<PAGE>
As filed with the Securities and Exchange Commission on June 22, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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G+G Retail, Inc.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 5621 22-3596083
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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520 Eighth Avenue Mr. Scott Galin
New York, New York 10018 President and Chief Operating Officer
(212) 279-4961 G+G Retail, Inc.
520 Eighth Avenue
(Address, including zip code, and New York, New York 10018
telephone (212) 279-4961
number, including area code, of
registrant's (Name, address, including zip code, and
principal executive offices) telephone number, including area code,
of agent for service)
Copies of communications to:
Mark S. Selinger, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
(212) 836-7016
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________________
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed
Title of each class of maximum offering Proposed
securities to be Amount to price per maximum aggregate Amount of
registered be registered security offering price(1) registration fee
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<S> <C> <C> <C> <C>
11% Senior Notes due
2006................... $107,000,000 100% $107,000,000 $29,746
</TABLE>
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(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Subject to Completion, Dated June 22, 1999
Preliminary Prospectus
$107,000,000
[LOGO]
G+G Retail, Inc.
Offer to Exchange All Outstanding 11% Senior Notes due 2006
for 11% Senior Notes due 2006, which have been Registered under the Securities
Act of 1933
The Exchange Offer
. We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that are
freely tradeable.
. You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
. The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
. The exchange of outstanding notes for exchange notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
. We will not receive any proceeds from the exchange offer.
The Exchange Notes
. The exchange notes are being offered in order to satisfy certain of our
obligations under the registration rights agreement entered into in
connection with the private placement of the outstanding notes.
. The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes are registered under the Securities Act of 1933 and will be freely
tradeable.
Resales of Exchange Notes
. The exchange notes may be sold in the over-the-counter market, in
negotiated transactions or through a combination of such methods.
--------------
If you are a broker-dealer and you receive exchange notes for your own
account, you must acknowledge that you will deliver a prospectus in connection
with any resale of such exchange notes. By making such acknowledgment, you will
not be deemed to admit that you are an "underwriter" under the Securities Act
of 1933.
Broker-dealers may use this Prospectus in connection with any resale of
exchange notes received in exchange for outstanding notes where such
outstanding notes were acquired by the broker-dealer as a result of market-
making activities or trading activities.
We will make this Prospectus available to any broker-dealer for use in any
such resale for a period of up to one year after the date of this Prospectus.
A broker-dealer may not participate in the exchange offer with respect to
outstanding notes acquired other than as a result of market-making activities
or trading activities.
If you are an affiliate of G+G Retail, Inc. or are engaged in, or intend to
engage in, or have an agreement or understanding to participate in, a
distribution of the exchange notes, you cannot rely on the applicable
interpretations of the Securities and Exchange Commission and you must comply
with the registration requirements of the Securities Act of 1933 in connection
with any resale transaction.
--------------
You should consider carefully the risk factors beginning on page 14 of this
Prospectus before participating in the exchange offer.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
--------------
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is , 1999.
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of our company or our officers with respect to, among other
things, the use of proceeds of the offering of the outstanding notes, the
ability to enter into and borrow funds under our revolving credit facility, and
the ability to successfully implement operating strategies, including trends
affecting our business, financial condition and results of operations. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, the statements under "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and the "Unaudited Pro Forma Consolidated
Financial Statements" and the notes related thereto, located elsewhere herein,
regarding industry prospects and our future financial position are forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from our expectations are disclosed in this Prospectus, including,
without limitation, in conjunction with the forward-looking statements included
in this Prospectus under "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business." All
subsequent written and oral forward-looking statements attributable to our
company or persons acting on our behalf are expressly qualified in their
entirety by these important factors and risk factors contained throughout this
Prospectus.
TRADEMARKS AND TRADENAMES
The following store and product names referred to in this Prospectus are
trademarks and/or service marks owned by our company and are registered on the
federal and/or state levels in the United States and abroad pursuant to
applicable intellectual property laws: G+G; In Charge; Rave; and Rave Up.
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PROSPECTUS SUMMARY
This summary highlights selected information found in greater detail elsewhere
in this Prospectus. This summary does not contain all of the information that
is important to you. To understand the offering of the exchange notes and for a
more complete description of our company's business, we urge you to carefully
read the entire document.
Certain Defined Terms. Throughout this Prospectus, the terms "we," "us," "our,"
"our company" and the "Company" are used. Unless the context otherwise
requires, these terms mean G+G Retail, Inc. and its subsidiary and, prior to
August 28, 1998, these terms mean the mall-based female junior apparel retail
business historically conducted by our predecessor. In addition, throughout
this Prospectus, the terms "our parent company" and the "Parent" are used.
Unless the context otherwise requires, these terms mean G&G Retail Holdings,
Inc., the direct parent and sole owner of G+G Retail, Inc.
Fiscal Year. We account for our operations on a fiscal year rather than on a
calendar year. As a result, throughout this Prospectus information is presented
on a fiscal year basis. Each reference to one of our "fiscal years" means our
52- or 53-week fiscal year which ends on the Saturday nearest January 31 in
such calendar year. For example, references to "fiscal 1999" mean the fiscal
year ended January 30, 1999.
Teen Market Data. The data regarding the teenage market used throughout this
Prospectus is based upon third party data. While we believe that such data is
reasonable and reliable, we have not independently verified the information.
Accordingly, we cannot be certain that such market data is completely accurate.
Moreover, conditions underlying such data may change. Unless otherwise stated,
all data regarding the teenage market contained in this Prospectus is derived
from Kalorama Information's October 1998 report entitled "The Teen Market,"
published under the name Packaged Facts.(R)
The Company
Overview
We are a leading national mall-based retailer of popular price female junior
apparel. For over 30 years, we have built a reputation for providing fashion
apparel and accessories distinctly targeted at teenaged women. We closely
monitor the fashion trends of our core customers, young women principally
between the ages of 13 to 19 years old, who, together with male teenagers,
represent the fastest growing segment of the consumer market. We sell
substantially all of our merchandise under private label names including Rave,
Rave Up and In Charge, which provide our customers with fashionable, quality
apparel and accessories at lower prices than brand name merchandise. Our
emphasis on sourcing merchandise domestically and our efficient distribution
system provide us with short inventory lead times, which enable us to respond
quickly to the latest fashion trends and thereby achieve high inventory turns
and reduce markdowns. Our pricing strategy, which emphasizes delivering
consistent value to our customers rather than driving sales with periodic
promotions, also contributes to reducing markdowns.
As of May 1, 1999, we had 441 stores, generally in major enclosed regional
shopping malls, throughout the United States, Puerto Rico and the U.S. Virgin
Islands primarily under the G+G and Rave names. We use the same store format
for both our G+G and Rave stores and apply this format in all of our markets.
Our stores average approximately 2,400 gross square feet with approximately 25
feet of mall frontage and are designed to create a lively and exciting shopping
experience for our teenaged customers. Our sales per gross square foot
increased from $222 in fiscal 1995 to $290 in fiscal 1999 (representing a
compounded annual growth rate of 6.9%) and our EBITDA as adjusted (i.e., our
operating income plus depreciation, amortization and royalty expenses paid by
our
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predecessor to its parent for the use of certain trademarks) increased from
$9.7 million in fiscal 1995 to $27.9 million in pro forma fiscal 1999
(representing a compounded annual growth rate of 30.1%). In addition, from
fiscal 1995 to fiscal 1999, our same store sales (based on 359 stores open
throughout this period) grew 23.6%.
Business Strengths
Low Inventory Risk. We have developed an operating strategy that achieves high
inventory turns and reduces markdowns. By closely monitoring teenage fashion
trends, emphasizing private label merchandise and sourcing merchandise
domestically, we can order our inventory just prior to season and change our
product mix in season. From fiscal 1995 through fiscal 1999, our inventory
turns increased from 5.1x to 6.2x. The key elements of our operating strategy
include:
. Emphasis on Domestic Sourcing. Due to the dynamic nature of fashion
trends, the speed of product supply is a key element to achieving high
inventory turns. We purchase our merchandise from numerous suppliers,
substantially all of which manufacture domestically. We have established
strong relationships with a number of key suppliers who continually
consult with us regarding developing fashion trends so that they can
respond quickly to our product orders. Our close relationships with, and
the domestic location of, our suppliers allow us to procure the majority
of our merchandise within two to four weeks from delivery of a purchase
order and thereby purchase merchandise closer to the season to which it
relates.
. Private Label Merchandise. We sell substantially all of our merchandise
under the private labels Rave, Rave Up and In Charge. By monitoring
teenage fashion trends and working closely with our suppliers, our
merchandising team develops our own styles based upon the latest trends.
Accordingly, our private label merchandise provides us with additional
flexibility to respond quickly to current fashion trends and purchase
merchandise closer to the season to which it relates.
. Sophisticated Distribution System. Our distribution system enables us to
effectively manage our inventory. Our suppliers ship all of our
inventory purchases to our 165,000 square foot distribution center in
North Bergen, New Jersey. To decrease the shipping time of merchandise
to our stores, we employ a merchandise allocation system that identifies
store needs for replenishment based on sales data received the prior
business day. As a result, we generally can ship merchandise from our
distribution center to our stores within 24 hours after receipt.
Attractive Market Niche. We primarily cater to teenaged women. Teenagers
represent both a growing part of the U.S. population and an increasing source
of purchasing power. The teenaged population reached approximately 31 million
in 1998 and is projected to grow to approximately 34 million by 2005,
representing a projected average annual growth rate nearly twice that of the
overall U.S. population. Income for teens reached a record $119.9 billion in
1998, up from $75.0 billion in 1995, and is expected to grow to approximately
$148.5 billion in 2003. Teen buying power has been aided by a rising minimum
wage, higher teenage employment and easier access to credit cards. On average,
teens go to malls 40% more frequently than older shoppers. Teenage girls spend
the largest percentage of their total income, approximately 42%, on clothing
and jewelry.
Latest Fashions at Attractive Price Points. We believe that we deliver the
latest fashions sought by our teenaged customers at lower prices than our
competitors. During fiscal 1999, the average selling price of the items we sold
was $10.50. The primary decision maker for purchasing our merchandise is the
young woman who views our stores as a popular source of fashion apparel priced
within her budget. We believe that our consistent value approach has created a
loyal customer base.
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Attractive Store Base. Our stores are predominantly located in major enclosed
regional shopping malls including Roosevelt Field in Garden City, New York and
Florida Mall in Orlando, Florida. We seek locations within malls in proximity
to stores and areas having high teen traffic flow such as music stores, shoe
stores and food courts. The clean design of our stores allows us to enjoy a
relatively low level of maintenance expenditures ($3.2 million in fiscal 1999)
while retaining an attractive, well-maintained store base. Sales have been
evenly balanced among our store base, with our highest volume store accounting
for less than 1.0% of gross sales during fiscal 1999.
Strong Relationships with Landlords. We believe that we have strong
relationships with our landlords. We believe that the strength of these
relationships is based, among other things, upon the credibility established
from the many years of our doing business with key leasing personnel at our
major landlords, the national scope of our business, our consistent financial
results and the attractive tenant use offered by our stores. We believe that
our strong relationships with our landlords allow us to obtain what we believe
are favorable locations and lease terms for our stores.
Experienced Management Team. Our senior management team is led by Jay Galin,
our Chairman of the Board and Chief Executive Officer, who has been with our
company for over 40 years, and Scott Galin, our President and Chief Operating
Officer, who has been with our company for over 20 years. Our six divisional
merchandise managers and the three other members of our senior management team
have an average of 23 years experience in the retail industry and an average of
nine years experience with our company.
