section 7.4 hereof; and (z) the provisions of Article XV (other
than Section 15.11).
ARTICLE XV
Miscellaneous
15.1 No Public Announcements. None of the parties hereto shall issue a
press release or other public announcement regarding the execution or existence
of this Agreement or the transactions contemplated hereby without the prior
written consent of the other parties, unless required to do so by law, by any
Governmental Authority or by any self-regulatory body, in which case the
announcing party shall first give the other parties an opportunity to comment
upon the text of any such announcement, such opportunity to be reasonable under
the circumstances.
15.2 Specific Performance. The parties hereto acknowledge that irreparable
damage would result if this Agreement is not specifically enforced. Therefore,
the rights and obligations of the parties under this Agreement and the Seller's
Documents and Purchaser's Documents, including, without limitation, their
respective rights and obligations to sell and to purchase the Purchased Assets,
shall be enforced by a decree of
52
<PAGE>
specific performance issued by any court of competent jurisdiction, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
15.3 Notices. Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be effectively given if mailed by United
States certified or registered mail, postage prepaid, return receipt requested,
or sent by a national commercial courier service, return receipt requested, for
next day delivery to be confirmed in writing by such courier, or by hand
delivery, or confirmed by signed receipt, and shall be deemed to have been
given, when delivered and received, as applicable, to the parties at the
following addresses (or at such other address as a party may specify by notice
to the others).
If to the Companies, to:
American Retail Enterprises, L.P.
1620 Grand Avenue
Baldwin, New York 11510
Attention: Mr. William Siegel
with a copy to:
Richards Spears Kibbe & Orbe
One Chase Manhattan Plaza
New York, New York 10005-1413
Attention: William Q. Orbe, Esq.
If to Purchaser or Parent, to it at:
435 Hudson Street
New York, New York 10014
Attention: Legal Department
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attention: Jeffrey A. Horwitz, Esq.
15.4 Entire Agreement. This Agreement (which includes the schedules,
annexes, exhibits and attachments hereto and any other Seller's Documents or
Purchaser's Documents) sets forth the parties' final and entire agreement with
respect to its subject matter and supersedes any and all prior understandings
and agreements (including, without limitation, the Letter of Intent, but not
including the Confidentiality Agreement), whether written or oral, all of which
are merged herein. This Agreement can
53
<PAGE>
be amended, supplemented or changed, and any provision hereof can be waived,
only by a written instrument making specific reference to this Agreement signed
by the party against whom enforcement of any such amendment, supplement, change
or waiver is sought.
15.5 Assignment; Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns;
provided, however, that neither this Agreement nor any right or obligation
hereunder may be assigned or transferred by any party without the consent of the
others, except that Purchaser may assign its rights hereunder and/or delegate
its obligations hereunder to any other Affiliate of Parent so long as Parent
remains liable hereunder.
15.6 Severability. If any provision of this Agreement shall be held by any
court of competent jurisdiction to be illegal, invalid or unenforceable, such
provision shall be construed and enforced as if it had been more narrowly drawn
so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
15.7 Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York (without
reference to its rules governing conflicts of law or any rule of construction
against the drafting party (all parties being deemed to have negotiated and
written this Agreement jointly)).
15.8 Forum; Jurisdiction. Except as otherwise provided in this Agreement
with respect to determination of the Price Adjustments, in the event any party
to this Agreement commences any litigation, proceeding or other legal action in
connection with or relating to this Agreement, any of Seller's Documents or any
of Purchaser's Document's, or any matters described or contemplated herein or
therein, with respect to any matters described or contemplated herein or
therein, the parties hereto hereby agree: (a) under all circumstances absolutely
and irrevocably to institute any litigation, proceeding or other legal action in
a court of competent jurisdiction located within the Borough of Manhattan, City
and State of New York, whether a state or federal court; (b) that in the event
of any such litigation, proceeding or action, such parties will consent and
submit to personal jurisdiction in any such court and to service of process as
permitted by applicable law or by mail to the addresses provided in accordance
with Section 15.3 hereof (which service shall be binding and effective for all
purposes); (c) to waive to the fullest extent permitted by law any objection
that they may now or hereafter have to such venue or to the convenience of any
such forum; and (d) EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
SUCH LITIGATION, PROCEEDING OR ACTION.