Business Strategy
Our business strategy is to expand our operations and increase our sales and
EBITDA through the opening of new Rave stores (including through the
acquisition of groups of or individual leases) primarily in mall locations that
we believe are favorable for our business. We opened 22 new stores in fiscal
1999 and six new stores in the period from January 31, 1999 to May 1, 1999; we
anticipate opening approximately 24 new stores during the remainder of fiscal
2000. We believe that our strong relationships with our existing landlords,
together with the fact that we no longer are hampered by our predecessor's
recent bankruptcy proceedings, provide us with a good opportunity to negotiate
favorable leases in new locations. We believe that at least 200 locations exist
where the opening of new stores would be attractive. We believe that our
current distribution infrastructure can support a total of 700 stores without a
material increase in cost.
In addition, we intend to test the market for sales to 8- to 12-year-old girls
by opening approximately six mall stores under the name Rave Girl during fiscal
2000. We believe that the market for the sale of popularly priced fashion
apparel to this age group is currently under-served. We intend to enter this
market at a relatively low incremental cost by leveraging our existing
administrative, distribution and marketing infrastructure. Our prototype Rave
Girl store is approximately 1,500 square feet with a design aimed at appealing
to 8- to 12-year-old girls. If this market test succeeds, we will seek to
opportunistically open additional Rave Girl stores.
We recently launched, and are in the process of expanding, an Internet web site
that provides information about our merchandise offerings, promotions and store
sites. The address of this web site is www.gorave.com. We intend to actively
monitor the popularity of this web site and its potential for additional
applications.
The Acquisition
Prior to August 28, 1998, our junior apparel retail business was conducted by
our predecessor company, G & G Shops, Inc. together with its subsidiaries and
certain other subsidiaries of its parent,
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Petrie Retail, Inc. We refer to the predecessor of our business throughout this
Prospectus as the "Predecessor." On August 28, 1998, senior management of the
Predecessor, together with an investor group led by affiliates of Pegasus
Investors, L.P., a Connecticut-based private equity investment fund, acquired
the junior apparel retail business we currently conduct from the Predecessor.
In the acquisition, we acquired substantially all of the Predecessor's assets
for $132.0 million in cash, the assumption of certain liabilities and the
issuance to the Predecessor of shares of non-voting Class C common stock of our
parent company. In connection with the acquisition, equity investments of $50.5
million were made in our parent company. Approximately $33.0 million of the
$50.5 million was collectively invested by senior management and affiliates of
Pegasus Investors, L.P.
In October 1995, Petrie Retail, Inc., on behalf of itself and its subsidiaries,
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the
Southern District of New York issued an order confirming Petrie Retail, Inc.'s
plan of reorganization. The Predecessor's operating performance was strong
prior to and during the bankruptcy proceedings. The Predecessor generated
aggregate EBITDA as adjusted of $84.1 million and aggregate net income of $27.0
million from the beginning of fiscal 1995 through August 28, 1998.
The Parent
Our parent company's only material asset is shares of our common stock, and it
conducts no business other than owning shares of our common stock.
Pegasus Investors, L.P.
Pegasus Investors, L.P., the financial sponsor of our August 28, 1998
acquisition of the Predecessor's junior apparel retail business, was founded by
Craig Cogut, who was a senior principal of Apollo Advisors, L.P. Pegasus
Investors, L.P. makes control investments in middle market companies, with a
focus on complex transactions such as bankruptcies and restructurings. Pegasus
Investors, L.P. typically invests in companies with strong management teams
with whom they partner to grow and strategically develop the companies'
businesses. Pegasus Investors, L.P. currently manages $220.0 million in
committed capital and has participated in 15 acquisitions and investments.
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Mailing Address
Our principal executive offices are located at 520 Eighth Avenue, New York, New
York 10018 and our main telephone number is (212) 279-4961.
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Summary of the Exchange Offer
On May 17, 1999, we and our parent company completed the private offering of
107,000 units, each consisting of $1,000 principal amount of our 11% Senior
Notes due 2006 and one warrant to initially purchase 0.07672 shares of our
parent company's Class D common stock. The units were issued at a price equal
to $931.40 per unit. As part of that offering, we entered into a registration
rights agreement with the initial purchasers of the outstanding units pursuant
to which we agreed, among other things, to deliver to you this Prospectus and
complete an exchange offer for our outstanding notes.
Upon the commencement of this exchange offer (if not separated earlier), the
outstanding notes and warrants comprising the outstanding units will trade
separately.
Set forth below is a summary of the exchange offer.
Securities Offered.......... We are offering up to $107.0 million aggregate
principal amount of new 11% Senior Notes due
2006, which have been registered under the
Securities Act of 1933. The form and terms of
these exchange notes are identical in all
material respects to those of the outstanding
notes. The exchange notes, however, will not
contain transfer restrictions and registration
rights applicable to the outstanding notes.
The Exchange Offer.......... We are offering to exchange new $1,000 principal
amount of our 11% Senior Notes due 2006, which
have been registered under the Securities Act of
1933, for $1,000 principal amount of our
outstanding 11% Senior Notes due 2006.
In order to be exchanged, an outstanding note
must be properly tendered and accepted. All
outstanding notes that are validly tendered and
not withdrawn will be exchanged. As of the date
of this Prospectus, there is $107.0 million
principal of notes outstanding. We will issue
exchange notes promptly after the expiration of
the exchange offer.
Resales.....................
Based on interpretations by the staff of the
Securities and Exchange Commission, as set forth
in a series of no-action letters issued to third
parties, we believe that the exchange notes
issued in the exchange offer may be offered for
resale, resold or otherwise transferred by you
without compliance with the registration and
prospectus delivery requirements of the
Securities Act of 1933 provided that:
. you are acquiring the exchange notes in the
ordinary course of your business;
. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in a distribution of the exchange notes; and
. you are not an "affiliate" of ours.
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If you are an affiliate of ours, are not
acquiring the exchange notes in the ordinary
course of your business or are engaged in, intend
to engage in or have any arrangement or
understanding with any person to participate in
the distribution of the exchange notes:
. you cannot rely on the applicable
interpretations of the staff of the Securities
and Exchange Commission; and
. you must comply with the registration
requirements of the Securities Act of 1933 in
connection with any resale transaction.
Each broker or dealer that receives exchange
notes for its own account in exchange for
outstanding notes that were acquired as a result
of market-making or other trading activities must
acknowledge that it will deliver this Prospectus
in connection with any offer to resell, resale,
or other transfer of the exchange notes issued in
the exchange offer.
Expiration Date............. 5:00 p.m., New York City time, on , 1999,
unless we extend the expiration date.
Accrued Interest on the
Exchange Notes and
Outstanding Notes.......... The exchange notes will bear interest from May
17, 1999. If your outstanding notes are accepted
for exchange, then you will receive interest on
the exchange notes and not on the outstanding
notes.
Conditions to the Exchange The exchange offer is subject to customary
Offer...................... conditions. We may assert or waive these
conditions in our sole discretion. If we
materially change the terms of the exchange
offer, we will resolicit tenders of the
outstanding notes. Please read the section "The
Exchange Offer--Certain Conditions to the
Exchange Offer" of this Prospectus for more
information regarding conditions to the exchange
offer.
Procedures for Tendering
Outstanding Notes.......... If you wish to tender your outstanding notes, you
must (1) complete, sign and date the letter of
transmittal delivered to you with this
Prospectus, or a facsimile of it, according to
its instructions and (2) transmit the letter of
transmittal, together with your outstanding notes
and any other required documentation to U.S. Bank
Trust National Association. U.S. Bank Trust
National Association, which is the exchange
agent, must receive this documentation at the
address set forth in the letter of transmittal by
5:00 p.m. New York City time, on the expiration
date. By executing the letter of transmittal you
will represent to us that you are acquiring the
exchange notes in the ordinary course of your
business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate,
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in the distribution of exchange notes, and that
you are not an "affiliate" of ours. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Holders.........
If you are the beneficial holder of outstanding
notes that are registered in the name of your
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender in the
exchange offer, you should promptly contact the
person in whose name your outstanding notes are
registered and instruct that person to tender on
your behalf. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery If you wish to tender your outstanding notes and
Procedures................. you cannot deliver your notes, the letter of
transmittal or any other required documents to
the exchange agent before the expiration date,
you may tender your outstanding notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date.
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes............. Subject to the conditions set forth in the
section "The Exchange Offer--Certain Conditions
to the Exchange Offer" of this Prospectus, we
will accept for exchange any and all outstanding
notes which are properly tendered in the exchange
offer before 5:00 p.m., New York City time, on
the expiration date. The exchange notes will be
delivered promptly after the expiration date. See
"The Exchange Offer--Terms of the Exchange
Offer."
Effect on Holders of
Outstanding Notes.......... As a result of the making of, and upon acceptance
for exchange of all validly tendered outstanding
notes pursuant to the terms of, the exchange
offer, we will have fulfilled a covenant
contained in the registration rights agreement
and, accordingly, there will be no increase in
the interest rate on the outstanding notes under
the circumstances described in the registration
rights agreement. If you do not tender your
outstanding notes in the exchange offer, you will
continue to hold such outstanding notes and be
entitled to all the rights and limitations
applicable to the outstanding notes in the
indenture, except for any rights under the
registration rights agreement that by their terms
terminate upon the consummation of the exchange
offer.
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Consequences of Failure to
Exchange................... All untendered outstanding notes will continue to
be subject to the restrictions on transfer
provided for in the outstanding notes and in the
indenture. In general, the outstanding notes may
not be offered or sold, unless registered under
the Securities Act of 1933, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable
state securities laws. Other than in connection
with the exchange offer, we do not currently
anticipate that we will register the outstanding
notes under the Securities Act of 1933.
Material U.S. Federal
Income Tax We believe that your exchange of outstanding
Considerations............. notes for exchange notes pursuant to the exchange
offer will not result in any gain or loss to you
for U.S. federal income tax purposes. See
"Certain Federal Income Tax Considerations" in
this Prospectus.
Exchange Agent..............
U.S. Bank Trust National Association is serving
as exchange agent in connection with the exchange
offer. The address and telephone number of the
exchange agent are set forth in "The Exchange
Offer--Exchange Agent" in this Prospectus.
Use of Proceeds............. We will not receive any proceeds from the
issuance of exchange notes pursuant to the
exchange offer. We will pay all expenses incident
to the exchange offer.
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Summary of Terms of the Exchange Notes
The form and terms of the exchange notes and the outstanding notes are
identical in all material respects, except that transfer restrictions and
registration rights applicable to the outstanding notes do not apply to the
exchange notes. The exchange notes will evidence the same debt as the
outstanding notes and will be governed by the same indenture. Where we refer to
"notes" in this Prospectus, we are referring to both outstanding notes and
exchange notes.
Total Amount of Notes....... $107.0 million in aggregate principal amount of
11% Senior Notes due 2006.
Maturity Date............... May 15, 2006.
Interest Payment Date....... Interest on the notes will accrue at 11% per
annum, payable semi-annually in arrears on May 15
and November 15 of each year, beginning November
15, 1999.
Subsidiary Guarantors....... Each of our domestic subsidiaries and any of our
subsidiaries which guarantees our debt or the
debt of another subsidiary of our company must
guarantee the notes. If we cannot make payments
on the notes when they are due, our guarantor
subsidiaries, if any, must make them instead. As
of May 1, 1999, we had only one subsidiary, a
Puerto Rican subsidiary, which had no material
assets and which is not a guarantor of the
outstanding notes and will not be a guarantor of
the exchange notes at the time the exchange offer
is consummated.
Ranking..................... The notes are general unsecured obligations of
our company. They will rank equal in right of
payment with all of our existing and future
senior debt. The notes will rank ahead of all of
our existing and future debts that expressly
provide that they are subordinated to the notes.
However, the notes will effectively rank junior
to all of our secured debt to the extent of the
value of the assets securing that debt.
Optional Redemption......... We may redeem some or all of the notes at any
time on or after May 15, 2003, at the redemption
prices listed in "Description of the Notes" under
the heading "Optional Redemption."
Before May 15, 2002, we may redeem up to 35% of
the notes with the proceeds of certain offerings
of equity of our company or our parent company at
the price listed in "Description of the Notes"
under the heading "Optional Redemption."
Mandatory Offer to If we sell certain assets or experience specific
Repurchase................. kinds of changes of control, we must offer to
repurchase the notes at the price listed in
"Description of the Notes" under the heading
"Repurchase at the Option of Holders."
9
<PAGE>
Basic Covenants of We issued the outstanding notes and will issue
Indenture.................. the exchange notes under an indenture with U.S.
Bank Trust National Association. The indenture,
among other things, restricts our ability and the
ability of our subsidiaries to:
. borrow money;
. pay dividends on, redeem or repurchase our
capital stock;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into
other companies.
These covenants are subject to important
exceptions and qualifications which are described
in "Description of the Notes" under the heading
"Certain Covenants."
See "Risk Factors" immediately following this summary for a discussion of
certain factors that you should consider in connection with your participation
in the exchange offer.
10
<PAGE>
Summary Historical and Unaudited Pro Forma Financial and Operating Data
The following table sets forth:
. the Predecessor's summary historical combined financial data for fiscal
1995 through fiscal 1998, the seven months ended August 28, 1998 and the
three months ended May 2, 1998;
. the Predecessor's summary historical combined balance sheet data as of
January 28, 1995, February 3, 1996, February 1, 1997, January 31, 1998
and May 2, 1998;
. our company's summary historical consolidated financial data for the
five months ended January 30, 1999 and the three months ended May 1,
1999;
. our company's summary historical consolidated balance sheet data as of
January 30, 1999 and May 1, 1999; and
. our company's summary unaudited pro forma consolidated financial data
for fiscal 1999 and the three months ended May 1, 1999 and as of May 1,
1999.
The Predecessor's historical financial data for fiscal 1995 and the three
months ended May 2, 1998 and balance sheet data as of January 28, 1995,
February 3, 1996 and May 2, 1998 were derived from unaudited combined financial
statements of the Predecessor. The Predecessor's historical financial data for
fiscal 1996 (other than the balance sheet data as of February 3, 1996) through
fiscal 1998 and the seven months ended August 28, 1998, and balance sheet data
as of February 1, 1997 and January 31, 1998, were derived from audited combined
financial statements of the Predecessor. The Predecessor's combined financial
statements include the accounts of G & G Shops, Inc. and certain store assets
owned by subsidiaries of Petrie Retail, Inc.
Our company's historical financial data for the five months ended January 30,
1999 and balance sheet data as of January 30, 1999 were derived from our
audited consolidated financial statements. Our company's historical financial
data for the three months ended May 1, 1999 and balance sheet data as of May 1,
1999 were derived from our unaudited financial statements.
The pro forma statement of operations data for fiscal 1999 is intended to give
you a better picture of what our business might have looked like if the
following transactions had each occurred on February 1, 1998:
. the acquisition of our business from the Predecessor; and
. the sale of the units consisting of the outstanding notes and certain
warrants to purchase our parent company's Class D common stock.
The pro forma statement of operations data for the three months ended May 1,
1999 and the pro forma balance sheet data as of May 1, 1999 are intended to
give you a better picture of what our business might have looked like if the
sale of the units had occurred on January 31, 1999 and May 1, 1999,
respectively.
The pro forma statements of operations data do not reflect the write-off of the
unamortized portion of the financing costs (net of tax) related to the
financing of the acquisition of our business from the Predecessor. This write-
off will be treated as an extraordinary item in our financial statements for
the second quarter of fiscal 2000.
The pro forma financial data should not be considered indicative of either
future results of operations or the results that might have occurred if these
transactions had been consummated on the indicated dates or had been in effect
for the period presented. The pro forma financial data is unaudited.
You should read the summary financial data presented below in conjunction with
"Selected Financial and Operating Data," "Unaudited Pro Forma Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical combined and
consolidated financial statements and the notes related thereto of the
Predecessor and our company included elsewhere in this Prospectus.
11
<PAGE>
Summary Historical and Unaudited Pro Forma Financial and Operating Data
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------------- -------------------------
February 1, August 29,
Fiscal Year 1998 to 1998 to Pro Forma
-------------------------------------- August 28, January 30, Fiscal Year
1995 1996(1) 1997 1998 1998 1999(2) 1999
-------- -------- -------- -------- ----------- ----------- ------------
(Dollars in thousands)*
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales........ $237,680 $243,583 $266,362 $286,938 $162,823 $131,567 $294,390
Cost of sales
(including
occupancy
costs).......... 155,940 159,262 166,636 177,765 106,056 79,267 185,323
-------- -------- -------- -------- -------- -------- --------
Gross margin..... 81,740 84,321 99,726 109,173 56,767 52,300 109,067
Selling, general,
administrative
and buying
expenses(3)..... 75,526 78,128 76,684 79,702 49,330 36,170 81,188
Depreciation and
amortization
expense(4)...... 8,905 5,148 4,526 4,489 2,845 5,141 11,074
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... (2,691) 1,045 18,516 24,982 4,592 10,989 16,805
Interest expense,
net............. -- -- -- -- -- 7,395 13,794
-------- -------- -------- -------- -------- -------- --------
Income (loss)
before provision
for (benefit
from) income
taxes........... (2,691) 1,045 18,516 24,982 4,592 3,594 3,011
Provision for
(benefit from)
income taxes.... (1,109) 431 7,629 10,293 1,892 1,581 1,322
-------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... $ (1,582) $ 614 $ 10,887 $ 14,689 $ 2,700 $ 2,013 $ 1,689
======== ======== ======== ======== ======== ======== ========
Other Operating
Data:
Sales per gross
square foot..... $ 222 $ 238 $ 277 $ 295 $ 160 $ 130 $ 290
Inventory
turnover(5)..... 5.1x 5.4x 6.4x 6.6x 6.0x 6.5x 6.2x
Same store net
sales increase
(decrease)(6)... 3.1% 5.5% 13.0% 4.5% (3.0%) (1.1%) (2.2%)
Capital
expenditures:
New stores...... $ 940 $ 835 $ 829 $ 2,972 $ 1,299 $ 1,027 $ 2,326
Remodels........ 887 1,780 892 3,320 1,809 1,341 3,150
Non-store assets
and systems.... 576 205 231 713 292 411 703
-------- -------- -------- -------- -------- -------- --------
Total capital
expenditures... $ 2,403 $ 2,820 $ 1,952 $ 7,005 $ 3,400 $2,779 $ 6,179
======== ======== ======== ======== ======== ======== ========
Number of stores:
Beginning
balance........ 465 441 416 395 408 415 408
New stores
opened......... 5 6 11 25 9 13 22
Existing stores
closed......... 29 31 32 12 2 6 8
-------- -------- -------- -------- -------- -------- --------
Ending balance.. 441 416 395 408 415 422 422
======== ======== ======== ======== ======== ======== ========
Other Financial
Data:
EBITDA as
adjusted(7)..... $ 9,721 $ 9,802 $ 24,791 $ 31,305 $ 8,449 $ 16,130 $ 27,879
EBITDA margin as
adjusted(8)..... 4.1% 4.0% 9.3% 10.9% 5.2% 12.3% 9.5%
Gross margin
percentage...... 34.4% 34.6% 37.4% 38.0% 34.9% 39.8% 37.0%
Royalty
expense(9)...... $ 3,507 $ 3,609 $ 1,749 $ 1,834 $ 1,012 $ -- $ --
Ratio of earnings
to fixed
charges(10)..... -- 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x
Ratio of earnings as adjusted to fixed charges(11)................................................1.3x
Ratio of EBITDA as adjusted to interest expense(12)...............................................2.2x
Ratio of net debt to EBITDA as adjusted(13).......................................................3.0x
<CAPTION>
Predecessor Company
------------ -------------------------
Pro Forma
First Fiscal First Fiscal First Fiscal
Quarter Quarter Quarter
1999 2000 2000
------------ ------------ ------------
(Dollars in thousands)*
<S> <C> <C> <C>
Statement of
Operations Data:
Net sales........ $66,398 $72,733 $72,733
Cost of sales
(including
occupancy
costs).......... 42,594 46,374 46,374
------------ ------------ ------------
Gross margin..... 23,804 26,359 26,359
Selling, general,
administrative
and buying
expenses(3)..... 19,338 20,728 20,728
Depreciation and
amortization
expense(4)...... 1,225 3,173 3,173
------------ ------------ ------------
Operating income
(loss).......... 3,241 2,458 2,458
Interest expense,
net............. -- 3,168 3,200
------------ ------------ ------------
Income (loss)
before provision
for (benefit
from) income
taxes........... 3,241 (710) (742)
Provision for
(benefit from)
income taxes.... 1,335 (313) (327)
------------ ------------ ------------
Net income
(loss).......... $ 1,906 $ (397) $ (415)
============ ============ ============
Other Operating
Data:
Sales per gross
square foot..... $ 67 $ 70 $ 70
Inventory
turnover(5)..... 5.8x 6.0x 6.0x
Same store net
sales increase
(decrease)(6)... (4.7%) 3.4% 3.4%
Capital
expenditures:
New stores...... $ 714 $ 1,054 $ 1,054
Remodels........ 736 1,888 1,888
Non-store assets
and systems.... 108 304 304
------------ ------------ ------------
Total capital
expenditures... $ 1,558 $ 3,246 $ 3,246
============ ============ ============
Number of stores:
Beginning
balance........ 408 422 422
New stores
opened......... 7 6 6
Existing stores
closed......... -- -- --
------------ ------------ ------------
Ending balance.. 415 428** 428**
============ ============ ============
Other Financial
Data:
EBITDA as
adjusted(7)..... $ 4,874 $ 5,631 $ 5,631
EBITDA margin as
adjusted(8)..... 7.3% 7.7% 7.7%
Gross margin
percentage...... 35.9% 36.2% 36.2%
Royalty
expense(9)...... $ 408 $ -- $ --
Ratio of earnings
to fixed
charges(10)..... 2.7x -- --
Ratio of earnings as adjusted to fixed charges(11).......1.0x
Ratio of EBITDA as adjusted to interest expense (12).....1.8x
Ratio of net debt to EBIT as adjusted(13)................16.3x
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
----------------------------------------------- ----------- ----------- ------------------
Pro Forma
January 28, February 3, February 1, January 31, January 30, May 2, May 1, May 1,
1995 1996 1997 1998 1999 1998 1999 1999
----------- ----------- ----------- ----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance Sheet Data:
Total assets............ $31,746 $29,218 $25,818 $28,157 $167,664 $36,665 $171,650 $180,506
Total long-term debt.... 7,623 12,364 20,591 20,866 90,000 20,886 90,000 98,960
</TABLE>
- ------
* Other than sales per gross square foot.
**Does not include 13 stores for which we have executed leases, but which were
not open as of May 1, 1999.