15.9 Expenses. Except as provided in this section or elsewhere in this
Agreement, each party will bear its own expenses and costs of the transactions
contemplated hereby, including, but not limited to, the fees of attorneys,
financial
54
<PAGE>
advisors, and other professionals. Any transfer taxes (other than federal,
state, or local income Taxes resulting from the purchase and sale of the Basic
Shares and Additional Shares) shall be paid equally by Purchaser on the one
hand, and the Company on the other hand.
15.10 No Third-Party Beneficiaries. Except as expressly indicated to the
contrary in this Agreement, this Agreement is solely for the benefit of the
parties hereto, and no provision of this Agreement shall be deemed to confer
upon third parties any remedy, claim, liability, cause of action or other right
in excess of those existing without reference to this Agreement.
15.11 Stock Legend.
(a) Each certificates representing any shares of Parent Common Stock
issued to the Company pursuant to the transactions contemplated hereby, shall
bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT THERETO OR IN
ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
(b) In addition, while applicable hereunder, each certificate
representing any shares of Parent Common Stock issued to the Company pursuant to
the transactions contemplated hereby, shall also bear the following legend:
THE SALE, TRANSFER OR OTHER DISPOSITION OF THE SHARES OF COMMON STOCK
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS AND
CONDITIONS OF AN ASSET PURCHASE AGREEMENT BY AND AMONG THE ISSUER,
SCREEEM! INC., AMERICAN RETAIL ENTERPRISES, L.P. AND CERTAIN OTHER
PARTIES SPECIFIED THEREIN DATED AS OF JUNE 1, 1998, A COPY OF WHICH IS
ON FILE WITH THE ISSUER.
15.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
15.13 Parent Guaranty. Parent hereby unconditionally and irrevocably
guarantees the due and prompt payment, performance and discharge of all of the
covenants, obligations and liabilities of the Purchaser under this Agreement and
the Purchaser's Documents. This is a guarantee of payment and not merely
collectibility. Parent waives any defense to payment and performance of any kind
(whether due to Purchaser's insolvency, the modification of the obligations
guaranteed or any other event, act, omission or occurrence or legal theory which
would otherwise operate to release a
55
<PAGE>
guarantor or surety) and shall remain fully obligated until the Company has
indefeasibly received payment and performance in full.
15.14 Companies' Agent.
(a) Appointment of Companies' Agent.
(i) Each of the Companies hereby irrevocably appoints American
Retail Enterprises, L.P., a New York limited partnership (for purposes
of this Section 15.14 called the "Companies' Agent") as agent and
attorney-in-fact of each of the Companies to take any action required
or permitted to be taken by such persons under the terms of this
Agreement, the Purchaser's Documents and the Seller's Documents,
including, without limiting the generality of the foregoing, the
execution, delivery and receipt of any funds, notices, certificates or
other documents to be executed, delivered or received by or on behalf
of any or all of the Companies, the representation of the Companies in
the resolution of any disputed matters hereunder and in
indemnification proceedings hereunder and the rights to waive, modify
or amend the terms of this Agreement. The Companies severally agree to
indemnify the Companies' Agent from and against and in respect of any
and all liabilities, damages, claims, costs and expenses, including
but not limited to attorneys' fees, arising out of or due to any
action as the Companies' Agent and any and all actions proceedings,
demands, assessments, judgments, costs and expenses incidental
thereto, except to the extent that the same result from bad faith or
gross negligence on the part of the Companies' Agent.
(ii) Parent and Purchaser shall be entitled to rely exclusively
upon any communications given by the Companies' Agent on behalf of any
of the Companies and shall not be liable in any manner whatsoever for
any action taken or not taken in reliance upon the actions taken or
not taken or communications made by the Companies' Agent.
Notwithstanding anything to the contrary contained herein, Parent and
Purchaser shall be entitled to disregard any notices or communications
given or made by the Companies unless given or made through the
Companies' Agent, except as provided in subparagraph (b) below.