12
<PAGE>
Notes to Summary Historical and Unaudited Pro Forma Financial and Operating
Data
(1) The year ended February 3, 1996 consisted of 53 weeks.
(2) We were inactive from the date of our incorporation on June 26, 1998 to
August 28, 1998, the date on which we completed the acquisition of our
business from the Predecessor.
(3) Selling, general, administrative and buying expenses include royalty
expense (see Note 9 below) and store closing expenses.
(4) In November 1994, Petrie Retail, Inc., the Predecessor's parent, was
acquired. This acquisition was a bargain purchase and, accordingly, the
fixed assets were written down. This write-down of assets caused the
substantial decrease in depreciation and amortization for fiscal years
1996, 1997 and 1998.
(5) Inventory turnover is calculated by dividing the summation of monthly net
sales (at retail) by average monthly retail inventory.
(6) A store becomes comparable after it is open twelve full months.
(7) EBITDA is defined by us as operating income plus depreciation and
amortization. In addition, we have further adjusted EBITDA to add back
royalty expense (see Note 9 below). EBITDA as adjusted is not intended to
represent cash flow from operations and should not be considered as an
alternative to operating or net income computed in accordance with
generally accepted accounting principles as an indicator of our operating
performance, as an alternative to cash from operating activities (as
determined in accordance with generally accepted accounting principles) or
as a measure of liquidity. We believe that EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the retail industry. Accordingly, this information
is presented to permit a more complete comparative analysis of our
operating performance relative to other companies in the industry.
However, not all companies calculate EBITDA using the same methods;
therefore, the EBITDA as adjusted figures presented herein may not be
comparable to EBITDA reported by other companies.
(8) Computed by dividing EBITDA as adjusted by net sales.
(9) Royalty expense represents an amount charged by Petrie Retail, Inc., the
Predecessor's parent, for the use of certain trademarks which it owned. We
purchased these trademarks in connection with our acquisition of the
Predecessor's junior apparel retail business.
(10) Computed by dividing (i) the sum of (a) earnings before income taxes and
(b) fixed charges, by (ii) fixed charges. Fixed charges consist of
interest on debt, amortization of debt issuance costs, amortization of
original issue discount with respect to the outstanding notes and the
value assigned to the outstanding warrants of our parent company issued
as part of the units and the estimated interest component of rental
expense. For 1995 and the three months ended May 1, 1999, earnings were
insufficient to cover fixed charges by $2.7 million and $710,000,
respectively.
(11) Computed by dividing (i) the sum of (a) earnings before income taxes, (b)
amortization of goodwill and (c) fixed charges, by (ii) fixed charges.
Fixed charges consist of interest on debt, amortization of debt issuance
costs, amortization of original issue discount with respect to the
outstanding notes and the value assigned to the outstanding warrants of
our parent company issued as part of the units and the estimated interest
component of rental expense. Ratio of earnings as adjusted to fixed
charges is not intended as a substitute for the ratio of earnings to fixed
charges. We believe this ratio is meaningful information for analysts,
investors and other interested parties.
(12) Computed by dividing EBITDA as adjusted by interest expense including the
amortization of the original issue discount with respect to the
outstanding notes and the discount related to the value assigned to the
outstanding warrants of our parent company issued as part of the units
(excluding amortization of deferred financing costs).
(13) Computed by dividing (i) total debt less excess cash, where excess cash is
defined as the cash balance less $3.0 million, the amount estimated by
management as the minimum average balance required for operations, by (ii)
EBITDA as adjusted.
13
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and other information
in this Prospectus before deciding to tender outstanding notes in the exchange
offer. Some of the information in this Prospectus contains forward-looking
statements.
Forward-Looking Statements.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. While these statements
reflect our current judgment about the direction of our business, our actual
results likely will vary, sometimes in a material way, from the estimates,
projections, assumptions and other future performance suggested in this
Prospectus. Our actual revenues, profitability and operating results may differ
materially from those expressed in the "forward-looking" statements contained
in this Prospectus as a result of one or more factors including the following
factors:
. our ability to successfully implement operating strategies (including
the opening of new stores);
. changes in economic conditions;
. our competition; and
. risk factors set forth below and other matters referred to elsewhere in
this Prospectus.
We do not intend to release publicly any revisions to our forward-looking
statements that we may make as a result of events or circumstances that occur
after the date of this Prospectus.
Failure to Exchange--There may be adverse consequences if you do not exchange
your outstanding notes.
If you do not exchange your outstanding notes for exchange notes in the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the Offering Memorandum
distributed in connection with the private placement of the units consisting of
the outstanding notes and certain warrants to purchase shares of our parent
company's Class D common stock. In general, the outstanding notes may not be
offered or sold unless they are registered or exempt from registration under
the Securities Act of 1993 and applicable state securities laws. Except as
required by the registration rights agreement that we entered into with the
initial purchasers of the units, we do not intend to register resales of the
outstanding notes under the Securities Act of 1933. See "The Exchange Offer--
Consequences of Failure to Exchange." You should refer to "The Exchange Offer"
for information about how to tender your outstanding notes.
The tender of outstanding notes pursuant to the exchange offer will reduce the
principal amount of the outstanding notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
outstanding notes due to a reduction in liquidity.
Significant Indebtedness--We have significant indebtedness that may prevent us
from fulfilling our obligations under the notes.
We have significant indebtedness. As of May 1, 1999, after giving pro forma
effect to the private placement of the units, our outstanding indebtedness
would have been $99.0 million after giving effect to the original issue
discount (or $107.0 million principal amount). In addition, as of such date, we
had $681,000 of letters of credit outstanding under our current revolving
credit facility. See "Capitalization" and "Unaudited Pro Forma Consolidated
Financial Statements." As of such date, we would have had additional
availability of approximately $15.5 million under our revolving credit
facility. Furthermore, subject to restrictions in our revolving credit facility
(or any revolving line of credit which may replace it in the future) and the
indenture for the notes, we may incur additional
14
<PAGE>
indebtedness from time to time to finance acquisitions or capital expenditures.
See "Description of Revolving Credit Facility" and "Description of the Notes--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, we recently entered into a capital lease agreement pursuant to
which we may incur indebtedness of up to $5.0 million to finance our point of
sale equipment upgrade by the end of fiscal 2001. See "Business--Management
Information Systems."
Our significant indebtedness, and the resulting amount of leverage, may:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. make it more difficult for us to make required payments under our
revolving credit facility;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing to fund future working
capital, capital expenditure and other general corporate requirements;
. require us to dedicate a substantial portion of cash flow from
operations to principal and interest payments with respect to our
indebtedness, thereby reducing the availability of such cash flow to
fund working capital, capital expenditures or other general corporate
purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and industry; and
. place us at a competitive disadvantage compared to our competitors that
have less debt.
For the three months ended May 1, 1999, our earnings were insufficient to cover
our fixed charges by $710,000 due to the seasonal nature of our business. See
"--Effect of Seasonality."
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
the notes, and to fund planned capital expenditures will depend on our ability
to generate cash in the future. This ability, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Based on our current level of operations, we believe our cash flow from
operations, available cash, available borrowings under our revolving credit
facility and available capitalized leases will be adequate to meet our future
liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations or that future borrowings will be available to us under
our revolving credit facility in an amount sufficient to enable us to pay our
indebtedness, including the notes, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness, including the notes, on
or before maturity. We cannot assure you that we will be able to refinance any
of our indebtedness, including our revolving credit facility and the notes, on
commercially reasonable terms or at all.
Effective Subordination--Although the notes are senior debt they will be
effectively subordinated to our secured debt.
The outstanding notes are, and the exchange notes will be, unsecured and
therefore will be effectively subordinated to any secured debt we may incur to
the extent of the value of the assets securing such debt. We pledged
substantially all of our assets to secure our indebtedness under our revolving
credit facility. See "Description of Revolving Credit Facility." In the event
of a bankruptcy or similar proceeding involving us, our assets that serve as
collateral will be available to satisfy the obligations under any secured debt
before any payments are made on the notes. In addition, if we default on our
secured indebtedness, the lenders thereunder may foreclose on and take control
of our assets pledged as collateral. As a result, we may have insufficient
remaining assets to pay amounts due on your notes. As of May 1, 1999, we had no
outstanding secured indebtedness. However, as of May 1, 1999, we had $681,000
of secured letters of credit outstanding under our revolving credit facility.
In addition, the notes will be effectively subordinated to the
15
<PAGE>
capitalized lease that we recently entered into to finance our point of sale
equipment upgrade to the extent of the value of the equipment leased. See
"Business--Management Information Systems." In addition, although our domestic
subsidiaries will guarantee the notes, our foreign subsidiaries, including our
Puerto Rican subsidiary, may not be required to guarantee the notes. The notes
will be effectively subordinated to all indebtedness and other liabilities
(including trade payables) of any of our foreign subsidiaries which do not
guarantee the notes.
Restrictive Covenants--We may be unable to comply with the restrictions imposed
by our revolving credit facility and the indenture for the notes which could
cause a default under these instruments.
We must comply with various restrictive covenants contained in our revolving
credit facility and the indenture for the notes. Our revolving credit facility
requires us to maintain a minimum tangible net worth. Our revolving credit
facility and the indenture for the notes require us to comply with customary
affirmative and negative covenants including, among other things, limitations
on our ability to (1) incur additional indebtedness, (2) make certain payments,
(3) pay dividends, (4) create liens on assets, (5) sell assets and (6) engage
in fundamental business changes. Our revolving credit facility also limits our
ability to make acquisitions and capital expenditures. See "Description of
Revolving Credit Facility" and "Description of the Notes--Certain Covenants."
Our ability to continue to comply with these covenants may be affected by
events beyond our control. Our failure to comply with these covenants could
cause a default under our revolving credit facility, which in turn could cause
the lenders under such facility to accelerate our indebtedness or to cease to
provide additional revolving loans or letters of credit. If we cannot pay the
accelerated indebtedness, the lenders under our revolving credit facility could
foreclose on the collateral we pledged to secure our indebtedness under such
facility. This collateral consists of all or substantially all of our assets.
See "Description of Revolving Credit Facility." As a result of foreclosure, we
may have insufficient remaining assets to pay amounts due on your notes. The
acceleration of indebtedness under our revolving credit facility would
constitute an event of default under the indenture relating to the notes.
Similarly, our failure to comply with the restrictions in the indenture could
result in an event of default under the indenture, which could lead to a cross-
default under our revolving credit facility and under the terms of other
indebtedness.
Same Store Sales--Our same store sales results declined from fiscal 1998 to
fiscal 1999.
Our same store sales results have fluctuated in the past and likely will
continue to fluctuate in the future. Factors affecting these results include,
among others, economic conditions, fashion trends, the retail sales
environment, changes in our merchandise mix, sourcing and distribution of
products, our ability to execute our business strategy efficiently, calendar
shifts of holiday periods, actions by our competitors and weather. The
following table shows the fluctuations in our annual same store sales results
over the past five fiscal years.
<TABLE>
<CAPTION>
Same Store
Fiscal Year Sales Growth (Decrease)
----------- -----------------------
<S> <C>
1995............................................. 3.1%
1996............................................. 5.5%
1997............................................. 13.0%
1998............................................. 4.5%
1999............................................. (2.2%)
</TABLE>
As indicated in the table above, we recorded same store sales decreases in
fiscal 1999. Same store sales for any particular quarter or fiscal year may
decrease in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
16
<PAGE>
Competition--We face significant competition in the junior apparel retail
business.