(b) Successor Agent. In the event of the inability of the Companies'
Agent to perform its functions hereunder, the Companies shall promptly appoint a
new agent as attorney-in-fact, and such appointment shall be deemed to have made
when communicated to Parent and Purchaser in writing signed by a majority of the
Companies. If the Companies do not within 15 days appoint a new agent, then
Landmark Pants shall serve as the Companies' Agent if it is able and willing to
do so, until a successor agent shall have been appointed in accordance with the
provisions hereof.
(c) Companies' Agent Actions. The manner and form by which the
Companies shall decide upon any new agent and attorney-in-fact shall be decided
by a writing signed by a majority of the Companies. The Companies recognize, and
hereby acknowledge, that the Companies' Agent has an interest in the subject
matter of this Agreement and that the appointment of such Agent (which shall
include any person who becomes the Companies' Agent pursuant to the provisions
of subparagraph (b) above) as the Companies' Agent constitutes an irrevocable
power-of-attorney coupled with an interest.
56
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first above written.
Purchaser: SCREEEM! INC.
By:
Alex Navarro, Senior Vice President
Parent: DELIA*S INC.
By:
Alex Navarro, Senior Vice President
The Company: AMERICAN RETAIL ENTERPRISES, L.P.
By: LANDMARK PANTS CORP.
General Partner
By:
William Siegel, Vice President
By:
Gary Sugarman, Vice President
By: THE PANTS SET, INC.
General Partner
By:
William Siegel, President
By:
Gary Sugarman, Vice President
RETAIL APPAREL SERVICE CORP.
By:
Name:
Title:
LANDMARK PANTS CORP.
By:
Name:
Title:
57
<PAGE>
The Lessees: JEAN COUNTRY OF POUGHKEEPSIE, INC.
By:
Name:
Title:
JEAN COUNTRY OF MONMOUTH, INC.
By:
Name:
Title:
JEAN COUNTRY OF EMERALD, INC.
By:
Name:
Title:
PARADISE HEIGHTS ROCKAWAY, INC.
By:
Name:
Title:
JUST SHIRTS - MIDDLETOWN, INC.
By:
Name:
Title:
SCREEEM OF FREEHOLD, INC.
By:
Name:
Title:
SCREEEM OF GARDEN STATE PLAZA, INC.
By:
Name:
Title:
SCREEEM OF MENLO PARK, INC.
By:
Name:
Title:
58
<PAGE>
SCREEEM OF PLAZA KING OF PRUSSIA, INC.
By:
Name:
Title:
JEAN COUNTRY, NANUET, INC.
By:
Name:
Title:
SCREEEM OF OXFORD VALLEY, INC.
By:
Name:
Title:
SCREEEM OF NEW ENGLAND, INC.
By:
Name:
Title:
SCREEEM OF BAY SHORE, INC.
By:
Name:
Title:
JEAN COUNTRY, YORKTOWN, INC.
By:
Name:
Title:
JEAN COUNTRY, SUNRISE, INC.
By:
Name:
Title:
JEAN COUNTRY WAYNE, LTD.
By:
Name:
Title:
59
<PAGE>
JEAN COUNTRY HUNTINGTON, INC.
By:
Name:
Title:
JEAN COUNTRY OF ROOSEVELT FIELD, INC.
By:
Name:
Title:
THREE FOR ALL SMITH HAVEN, INC.
By:
Name:
Title:
JEAN COUNTRY MID ISLAND, INC.
By:
Name:
Title:
JEAN COUNTRY CHERRY HILL, INC.
By:
Name:
Title:
JEAN COUNTRY, DANBURY, INC.
By:
Name:
Title:
LANDMARK PANTS CORP.
By:
Name:
Title:
RETAIL APPAREL SERVICE CORP.
By:
Name:
Title:
60
[Letterhead of dELiA*s Inc.]
June 29, 1998
American Retail Enterprises, L.P.
1620 Grand Avenue
Baldwin, New York 11510
Attention: Mr William Siegel
Re: Amendment No. 1
Ladies and Gentlemen:
We refer you to that certain Asset Purchase Agreement dated June 1, 1998 (the
"Agreement") among Screeem! Inc., a Delaware corporation, dELiA*s Inc., a
Delaware corporation, American Retail Enterprises, L.P., a New York limited
partnership, Retail Apparel Service Corp., a New York corporation, Landmark
Pants Corp., a New York corporation, and the entities listed on Annex I to the
Agreement. Capitalized terms used but not otherwise defined herein have the
meanings ascribed to them in the Agreement.
We write to you in your capacity as Companies' Agent pursuant to Section 15.14
of the Agreement.
This is to confirm that we have agreed to amend the Agreement to change the
references to "June 30, 1998" in Sections 7.4 and 14.1(c) to be references to
"July 17, 1998".
This is also to advise you that, in accordance with the Agreement, we have
assigned the right to acquire the Intellectual Property, and delegated related
obligations, to dELiA*s Properties Inc., a Delaware corporation and an Affiliate
of Parent, and that Parent remains liable under the Agreement. The relevant
documents to be executed and delivered under Sections 9.8 and 10.10 of the
Agreement should be conformed to this.
<PAGE>
Please confirm your agreement to the change and your acknowledgment of the
assignment by signing and returning to us a copy of this letter.
Very truly yours,
dELiA*s INC.
By: ___________________________________
Alex Navarro, Senior Vice President
SCREEEM! INC.
By: ___________________________________
Alex Navarro, Senior Vice President
AGREED AND ACKNOWLEDGED:
AMERICAN RETAIL ENTERPRISES, L.P.
As Companies' Agent
By: LANDMARK PANTS CORP.
General Partner
By: ______________________________
William Siegel, Vice President
By: ______________________________
Gary Sugarman, Vice President
By: THE PANTS SET, INC.
General Partner
By: ______________________________
William Siegel, President
By: _______________________________
Gary Sugarman, Vice President
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
July 9, 1998
American Retail Enterprises, L.P.
1620 Grand Avenue
Baldwin, New York 11510
Attention: Mr. William Siegel
Re: Amendment No. 2
---------------
Ladies and Gentlemen:
We refer you to that certain Asset Purchase Agreement dated June 1, 1998, as
previously amended (the "Agreement"), among Screeem! Inc., a Delaware
corporation, dELiA*s Inc., a Delaware corporation, American Retail Enterprises,
L.P., a New York limited partnership, Retail Apparel Service Corp., a New York
corporation, Landmark Pants Corp., a New York corporation, and the entities
listed on Annex I to the Agreement. Capitalized terms used but not otherwise
defined herein have the meanings ascribed to them in the Agreement.
The parties hereto hereby agree to amend the Agreement as follows:
1. The Agreement is amended by adding dELiA*s Properties Inc., a Delaware
corporation ("Properties"), as a party.
2. Section 1.1 of the Agreement is amended by changing the definition of "Issue
Price" to read as follows:
"'Issue Price' means $18.00."
3. Section 2.5 of the Agreement is amended by replacing the third sentence
thereof with the following sentence:
"These apportionments shall be determined (effective as of the Closing
Date) and payment made accordingly from the Companies to
<PAGE>
Purchaser or from Purchaser to the Company, as the case may be, in cash, at
the same time as the Price Adjustments, as provided in Article III below."
4. Section 3.1 of the Agreement is amended by changing (i) the reference to
"$9,400,000" in clause (a) thereof to be a reference to "$10,025,000.00"; and
(ii) the reference to "10,250,000" in clause (b) thereof to be a reference to
"$10,875,000.00".
5. Section 3.1 of the Agreement is further amended by adding the words "and
dELiA*s Properties Inc." immediately after the word "Purchaser" in clauses (b)
and (c) thereof.
6. Section 3.3 of the Agreement is amended by deleting clause (b) thereof and
deleting the reference to ", but is less than 120% of the Issue Price," in
clause (c) thereof, which clause becomes clause (b).