The junior apparel retail business is highly competitive. We compete for sales
primarily with specialty apparel retailers such as Wet Seal/Contempo Casual, a
mall-based junior apparel retailer. We also compete with several discount
department stores and local and regional department store chains that overlap
with our merchandise offerings and price points. Some of our competitors are
larger and may have greater financial, marketing and other resources than us.
In addition, we compete with our competitors and other persons for favorable
site locations and lease terms in shopping malls. Competition from our current
major competitors, as well as from catalog and Internet retailers, may increase
significantly in the future which could adversely affect our business. See
"Business--Competition."
Fashion Risks--Our profitability depends upon our ability to identify our
customers' fashion tastes which may change frequently.
Our profitability largely depends upon our ability to identify the fashion
tastes of our customers and to provide merchandise that appeals to their
preferences in a timely manner. The fashion tastes of our customers may change
frequently. Our failure to identify or react appropriately to changes in styles
or trends could lead to, among other things, excess inventories and higher
markdowns than we anticipated, which could have a material adverse effect on
our business. In addition, our fashion misjudgments could materially and
adversely affect our business, financial condition, operating results and image
with our customers. See "Business--General" and "Business--Merchandising and
Marketing."
Dependence on Key Personnel--Our success depends upon our ability to retain our
senior management.
We believe that our success depends significantly upon the performance of our
senior management.
Jay Galin has been with our company for over 40 years and is our Chairman of
the Board and Chief Executive Officer. Scott Galin, Jay Galin's son, who has
been with our company for over 20 years, is our President and Chief Operating
Officer. Jay and Scott Galin are employed pursuant to employment agreements
expiring in August 2000 and August 2003, respectively.
In addition to Jay and Scott Galin, our senior management includes our Chief
Financial Officer, Vice President-Store Operations, Vice President-Warehouse
and Distribution and Vice President/Divisional Merchandise Manager and five
other Divisional Merchandise Managers who have an average of nine years
experience with our company. The loss of the services of members of our senior
management could have a material adverse effect on our business. Our success
also depends upon our ability to retain and attract qualified employees to meet
our needs in connection with our growth strategy. We do not maintain "key man"
life insurance on any member of senior management. See "Management."
Growth Strategy--We may be unable to successfully implement our growth strategy
of opening new stores.
Our continued growth significantly depends upon our ability to open new stores
on a profitable basis and our management's ability to manage our growth and
resultant expanded operations. During fiscal 1997, 1998 and 1999, we opened 11,
25 and 22 new stores, respectively. We opened six new Rave stores during the
period from January 31, 1999 to May 1, 1999, and we intend to open
approximately 24 new Rave stores by the end of fiscal 2000. Accomplishing our
expansion goals will depend upon a number of factors, including our ability to
obtain favorable geographical locations and suitably sized locations for new
stores at acceptable costs, and availability of capital.
We also intend to test the market for sales to 8- to 12-year-old girls by
opening approximately six mall stores under the name Rave Girl during fiscal
2000. If this market test succeeds, we also intend to further expand into this
market. Our ability to successfully operate in this market will depend upon a
17
<PAGE>
number of factors including our ability to identify and react appropriately to
fashion trends in this market. The market for sales to 8- to 12-year-old girls
may present different merchandising challenges from the teen market.
We expect to finance the expenditures related to our planned expansion,
including our Rave Girl stores, with cash flow from operations and borrowings
under our revolving credit facility (or any revolving line of credit which may
replace it in the future). We may not always have access to sufficient funds to
finance these expenditures or be able to achieve our store expansion goals,
successfully integrate planned new stores into our operations, successfully
expand into the market for sales to 8- to 12-year-old girls or operate new
stores profitably. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Store Openings and Closings."
Economic Conditions--We may be adversely affected by economic conditions that
affect the demand for our merchandise. We depend on the popularity of malls as
a shopping destination.
Certain economic conditions affect the level of consumer spending on the
merchandise that we offer, including, among others, business conditions, levels
of employment and consumer confidence in future economic conditions. If the
demand for apparel and related merchandise by female teenagers were to decline,
our business, financial condition and results of operations would be materially
and adversely affected. In addition, because our stores are located primarily
in malls, we depend upon the continued popularity of malls as a shopping
destination and the ability of mall anchor tenants and other attractions to
generate customer traffic for our stores. A decrease in mall traffic or a
decline in economic conditions in the markets in which our stores are located
would adversely affect our business, financial condition and results of
operations. See "Business--Stores" and "Business--Properties."
Lease Expirations--A significant number of our store leases will expire in the
near future.
All of our store sites are leased. As of May 1, 1999, the leases for 45 (or
approximately 10%) of our stores expired, and we are occupying such premises on
a month-to-month basis. In addition, as of May 1, 1999, the leases for an
additional 98 (or approximately 22%) of our stores are scheduled to expire by
January 31, 2000. Of these 143 stores, as of May 1, 1999, we were negotiating
renewals for 137 stores; with respect to these 137 stores, our negotiations had
progressed, as of such date, to the final documentation phase for 50 stores. In
addition, leases for 70 (or approximately 16%) of our stores are scheduled to
expire by January 31, 2001 and leases for 65 (or approximately 15%) of our
stores are scheduled to expire by January 31, 2002. Furthermore, as of May 1,
1999, approximately 16% of our stores were leased from a single landlord. See
"Business--Properties."
Although we believe that our real estate staff has strong relationships with
our present landlords, we may be unable to renew one or more of these expiring
or expired leases or renew one or more of them for the term we desire or at an
attractive rental price or on other acceptable terms. The failure to renew a
significant number of these expired or expiring leases could have a material
adverse effect on our business, financial condition and results of operations.
Single Distribution Facility--We depend on a single distribution facility.
We handle our distribution functions for all of our stores from a single
facility in North Bergen, New Jersey. Any significant interruption in the
operation of this distribution facility would have a material adverse effect on
our business, financial condition and results of operations. See "Business--
Distribution and Transportation."
18
<PAGE>
Key Suppliers--We may be unable to obtain an adequate amount of inventory
because we depend upon outside suppliers with whom we do not have long-term
contracts.
Our business depends upon our ability to purchase current season apparel at
competitive prices. We currently purchase inventory primarily from domestic
manufacturers. We do not own any manufacturing facilities. During the first
fiscal quarter of fiscal 2000, our top three suppliers accounted for
approximately 12.7%, 10.4% and 8.2%, respectively, of our inventory purchases.
During fiscal 1999, our top three suppliers accounted for approximately 12.8%,
11.2% and 9.8%, respectively, of our inventory purchases. During the first
fiscal quarter of fiscal 2000 and during fiscal 1999, we did not purchase more
than 5.0% of our inventory from any one of our other vendors.
We do not have long-term contracts with our suppliers and transact business
principally on an order-by-order basis. Although we believe that we have strong
relationships with our key suppliers, we may be unable to acquire merchandise
from such suppliers in sufficient quantities or on favorable terms in the
future. The inability or failure of key suppliers to supply us with adequate
quantities of desired merchandise, the loss of one or more key suppliers or a
material change in our current purchase terms could have a material adverse
effect on our business, financial condition and results of operations. Many of
our smaller suppliers have limited resources, production capacities and
operating histories.
Effect of Seasonality--Our results of operations fluctuate based on the
seasons; our quarterly results of operations also may fluctuate in the future.
Our results of operations fluctuate based on the seasons. Historically, our
fourth fiscal quarter has generated the largest percentage of our annual net
sales. For example, in fiscal 1999, our fourth fiscal quarter accounted for
approximately 29.6% of our annual net sales. In contrast, our first quarter
historically has generated the smallest percentage of our annual net sales. A
substantial decline in our sales during the fourth fiscal quarter below
seasonal norms for any reason may cause our cash on hand to be insufficient to
cover payments on the notes.
Our quarterly results of operations also may fluctuate significantly as a
result of a variety of other factors, including the number and timing of store
openings and closings, the level of markdowns taken, and the amount of revenue
contributed by new stores. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Quarterly
Results."
Control by Significant Stockholders--Members of our senior management and
affiliates of one investment fund own or control a substantial amount of our
parent company's capital stock and therefore may influence our affairs.
Currently, members of our senior management and affiliates of Pegasus
Investors, L.P., a Connecticut-based private equity investment fund, control
our parent company, and accordingly our company, through their ownership of
voting common equity in our parent company. See "Principal Stockholders."
Circumstances may occur in which the interests of the holders of our parent
company's voting common equity could be in conflict with your interests as
holders of the notes. In addition, holders of our parent company's voting
common equity may desire to pursue acquisitions, divestitures or other
transactions that, in their judgment, could enhance their equity investment
even though such transactions may subject you, as a holder of notes, to risks.
See "Principal Stockholders" and "Management--Directors, Executive Officers and
Key Employees of the Company."
Regional Concentration--A significant number of our stores are located in
Florida, New York, California and Puerto Rico.
Although our stores were located in 39 states in the United States, Puerto Rico
and the U.S. Virgin Islands as of May 1, 1999, a significant number of our
stores are located in Florida, New York,
19
<PAGE>
California and Puerto Rico. As of May 1, 1999, we had 49 stores in Florida, 40
stores in New York, 34 stores in California and 41 stores in Puerto Rico. We
plan to expand within these markets. As a result, we are susceptible to
fluctuations in our business caused by severe weather, natural disasters or
adverse economic conditions in one or more of these geographic regions. Such
fluctuations could have a material adverse effect on our business, financial
condition and results of operations. See "Business--Stores."
Year 2000--Year 2000 compliance issues could adversely impact our business.
The year 2000 issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the fact
that certain computer systems and programs use two digits, rather than four, to
define the applicable year of business transactions. On January 1, 2000, these
systems and programs may recognize the date as January 1, 1900 and may process
data incorrectly or stop processing data altogether.
We have completed a review of our information technology and non-information
technology systems to determine whether they are year 2000 compliant. As a
result of this review, we believe that our computer programs should be able to
continue to operate effectively after December 31, 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
However, in addition to our own systems, we rely directly and indirectly on
external systems of our suppliers, landlords, banks, utilities providers and
other third parties. We are currently in the process of asking our significant
suppliers about their year 2000 readiness. To date, we are not aware of any
third party year 2000 issues that would materially impact our business,
financial condition or results of operations. However, we have no means of
ensuring that the third parties with which we deal will be year 2000 compliant.
If the systems of any third parties with which we interact experience year 2000
problems, our business, financial condition or results of operations could be
materially and adversely affected. We cannot be certain that the systems of
third parties with which we interact will not suffer from year 2000 problems.
Labor Stoppage--Certain of our distribution center employees are represented by
a union which may cause us to be more vulnerable to work stoppages.
As of May 1, 1999, approximately 132 of our employees at our distribution
center in North Bergen, New Jersey were represented by Local 2326 of the
UAW/AFL/CIO. The collective bargaining agreement covering our distribution
center employees expires on January 31, 2002. Although we believe that we have
good relations with our union employees and never have experienced a work
stoppage, we may be subject to work stoppages in the future. Any such work
stoppages could have a material adverse effect on our business, financial
condition and results of operations. See "Business--Employees."
Financing Change of Control Offer--We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture for the notes.
Upon the occurrence of change of control events specified in the indenture for
the notes, we will be required to offer to repurchase all outstanding notes. It
is possible, however, that we will not have sufficient funds at the time of the
change of control to make the required repurchase of notes or that restrictions
in our revolving credit facility will not allow such repurchases. In addition,
important corporate events such as leveraged recapitalizations and certain
other highly leveraged transactions, restructurings or mergers that would
increase the level of our indebtedness would not constitute a change of control
under the indenture. See "Description of the Notes--Repurchase at the Option of
Holders."