7. Section 15.14 of the Agreement is amended by adding the words ", amendments
to this Agreement or the other Seller's Documents" immediately following the
word "certificate" in the first sentence of clause (a)(i) thereof.
8. Article VIII of the Purchase Agreement is hereby amended by adding a new
Section 8.5 immediately following Section 8.4 thereof, which Section 8.5 shall
read as follows:
"8.5 Construction Contracts. Subject in each instance to the approval
of Gary Sugarman in his capacity after the Closing as President of
Purchaser, Purchaser and Parent agree to reimburse the Company for all
payments made from and after the Closing Date under those certain
construction contracts with respect to the remodeling of the following
Company's stores, solely to the extent such stores are sold to Purchaser:
(a) Poughkeepsie Galleria, Poughkeepsie, New York, (b) Galleria at Crystal
Run, Middletown, New York, (c) Ocean County Mall, Toms River, New Jersey
and (d) Emerald Square Mall, North Attleborough, Massachusetts. The parties
agree that for purposes of preparing the Closing Statement, that only that
portion of the payments that have been made by the Company prior to or at
the Closing shall be included as assets of the Purchased Assets on the
Closing Statement."
9. Section 15.13 of the Agreement is amended (i) by adding the words "and
Properties" immediately after the word "Purchaser" in the first sentence
thereof; and (ii) by adding the words "and Properties'" immediately after the
word "Purchaser's" in the third sentence thereof.
<PAGE>
10. Section 3.4 of the Agreement is amended by adding "the Closing in connection
with the 26th Purchased Store or July 31, 1998, whichever is earlier"
immediately after the words "prior to" in the first sentence thereof and
deleting the word "Closing" in the first sentence thereof.
Please confirm your agreement to the foregoing by signing and returning to us a
copy of this letter.
<PAGE>
Very truly yours,
DELIA*S INC.
By: ____________________________________
Alex Navarro, Senior Vice President
SCREEEM! INC.
By: ____________________________________
Alex Navarro, Senior Vice President
DELIA*S PROPERTIES INC.
By: ____________________________________
Alex Navarro, Senior Vice President
AGREED AND ACKNOWLEDGED:
AMERICAN RETAIL ENTERPRISES, L.P.
By: LANDMARK PANTS CORP.
General Partner
By: _______________________________
William Siegel, Vice President
By: _______________________________
Gary Sugarman, Vice President
By: THE PANTS SET, INC.
General Partner
By: _______________________________
William Siegel, President
By: _______________________________
Gary Sugarman, Vice President
<PAGE>
RETAIL APPAREL SERVICE CORP.
By: ______________________________________
Name:
Title:
LANDMARK PANTS CORP.
By: ______________________________________
Name:
Title:
JEAN COUNTRY OF POUGHKEEPSIE, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY OF MONMOUTH, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY OF EMERALD, INC.
By: ______________________________________
Name:
Title:
PARADISE HEIGHTS ROCKAWAY, INC.
By: ______________________________________
Name:
Title:
JUST SHIRTS - MIDDLETOWN, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF FREEHOLD, INC.
By: ______________________________________
Name:
Title:
<PAGE>
SCREEEM OF GARDEN STATE PLAZA, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF MENLO PARK, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF PLAZA KING OF PRUSSIA, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY, NANUET, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF OXFORD VALLEY, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF NEW ENGLAND, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF BAY SHORE, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY, YORKTOWN, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY, SUNRISE, INC.
By: ______________________________________
Name:
Title:
<PAGE>
JEAN COUNTRY WAYNE, LTD.
By: ______________________________________
Name:
Title:
JEAN COUNTRY HUNTINGTON, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY OF ROOSEVELT FIELD, INC.
By: ______________________________________
Name:
Title:
THREE FOR ALL SMITH HAVEN, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY MID ISLAND, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY CHERRY HILL, INC.
By: ______________________________________
Name:
Title:
JEAN COUNTRY, DANBURY, INC.
By: ______________________________________
Name:
Title:
LANDMARK PANTS CORP.
By: ______________________________________
Name:
Title:
<PAGE>
RETAIL APPAREL SERVICE CORP.
By: ______________________________________
Name:
Title:
JEAN COUNTRY PARAMUS, INC.
By: ______________________________________
Name:
Title:
SCREEEM OF SMITH HAVEN, INC.
By: ______________________________________
Name:
Title:
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
------------------------
CONFIDENTIAL
------------
June 1, 1998
American Retail Enterprises, L.P.
120 Grand Avenue
Baldwin, NY 11510
Attn: William Siegel
Ladies and Gentlemen:
This letter agreement (this "Agreement") is being entered into in
connection with the Asset Purchase Agreement entered into as of the date hereof
between dELiA*s Inc., a Delaware corporation ("Parent"), Screeem! Inc., a
Delaware corporation ("Purchaser"), American Retail Enterprises, L.P., a New
York limited partnership (the "Company") and the other signatory parties named
therein (as the same may be amended from to time, the "Purchase Agreement").
Capitalized terms used herein but not defined shall have the respective meanings
given to such terms in the Purchase Agreement. Except as expressly set forth
herein, the Purchase Agreement remains in full force and effect. This Agreement
shall be deemed to be a Seller's Document and a Purchaser's Document for
purposes of the Purchase Agreement.
As a material inducement to each party to the Purchase Agreement, the
parties hereto hereby agree as follows:
1. (a) In the event that any consent for the assignment (which consent need
not include a consent to convert a JEAN COUNTRY store to a SCREEEM! store) of a
Lease Agreement with respect to Purchased Store is not obtained at or prior to
the Closing (such store being an "Excluded Store"), then, notwithstanding
anything contained in the Purchase Agreement, Seller's Documents or Purchaser's
Documents or in any exhibit or schedule thereto, at and as of the Closing: (i)
the Lease Agreement with respect to such Excluded Store and the assets located
in such Excluded Store and otherwise constituting Purchased Assets shall be
excluded from the Purchased Assets and shall be deemed to be Excluded Assets;
(ii) the Lease Agreement with respect to such Excluded Store shall not be deemed
to be a Purchased Contract, and no Liabilities arising under such Lease
Agreement shall be deemed to be Assumed Liabilities; (iii) the aggregate
Purchase Price shall be adjusted downwards by that amount set forth on Schedule
I hereto, such reduction in Purchase Price to be allocated pro rata among the
Cash Consideration, the Basic Shares and the Additional Shares to be delivered
at Closing; and (iv) the Excluded Store shall not be deemed to be a Purchased
Store.
(b) If the required consent with respect to an Excluded Store is
obtained within 120 days of the Closing Date, such Excluded Store will be sold
to Buyer for that amount set forth on Schedule I hereto, allocated pro rata
(proportionate to the Purchase Price) among the Cash Consideration, the Basic
Shares and the Additional Shares, but otherwise subject to the same terms and
conditions as the sale of the Purchased Assets under the Purchase Agreement.
Without limiting the foregoing, at and as of the closing of such sale (the
"Subsequent Closing Date"): (i) the Lease Agreement with respect to such
Excluded Store and all assets located in such Excluded Store at the Subsequent
Closing Date shall be deemed to be Purchased Assets and shall not be deemed to
be Excluded Assets; (ii) the Lease Agreement with respect to such Excluded Store
and any debts, claims, Liabilities, obligations and expenses as may arise with
respect to periods from and after the Subsequent Closing under such Lease
Agreement shall be assumed by Purchaser and such Lease Agreement shall be deemed
to be a Purchased Contract; and (iii) the Excluded Store shall be deemed to be a
Purchased Store. Any Subsequent Closing shall be held within ten (10) Business
Days of the obtaining of the applicable consent. Any purchase price payable at a
Subsequent Closing shall be subject to the same adjustments set forth in Section
3.2 of the Purchase Agreement with respect to the net assets acquired at such
Subsequent Closing except that all references therein to the Closing or the
Closing Date shall be deemed to refer to the Subsequent and the Subsequent
Closing Date.