20
<PAGE>
Original Issue Discount--You will be required to recognize income for federal
tax purposes prior to receiving certain cash payments on the notes.
The outstanding notes were issued with original issue discount for federal
income tax purposes and thus the exchange notes will also have original issue
discount for federal income tax purposes. As a result, as a holder of notes you
will be required to include the original issue discount in gross income for
federal income tax purposes as it accrues in advance of the receipt of cash
payments on the notes (regardless of whether you are a cash or accrual basis
taxpayer). See "Certain Federal Income Tax Considerations--Other Tax
Considerations--United States Holders--Taxation of Original Issue Discount."
Fraudulent Conveyance Matters--Our obligations to you under the notes could be
voided under federal or state fraudulent transfer laws.
Our obligations to you under the notes could be voided under federal or state
fraudulent transfer laws if a bankruptcy case or other lawsuit is commenced by
or on behalf of any of our creditors and the court in such a case or lawsuit
makes the determinations described in the following sentence. Specifically, a
court of competent jurisdiction in such a case or lawsuit could void, in whole
or in part, the notes or subordinate the notes to our existing and future
indebtedness or take other action detrimental to you if, at the time we issued
the notes, we either:
. issued the notes with the intent to hinder, delay or defraud our
existing or future creditors; or
. received less than reasonably equivalent value or fair consideration for
issuing the notes and we either:
. were insolvent at the time of such issuance;
. were rendered insolvent by reason of such issuance (and the
application of the proceeds of the notes);
. were engaged or were about to engage in a business or transaction
for which our remaining assets constituted unreasonably small
capital to carry on such businesses; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they mature.
The measure of our insolvency for purposes of the foregoing test will vary
depending upon the law applied in such case. Generally, however, we would be
considered insolvent at a particular time if (1) the sum of our debts,
including our contingent liabilities, at that time exceeded the fair saleable
value of all of our assets, (2) the present fair saleable value of our assets
at that time was less than the amount that would be required to pay the
probable liability on our existing debts, including our contingent liabilities,
as they become absolute and matured or (3) we could not pay our debts as they
become due.
Our obligations under the notes will be guaranteed by our domestic subsidiaries
and our subsidiaries which guarantee our debt or the debt of another subsidiary
of our company. As of May 1, 1999, we had only one subsidiary, a foreign
subsidiary, which had no material assets, and which is not a guarantor of the
outstanding notes and will not be a guarantor of the exchange notes at the time
the exchange offer is consummated. Any guarantee of the notes also may be
subject to review under various laws for the protection of creditors, including
federal and state fraudulent transfer laws, if a bankruptcy case or a lawsuit
is commenced by or on behalf of any creditor of a guarantor or a representative
of any such creditors. In such a case, the analysis set forth above would
generally apply, except that the guarantee could also be subject to the claim
that, since the guarantee was incurred for our benefit (and only indirectly for
the benefit of the guarantor), the obligation of the guarantor thereunder was
incurred for less than reasonably equivalent value or fair consideration. A
court could void a guarantor's obligation under its guarantee of the notes,
subordinate the guarantee to other indebtedness of a guarantor, direct that
holders of the notes return any amounts paid under a
21
<PAGE>
guarantee to the relevant guarantor or to a fund for the benefit of its
creditors, or take other action detrimental to the holders of the notes.
We issued the outstanding notes, and will issue exchange notes, in good faith
and for proper purposes and without the intent to hinder, delay or defraud our
creditors. We believe that, after the private placement of the units consisting
of the outstanding notes and certain warrants to purchase our parent company's
Class D common stock and the application of the proceeds thereof, we were
solvent, had sufficient capital for carrying on our business and were able to
pay our debts as they matured. However, a court passing on such questions may
apply a different standard in making such determination and may disagree with
our view.
No Public Market for the Exchange Notes--You may find it difficult to transfer
the exchange notes due to the lack of a public trading market.
The exchange notes are new securities for which there is no existing market.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the exchange notes. The notes are eligible for trading in the
Private Offerings, Resales and Trading Through Automated Linkages (PORTAL)
Market. The initial purchasers of the units consisting of the outstanding notes
and certain warrants to purchase our parent company's Class D common stock have
advised us that they currently intend to make a market in the exchange notes.
However, the initial purchasers of the units are not obligated to do so, and
any market making with respect to the exchange notes may be discontinued at any
time without notice. We do not intend to apply for a listing of the exchange
notes on any securities exchange or on any automated dealer quotation system.
No assurance can be given to non-exchanging holders of outstanding notes as to
the liquidity of the trading market for the outstanding notes following the
exchange offer.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by general declines in the market for similar securities or
by changes in our financial performance. Such a market decline may adversely
affect such liquidity and trading markets independent of our financial
performance and prospects.
Third Party Teen Market Data--We have not independently verified the teen
market data contained in this Prospectus; such information may change
significantly, which could adversely affect our business.
We included in this Prospectus information about the teen market. Such
information indicates that the teen market is large and rapidly growing, has
significant discretionary income which is increasing and spends a significant
percentage of discretionary income on apparel. We obtained this information
from Kalorama Information's October 1998 report entitled "The Teen Market,"
published under the name Packaged Facts(R), and we have not independently
verified such information. The teen market may not be as large as reported or
growing at the reported rate. In addition, teenagers may not have as much
discretionary income as reported and their discretionary income may not be
increasing as reported. Furthermore, teenagers may not currently spend or
continue to spend the reported amount of their income on apparel. Factors
beyond our control such as economic conditions and consumer preferences may
cause changes in the teen market information presented in this Prospectus. An
adverse change in the size, growth rate, purchasing power or purchasing habits
of the teen market could have a material adverse effect on our business,
financial condition and results of operations.
22
<PAGE>
THE ACQUISITION
On August 28, 1998, senior management of the Predecessor, together with an
investor group led by affiliates of Pegasus Investors, L.P. ("Pegasus"), a
Connecticut-based private equity investment fund, acquired from the Predecessor
the junior apparel retail business currently conducted by the Company (the
"Acquisition"). The Company and its parent, G&G Retail Holdings, Inc. (the
"Parent"), were formed in 1998 to make the Acquisition. The Company acquired
substantially all of the Predecessor's assets for $132.0 million in cash, the
assumption of certain liabilities and the issuance to the Predecessor of shares
of non-voting Class C common stock of the Parent (which shares were
subsequently transferred to a liquidating trust as part of Petrie Retail,
Inc.'s plan of reorganization). A portion of the cash purchase price was
financed with debt including senior bridge notes in the aggregate principal
amount of $90.0 million (the "Senior Bridge Notes"). The Senior Bridge Notes
were repaid in full with the net proceeds of the private placement of the units
consisting of the outstanding notes and certain warrants to purchase the
Parent's Class D common stock. See "Use of Proceeds."
The Acquisition was made by a transfer of substantially all of the assets of
the Predecessor in accordance with Section 363 of the United States Bankruptcy
Code and was approved by the United States Bankruptcy Court for the Southern
District of New York on August 24, 1998. In October 1995, Petrie Retail, Inc.,
the Predecessor's parent ("Petrie"), on behalf of itself and its subsidiaries
(including the Predecessor), filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. In December 1998, the United
States Bankruptcy Court for the Southern District of New York issued an order
confirming Petrie's plan of reorganization. The Predecessor's operating
performance was strong prior to and during the bankruptcy proceedings. The
Predecessor generated aggregate EBITDA as adjusted of $84.1 million and
aggregate net income of $27.0 million from the beginning of fiscal 1995 through
August 28, 1998.
Pegasus, the financial sponsor of the Acquisition, was founded by Craig Cogut,
who was a senior principal of Apollo Advisors, L.P. Pegasus makes control
investments in middle market companies, with a focus on complex transactions
such as bankruptcies and restructurings. Pegasus typically invests in companies
with strong management teams with whom they partner to grow and strategically
develop the companies' businesses. Pegasus currently manages $220.0 million in
committed capital and has participated in 15 acquisitions and investments.
23
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange notes.
In consideration for issuing the exchange notes as contemplated in this
Prospectus, we will receive in exchange a like principal amount of outstanding
notes, the terms of which are identical in all material respects to the
exchange notes. The outstanding notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the exchange notes will not result in any change in our
capitalization.
The net proceeds from the sale of the units consisting of the outstanding notes
and certain warrants to purchase the Parent's Class D common stock were
approximately $94.7 million (after deducting discounts and commissions,
transaction fees and expenses of the private placement.) Of those net proceeds,
$90.6 million was used by the Company to repay in full and retire all of its
outstanding indebtedness (including interest accrued through the date of
repayment) under the Senior Bridge Notes. The Company expects to use the
balance of those net proceeds for general corporate purposes.
The Senior Bridge Notes were issued by the Company in August 1998 to fund a
portion of the purchase price for the Acquisition. See "The Acquisition." The
Senior Bridge Notes accrued interest at one-month London Inter-Bank Offered
Rate ("LIBOR") plus 6%, (10.92% as of May 17, 1999, the date on which they were
repaid) which was payable monthly in cash.
24
<PAGE>
CAPITALIZATION
The following table sets forth as of May 1, 1999 the actual capitalization of
the Company and the pro forma capitalization of the Company as adjusted to give
effect to the private placement of the units consisting of the outstanding
notes and certain warrants to purchase the Parent's Class D common stock. This
table should be read in conjunction with the "Selected Financial and Operating
Data" and "Unaudited Pro Forma Consolidated Financial Statements" and the
historical combined and consolidated financial statements of the Predecessor
and the Company and notes related thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
May 1, 1999
-----------------
Pro
Actual Forma
(Dollars in thousands) -------- --------
<S> <C> <C>
Cash......................................................... $ 5,332 $ 9,992
======== ========
Long-term debt:
Revolving Credit Facility(1)............................... $ -- $ --
Senior Bridge Notes(2)..................................... 90,000 --
11% Senior Notes due 2006(2)(3)............................ -- 98,960
-------- --------
Total long-term debt..................................... 90,000 98,960
Redeemable Equity............................................ -- --
Stockholder's equity(4)(5)................................... 51,444 51,694
-------- --------
Total capitalization..................................... $141,444 $150,654
======== ========
</TABLE>
- --------
(1) The revolving credit facility provides for revolving loans in the aggregate
principal amount of up to $20.0 million (including a sublimit of $10.0
million for letters of credit) and matures in October 2001. As of May 1,
1999, the Company had no borrowings outstanding under the revolving credit
facility, but had $681,000 of letters of credit outstanding thereunder, and
$15.5 million of availability thereunder.
(2) The net proceeds from the sale of the units were used to repay in full and
retire all of the outstanding Senior Bridge Notes. See "Use of Proceeds."
(3) Net of original issue discount and the value assigned to the warrants of
the Parent comprising the units.
(4) The deferred financing costs (net of tax) associated with the Senior Bridge
Notes have been written off and reflected as an adjustment to stockholder's
equity in the pro forma capitalization of the Company.
(5) Stockholder's equity reflects the capital contribution by the Parent
totalling $700,000 in connection with the issuance of the warrants of the
Parent comprising the units.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Consolidated Financial Statements are based on the
historical combined financial statements of the Predecessor and the historical
consolidated financial statements of the Company as adjusted to illustrate the
estimated effects of the Acquisition and the sale of the units (consisting of
the outstanding notes and certain warrants to purchase the Parent's Class D
common stock). The Company acquired substantially all of the assets and assumed
certain liabilities of the Predecessor in the Acquisition on August 28, 1998.