2. (a) The Companies shall use best commercial efforts (which for purposes
of this provision only, shall mean that the Companies shall be required to make
payments to landlords of up to, but not more than (i) $500,000 in the aggregate
to obtain Assignment Consents (as defined below) and Use Change Consents (as
defined below) with respect to 20 (but not less than 20) Purchased Stores, and
(ii) $1,000,000 in the aggregate to obtain Assignment Consents and Use Change
Consents with respect to 24 (but not less than 24) Purchased Stores, and the
Companies shall not be obligated to spend any additional funds to obtain such
consents) to obtain landlord consents to (x) the assignment of the Lease
Agreements to the Purchaser ("Assignment Consents") and (y) change in permitted
use by Purchaser of JEAN COUNTRY stores to SCREEEM! stores ("Use Change
Consents"). Notwithstanding anything in the foregoing to the contrary, the
Companies shall have no obligation to spend money to obtain Use Change Consents
with respect to: (A) the Purchased Stores located in the Smithhaven and
Roosevelt Fields malls and (B) three other Purchased Stores.
(b) In the event the Companies spend more than $500,000 in the
aggregate to obtain Assignment Consents and Use Change Consents at or prior to
the Closing, Purchaser and Parent shall reimburse the Company at Closing the
amount of such excess above $500,000 (up to a maximum aggregate reimbursement of
$500,000) and the Purchase Price shall be reduced (by means of delivery of fewer
Additional Shares than would otherwise be determined pursuant to Section 3.1(c)
of the Purchase Agreement, valued at the Issue Price) on a dollar-for-dollar
basis (determined by deducting the amount of such reimbursement from the amount
referenced in Section 3.1(c) of the Purchase Agreement) by such amount in excess
of $500,000 (not to exceed $500,000).
3. Entire Agreement. This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter and supersedes any and all
prior understandings and agreements, whether written or oral, all of which are
merged herein. This Agreement can be amended, supplemented or changed, and any
provision hereof can be waived, only by a written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, change or waiver is sought.
4. Assignment; Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns;
provided, however, that neither this Agreement nor any right or obligation
hereunder may be assigned or transferred by any party without the
2
<PAGE>
consent of the others, except that Purchaser may assign its rights hereunder
and/or delegate its obligations hereunder to any other Affiliate of Parent so
long as Parent remains liable hereunder.
5. Severability. If any provision of this Agreement shall be held by any
court of competent jurisdiction to be illegal, invalid or unenforceable, such
provision shall be construed and enforced as if it had been more narrowly drawn
so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
6. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York (without
reference to its rules governing conflicts of law or any rule of construction
against the drafting party (all parties being deemed to have negotiated and
written this Agreement jointly)).
7. Forum; Jurisdiction. In the event any party to this Agreement commences
any litigation, proceeding or other legal action in connection with or relating
to this Agreement, any of Seller's Documents or any of Purchaser's Document's,
or any matters described or contemplated herein or therein, with respect to any
matters described or contemplated herein or therein, the parties hereto hereby
agree: (a) under all circumstances absolutely and irrevocably to institute any
litigation, proceeding or other legal action in a court of competent
jurisdiction located within the Borough of Manhattan, City and State of New
York, whether a state or federal court; (b) that in the event of any such
litigation, proceeding or action, such parties will consent and submit to
personal jurisdiction in any such court and to service of process as permitted
by applicable law or by mail to the addresses provided in accordance with
Section 15.3 of the Purchase Agreement (which service shall be binding and
effective for all purposes); (c) to waive to the fullest extent permitted by law
any objection that they may now or hereafter have to such venue or to the
convenience of any such forum; and (d) EACH PARTY HERETO WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY SUCH LITIGATION, PROCEEDING OR ACTION.
8. If any Purchased Stores become Excluded Stores hereunder, with respect
to the period from and after the Closing and to the earlier of (a) the
Subsequent Closing of the 24th Purchased Store or (b) 120 days from the Closing,
the Companies shall perform the covenants set forth in Sections 7.1, 7.2, 7.5,
7.7, 7.9 and 7.10 of the Purchase Agreement as applied to the Excluded Stores as
if the Closing had not occurred.