See "The Acquisition." The Company and the Parent completed the private
offering of the units on May 17, 1999. See "Summary of the Exchange Offer."
The following Unaudited Pro Forma Consolidated Balance Sheet as of May 1, 1999
gives effect to the sale of the units as if it had occurred on such date. The
following Unaudited Pro Forma Consolidated Statement of Income for the year
ended January 30, 1999 gives effect to the Acquisition and the sale of the
units as if each had occurred on February 1, 1998. The following Unaudited Pro
Forma Consolidated Statement of Income for the three months ended May 1, 1999
gives effect to the sale of the units as if it had occurred on January 31,
1999. The following Unaudited Pro Forma Consolidated Statements of Income for
the year ended January 30, 1999 and the three months ended May 1, 1999 do not
reflect the write-off of the unamortized portion of the financing costs (net of
tax) related to the financing of the Acquisition. This write-off will be
treated as an extraordinary item in the Company's financial statements for the
second quarter of fiscal 2000. The Unaudited Pro Forma Consolidated Statements
of Income and the Unaudited Pro Forma Consolidated Balance Sheet do not purport
to represent what the Company's results of operations or financial condition
would have been if the Acquisition (as applicable) and the sale of the units
had occurred as of the dates indicated or what such results or financial
condition will be for any future periods. The Unaudited Pro Forma Consolidated
Financial Statements are based upon assumptions the Company believes are
reasonable and should be read in conjunction with the historical combined and
consolidated financial statements of the Predecessor and the Company and the
notes related thereto included elsewhere in this Prospectus.
26
<PAGE>
G+G Retail, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
May 1, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
(Dollars in thousands) ---------- ----------- ---------
<S> <C> <C> <C>
Assets
Current assets:
Cash...................................... $ 5,332 $99,660 (a) $ 9,992
(90,000)(a)
(5,000)(b)
Accounts receivable....................... 452 452
Inventories............................... 21,897 21,897
Prepaid expenses.......................... 3,253 3,253
Deferred tax assets....................... 645 645
-------- ------- --------
Total current assets........................ 31,579 4,660 36,239
Property and equipments, net................ 23,590 23,590
Intangible assets........................... 115,489 (804)(c) 119,685
5,000 (b)
Deferred tax assets......................... 785 785
Other assets................................ 207 207
-------- ------- --------
Total assets................................ $171,650 $ 8,856 $180,506
======== ======= ========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable.......................... $15,852 $15,852
Accrued expenses.......................... 13,132 13,132
Income taxes payable...................... 1,222 (354)(c) 868
-------- ------- --------
Total current liabilities................... 30,206 (354) 29,852
Long-term debt.............................. 90,000 (90,000)(a) 98,960
107,000 (a)
(7,340)(a)
(700)(d)
-------- ------- --------
Total liabilities........................... 120,206 8,606 128,812
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01 per share,
1,000 shares authorized, 10 shares issued
and outstanding.......................... -- --
Additional paid-in capital................ 49,828 700 (d) 50,528
Retained earnings......................... 1,616 (450)(c) 1,166
-------- ------- --------
Total stockholder's equity.................. 51,444 250 51,694
-------- ------- --------
Total liabilities and stockholder's equity.. $171,650 $ 8,856 $180,506
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
27
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(a) Records the offering of the units, net of the original issue discount, and
repayment of the Senior Bridge Notes.
(b) Records deferred financing costs associated with the units.
(c) Eliminates deferred financing costs associated with the Senior Bridge
Notes and records the related tax adjustment.
(d) Capital contribution by the Parent in connection with warrants issued by
the Parent to note holders.
28
<PAGE>
G+G Retail, Inc.
Unaudited Pro Forma Consolidated Statement of Income
for the Year Ended January 30, 1999
<TABLE>
<CAPTION>
Predecessor Company
---------------- ----------------
February 1, 1998 August 29, 1998 Pro Forma
to to Pro Forma Fiscal
August 28, 1998 January 30, 1999 Adjustments Year 1999
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Net sales............... $162,823 $131,567 $294,390
Cost of sales (including
occupancy costs)....... 106,056 79,267 185,323
-------- -------- --------
Gross margin............ 56,767 52,300 109,067
Selling, general,
administrative
and buying expenses.... 49,330(a) 36,170 $(3,300)(b) 81,188
(1,012)(c)
Depreciation and
amortization expense... 2,845 5,141 820 (d) 11,074
2,268 (e)
-------- -------- ------- --------
Operating income........ 4,592 10,989 (1,224) 16,805
Interest expense, net... -- 7,395 8,400 (f) 13,794
(1,715)(g)
1,400 (h)
(2,400)(i)
714 (j)
-------- -------- ------- --------
Income (loss) before
provision for
income taxes........... 4,592 3,594 (5,175) 3,011
Provision (benefit) for
income taxes........... 1,892 1,581 (2,151)(k) 1,322
-------- -------- ------- --------
Net income.............. $ 2,700 $ 2,013 $(3,024) $ 1,689
======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income.
29
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
for the Year Ended January 30, 1999
(a) Includes royalty expense (see Note (c) below) and store closing expenses.
(b) Eliminates a success fee paid to Jay Galin, the Company's Chairman of the
Board and Chief Executive Officer, and Scott Galin, the Company's
President and Chief Operating Officer, in connection with their assistance
in the sale of the junior apparel retail business conducted by the
Predecessor prior to August 28, 1998.
(c) Eliminates royalty expenses charged by Petrie for the use of certain
trademarks which were owned by Petrie. In connection with the Acquisition,
the Company purchased these trademarks.
(d) Records the additional depreciation associated with step-up in value of
property and equipment as if the Acquisition had occurred on February 1,
1998.
(e) Records the additional amortization of the goodwill associated with the
Acquisition as if the Acquisition had occurred on February 1, 1998.
(f) Records additional interest, and quarterly fees based on the aggregate
principal amount, on the Senior Bridge Notes as if they were outstanding
as of February 1, 1998.
(g) Records a reduction to interest expense to reflect the lower interest rate
on the notes, and elimination of quarterly fees on the Senior Bridge
Notes, as if the notes had replaced the Senior Bridge Notes as of February
1, 1998. Pro forma interest expense includes the amortization of the
original issue discount with respect to the notes and the discount for the
assigned value of the warrants issued as part of the units. A 1/8% change
in interest rate would have resulted in a difference of approximately
$133,750 in interest costs for the year ended January 30, 1999.
(h) Records the additional amortization of the deferred financing costs
related to the Senior Bridge Notes as if they were outstanding on February
1, 1998.
(i) Eliminates the amortization of the deferred financing costs related to the
Senior Bridge Notes. The unamortized portion of deferred financing costs
(net of tax) will be written off and will be treated as an extraordinary
item in the Statement of Income in the second quarter of fiscal 2000 when
the proceeds of the outstanding notes were used to repay the Senior Bridge
Notes.
(j) Records the amortization of the deferred financing costs as if the notes
were outstanding on February 1, 1998.
(k) Records income tax provision based on the Company's effective tax rate.
30
<PAGE>
G+G Retail, Inc.
Unaudited Pro Forma Consolidated Statement of Income
for the Three Months Ended May 1, 1999
<TABLE>
<CAPTION>
Pro Forma
First
January 31, 1999 Fiscal
to Pro Forma Quarter
May 1, 1999 Adjustments 2000
---------------- ----------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Net sales............................. $72,733 $72,733
Cost of sales (including
occupancy costs)..................... 46,374 46,374
------- -------
Gross margin.......................... 26,359 26,359
Selling, general, administrative
and buying expenses.................. 20,728 20,728
Depreciation and amortization
expense.............................. 3,173 3,173
------- ----- -------
Operating income...................... 2,458 2,458
Interest expense, net................. 3,168 $ 460 (a) 3,200
(607)(b)
179 (c)
------- ----- -------
Loss before provision for
income taxes......................... (710) (32) (742)
Benefit for income taxes.............. (313) (14)(d) (327)
------- ----- -------
Net loss.............................. $ (397) $ (18) $ (415)
======= ===== =======
</TABLE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
for the Three Months Ended May 1, 1999
(a) Records an increase in interest expense to reflect a higher interest rate
on the notes, as if the notes had replaced the Senior Bridge Notes as of
January 31, 1999. Pro forma interest expense includes the amortization of
the original issue discount with respect to the notes and the discount for
the assigned value of the warrants issued as part of the units. A 1/8%
change in interest rate would have resulted in a difference of
approximately $33,438 in interest costs for the quarter ended May 1, 1999.
(b) Eliminates the amortization of the deferred financing costs related to the
Senior Bridge Notes. The unamortized portion of deferred financing costs
(net of tax) will be written off and will be treated as an extraordinary
item in the Statement of Income in the second quarter of fiscal 2000 when
the proceeds of the notes were used to repay the Senior Bridge Notes.
(c) Records the additional amortization of the deferred financing costs
related to the Senior Bridge Notes as if they were outstanding on January
31, 1999.
(d) Records income tax provision based on the Company's effective tax rate.
31
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial and operating data (except number of stores)
for (1) the combined balance sheets of the Predecessor as of January 28, 1995
and February 3, 1996 and the related combined statements of operations and cash
flows for the year ended January 28, 1995 have been derived from unaudited
financial statements of the Predecessor, (2) the combined balance sheets of the
Predecessor as of February 1, 1997 and January 31, 1998 and the related
combined statements of operations and cash flows for the three years ended
January 31, 1998 and the seven months ended August 28, 1998 have been derived
from the audited financial statements of the Predecessor, (3) the combined
balance sheet of the Predecessor as of May 2, 1998 and the related combined
statements of operations and cash flows for the three months ended May 2, 1998
have been derived from unaudited financial statements of the Predecessor, (4)
the consolidated balance sheet of the Company as of January 30, 1999 and the
related consolidated statements of income and cash flows for the five months
ended January 30, 1999 have been derived from the audited financial statements
of the Company and (5) the consolidated balance sheet of the Company as of May
1, 1999 and the related consolidated statements of income and cash flows for
the three months ended May 1, 1999 have been derived from unaudited financial
statements of the Company. The Predecessor's combined financial statements
contain the accounts of the Predecessor and certain store assets owned by
subsidiaries of Petrie.
The following unaudited pro forma financial and operating data of the Company
for the year ended January 30, 1999 give effect to the Acquisition and the sale
of units (consisting of the outstanding notes and certain warrants to purchase
the Parent's Class D common stock) as if such transactions occurred on February
1, 1998. The following unaudited pro forma financial and operating data of the
Company for the three months ended May 1, 1999 give effect to the sale of the
units as if such transaction occurred on January 31, 1999. The following
unaudited pro forma balance sheet data of the Company as of May 1, 1999 gives
effect to the sale of units as if such transaction occurred on May 1, 1999. The
following unaudited pro forma statements of operations data of the Company for
the year ended January 30, 1999 and the three months ended May 1, 1999 do not
reflect the write-off of the unamortized portion of the financing costs (net of
tax) related to the financing of the Acquisition. This write-off will be
treated as an extraordinary item in the Company's financial statements for the
second quarter of fiscal 2000.
The historical and pro forma financial and operating data for the year ended
January 30, 1999 and the three months ended May 1, 1999 are not necessarily an
indication of the results to be expected for future years. The Company did not
conduct operations from the date of its incorporation on June 26, 1998 to
August 28, 1998. The Company acquired substantially all of the assets and
assumed certain liabilities of the Predecessor on August 28, 1998. See "The
Acquisition." The Company and the Parent completed the private offering of the
units on May 17, 1999. See "Summary of the Exchange Offer."