3
<PAGE>
If you are in agreement with the foregoing, kindly sign and return to me
the enclosed copy of this letter.
Very Truly Yours,
SCREEEM! INC.
dELiA*s Inc.
By:___________________________
Alex S. Navarro
Senior Vice President--
Development & Legal Affairs
Confirmed and Agreed to:
AMERICAN RETAIL ENTERPRISES, L.P.
(for itself and as agent for the Companies)
By: LANDMARK PANTS CORP.
its general partner
By:______________________
William Siegel
Vice President
By:______________________
Gary Sugarman
Vice President
By: THE PANTS SET, INC.
its general partner
By:______________________
William Siegel
President
By:______________________
Gary Sugarman
Vice President
4
<PAGE>
SCHEDULE I
The amount of Purchase Price deducted as a result of a failure to obtain consent
to assignment will be as follows
For the first such Excluded Store: 90% of 1/24 of the Purchase Price
For the second such Excluded Store: 85% of 1/24 of the Purchase Price
For the third such Excluded Store: 80% of 1/24 of the Purchase Price
For the fourth such Excluded Store: 75% of 1/24 of the Purchase Price
For the fifth such Excluded Store: 70% of 1/24 of the Purchase Price
For the sixth such Excluded Store: 65% of 1/24 of the Purchase Price
5
dELiA*s Inc.
435 Hudson Street
New York, New York 10014
July 10, 1998
American Retail Enterprises, L.P.
1620 Grand Avenue
Baldwin, New York 11510
Attention: Mr. William Siegel
Re: Amendment No.1
--------------
Ladies and Gentlemen:
We refer you to that certain Letter Agreement dated June 1, 1998 (the "Letter
Agreement") entered into in connection with that certain Asset Purchase
Agreement entered into as of June 1, 1998 (the "Purchase Agreement") among
Screeem! Inc., a Delaware corporation, dELiA*s Inc., a Delaware corporation,
American Retail Enterprises, L.P., a New York limited partnership, Retail
Apparel Service Corp., a New York corporation, Landmark Pants Corp., a New York
corporation, and the entities listed on Annex I to the Purchase Agreement.
Capitalized terms used but not otherwise defined herein have the meanings
ascribed to them in the Purchase Agreement.
This is to confirm that we have agreed to amend Schedule I of the Letter
Agreement to read in its entirety as follows:
SCHEDULE I
The amount of Purchase Price deducted as a result of a failure to obtain consent
to assignment will be as follows:
For the first such Excluded Store: 90% of 1/26 of the Purchase Price
For the second such Excluded Store: 85% of 1/26 of the Purchase Price
For the third such Excluded Store: 80% of 1/26 of the Purchase Price
For the fourth such Excluded Store: 75% of 1/26 of the Purchase Price
For the fifth such Excluded Store: 70% of 1/26 of the Purchase Price
<PAGE>
For the sixth such Excluded Store: 65% of 1/26 of the Purchase Price
For the seventh such Excluded Store: 65% of 1/26 of the Purchase Price
For the eighth such Excluded Store: 65% of 1/26 of the Purchase Price"
This is also to confirm that the Letter Agreement, as hereby amended, remains
applicable to the Purchase Agreement, as amended by Amendment No.1 dated June
29, 1998 and Amendment No. 2 dated July , 1998.
Please confirm your agreement to the foregoing by signing and returning to us a
copy of this letter.
<PAGE>
Very truly yours,
DELIA*S INC.
By: ____________________________________
Alex Navarro, Senior Vice President
SCREEEM! INC.
By: _____________________________________
Alex Navarro, Senior Vice President
AGREED AND ACKNOWLEDGED:
AMERICAN RETAIL ENTERPRISES, L.P.
(for itself and as agent for the Companies)
By: LANDMARK PANTS CORP.
General Partner
By: __________________________________
William Siegel, Vice President
By: ___________________________________
Gary Sugarman, Vice President
By: THE PANTS SET, INC.
General Partner
By: ___________________________________
William Siegel, President
By: ____________________________________
Gary Sugarman, Vice President