The selected financial and operating data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the pro forma financial statements of the Company and the
historical combined and consolidated financial statements and notes thereto of
the Predecessor and the Company included elsewhere in this Prospectus.
32
<PAGE>
G+G Retail, Inc.
Selected Financial and Operating Data
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------------- ------------------------
February 1, August 29,
Fiscal Year 1998 to 1998 to Pro Forma
-------------------------------------- August 28, January 30, Fiscal Year
1995 1996(1) 1997 1998 1998 1999(2) 1999
-------- -------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)*
Statement of
Operations Data:
Net sales........ $237,680 $243,583 $266,362 $286,938 $162,823 $131,567 $294,390
Cost of sales
(including
occupancy costs).. 155,940 159,262 166,636 177,765 106,056 79,267 185,323
-------- -------- -------- -------- -------- -------- --------
Gross margin..... 81,740 84,321 99,726 109,173 56,767 52,300 109,067
Selling, general,
administrative
and buying
expenses(3)..... 75,526 78,128 76,684 79,702 49,330 36,170 81,188
Depreciation and
amortization
expense(4)...... 8,905 5,148 4,526 4,489 2,845 5,141 11,074
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss).......... (2,691) 1,045 18,516 24,982 4,592 10,989 16,805
Interest expense,
net............. -- -- -- -- -- 7,395 13,794
-------- -------- -------- -------- -------- -------- --------
Income before
provision for
(benefit from)
income taxes.... (2,691) 1,045 18,516 24,982 4,592 3,594 3,011
Provision for
(benefit from)
income taxes.... (1,109) 431 7,629 10,293 1,892 1,581 1,322
-------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... $ (1,582) $ 614 $ 10,887 $ 14,689 $ 2,700 $ 2,013 $ 1,689
======== ======== ======== ======== ======== ======== ========
Other Operating
Data:
Sales per gross
square foot..... $ 222 $ 238 $ 277 $ 295 $ 160 $ 130 $ 290
Inventory
turnover(5)..... 5.1x 5.4x 6.4x 6.6x 6.0x 6.5x 6.2x
Same store sales
increase
(decrease)(6)... 3.1% 5.5% 13.0% 4.5% (3.0%) (1.1%) (2.2%)
Capital
expenditures:
New stores...... $ 940 $ 835 $ 829 $ 2,972 $ 1,299 $ 1,027 $ 2,326
Remodels........ 887 1,780 892 3,320 1,809 1,341 3,150
Non-store assets
and systems.... 576 205 231 713 292 411 703
-------- -------- -------- -------- -------- -------- --------
Total capital
expenditures... $ 2,403 $ 2,820 $ 1,952 $ 7,005 $ 3,400 $ 2,779 $ 6,179
======== ======== ======== ======== ======== ======== ========
Number of stores:
Beginning
balance........ 465 441 416 395 408 415 408
New stores
opened......... 5 6 11 25 9 13 22
Existing stores
closed......... 29 31 32 12 2 6 8
-------- -------- -------- -------- -------- -------- --------
Ending balance.. 441 416 395 408 415 422 422
======== ======== ======== ======== ======== ======== ========
Other Financial
Data:
EBITDA as
adjusted(7)..... $ 9,721 $ 9,802 $ 24,791 $ 31,305 $ 8,449 $ 16,130 $ 27,879
EBITDA margin as
adjusted(8)..... 4.1% 4.0% 9.3% 10.9% 5.2% 12.3% 9.5%
Gross margin
percentage...... 34.4% 34.6% 37.4% 38.0% 34.9% 39.8% 37.0%
Royalty
expense(9)...... $ 3,507 $ 3,609 $ 1,749 $ 1,834 $ 1,012 $ -- $ --
Ratio of earnings
to fixed
charges(10).. -- 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x
Ratio of earnings as adjusted to fixed charges(11).............................................. 1.3x
Ratio of EBITDA as adjusted to interest expense(12)............................................. 2.2x
Ratio of net debt to EBITDA as adjusted(13)..................................................... 3.0x
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company
----------- -------------------
Pro
Forma
First First First
Fiscal Fiscal Fiscal
Quarter Quarter Quarter
1999 2000 2000
----------- --------- ---------
<S> <C> <C> <C>
(Dollars in thousands)*
Statement of
Operations Data:
Net sales........ $66,398 $72,733 $72,733
Cost of sales
(including
occupancy costs).. 42,594 46,374 46,374
----------- --------- ---------
Gross margin..... 23,804 26,359 26,359
Selling, general,
administrative
and buying
expenses(3)..... 19,338 20,728 20,728
Depreciation and
amortization
expense(4)...... 1,225 3,173 3,173
----------- --------- ---------
Operating income
(loss).......... 3,241 2,458 2,458
Interest expense,
net............. -- 3,168 3,200
----------- --------- ---------
Income before
provision for
(benefit from)
income taxes.... 3,241 (710) (742)
Provision for
(benefit from)
income taxes.... 1,335 (313) (327)
----------- --------- ---------
Net income
(loss).......... $ 1,906 $ (397) $ (415)
=========== ========= =========
Other Operating
Data:
Sales per gross
square foot..... $ 67 $ 70 $ 70
Inventory
turnover(5)..... 5.8x 6.0x 6.0x
Same store sales
increase
(decrease)(6)... (4.7%) 3.4% 3.4%
Capital
expenditures:
New stores...... $ 714 $ 1,054 $ 1,054
Remodels........ 736 1,888 1,888
Non-store assets
and systems.... 108 304 304
----------- --------- ---------
Total capital
expenditures... $ 1,558 $ 3,246 $ 3,246
=========== ========= =========
Number of stores:
Beginning
balance........ 408 422 422
New stores
opened......... 7 6 6
Existing stores
closed......... -- -- --
----------- --------- ---------
Ending balance.. 415 428** 428**
=========== ========= =========
Other Financial
Data:
EBITDA as
adjusted(7)..... $ 4,874 $ 5,631 $ 5,631
EBITDA margin as
adjusted(8)..... 7.3% 7.7% 7.7%
Gross margin
percentage...... 35.9% 36.2% 36.2%
Royalty
expense(9)...... $ 408 $ -- $ --
Ratio of earnings
to fixed
charges(10)..... 2.7x -- --
Ratio of earnings as adjusted to fixed charges(11)....1.0x
Ratio of EBITDA as adjusted to interest expense(12)...1.8x
Ratio of net debt to EBITDA as adjusted(13)..........16.3x
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
----------------------------------------------- ----------- ----------- ------------------
Pro Forma
January 28, February 3, February 1, January 31, January 30, May 2, May 1, May 1,
1995 1996 1997 1998 1999 1998 1999 1999
----------- ----------- ----------- ----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance Sheet Data:
Total assets............ $31,746 $29,218 $25,818 $28,157 $167,664 $36,665 $171,650 $180,506
Total long-term debt.... 7,623 12,364 20,591 20,866 90,000 20,886 90,000 98,960
</TABLE>
- -------
* Other than sales per gross square foot.
**Does not include 13 stores for which the Company has executed leases, but
which were not open as of May 1, 1999.
33
<PAGE>
Notes to Selected Financial and Operating Data
(1) The year ended February 3, 1996 consisted of 53 weeks.
(2) The Company was inactive from the date of its incorporation on June 26,
1998 to August 28, 1998, the date on which the Acquisition was completed.
(3) Selling, general, administrative and buying expenses include royalty
expense (see Note 9 below) and store closing expenses.
(4) In November 1994, Petrie was acquired. This acquisition was a bargain
purchase and, accordingly, the fixed assets were written down. This
write-down of assets caused the substantial decrease in depreciation and
amortization for fiscal years 1996, 1997 and 1998.
(5) Inventory turnover is calculated by dividing the sum of monthly net sales
(at retail) by average monthly retail inventory.
(6) A store becomes comparable after it is open twelve full months.
(7) EBITDA is defined by the Company as operating income plus depreciation
and amortization. In addition, the Company has further adjusted EBITDA to
add back royalty expense (see Note 9 below). EBITDA as adjusted is not
intended to represent cash flow from operations and should not be
considered as an alternative to operating or net income computed in
accordance with generally accepted accounting principles ("GAAP") as an
indicator of the Company's operating performance, as an alternative to
cash from operating activities (as determined in accordance with GAAP) or
as a measure of liquidity. The Company believes that EBITDA is a standard
measure commonly reported and widely used by analysts, investors and
other interested parties in the retail industry. Accordingly, this
information is presented to permit a more complete comparative analysis
of the Company's operating performance relative to other companies in the
industry. However, not all companies calculate EBITDA using the same
methods; therefore, the EBITDA as adjusted figures presented herein may
not be comparable to EBITDA reported by other companies.
(8) Computed by dividing EBITDA as adjusted by net sales.
(9) Royalty expense represents an amount charged by Petrie for the use of
certain trademarks which it owned. The Company purchased these trademarks
in connection with the Acquisition.
(10) Computed by dividing (i) the sum of (a) earnings before income taxes and
(b) fixed charges, by (ii) fixed charges. Fixed charges consist of
interest on debt, amortization of debt issuance costs, amortization of
original issue discount with respect to the outstanding notes and the
value assigned to the outstanding warrants of the Parent issued as part
of the units and the estimated interest component of rental expense. For
1995 and the three months ended May 1, 1999, earnings were insufficient
to cover fixed charges by $2.7 million and $710,000, respectively.
(11) Computed by dividing (i) the sum of (a) earnings before income taxes, (b)
amortization of goodwill and (c) fixed charges, by (ii) fixed charges.
Fixed charges consist of interest on debt, amortization of debt issuance
costs, amortization of original issue discount with respect to the
outstanding notes and the value assigned to the outstanding warrants of
the Parent issued as part of the units and the estimated interest
component of rental expense. Ratio of earnings as adjusted to fixed
charges is not intended as a substitute for the ratio of earnings to
fixed charges. The Company believes this ratio is meaningful information
for analysts, investors and other interested parties.
(12) Computed by dividing EBITDA as adjusted by interest expense including the
amortization of the original issue discount with respect to the
outstanding notes and the value assigned to the outstanding warrants of
the Parent issued as part of the units (excluding amortization of
deferred financing costs).
(13) Computed by dividing (i) total debt less excess cash, where excess cash
is defined as the cash balance less $3.0 million, the amount estimated by
management as the minimum average balance required for operations, by
(ii) EBITDA as adjusted.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with "Selected Financial
and Operating Data," "Unaudited Pro Forma Consolidated Financial Statements"
and the historical combined and consolidated financial statements of the
Predecessor and the Company and the related notes thereto included elsewhere in
this Prospectus. The Company acquired substantially all of the assets and
assumed certain liabilities of the Predecessor on August 28, 1998. See "The
Acquisition." The Company's (as did the Predecessor's) fiscal year ends on the
Saturday nearest January 31 in the same calendar year. Accordingly, fiscal 1997
ended on February 1, 1997, fiscal 1998 ended on January 31, 1998 and fiscal
1999 ended on January 30, 1999.
Overview
The Company is a leading national mall-based retailer of popular price apparel
for young women principally between the ages of 13 and 19 years old. As of May
1, 1999, the Company had 441 stores (of which 428 were in operation) throughout
the United States, Puerto Rico and the U.S. Virgin Islands. Since early 1995,
the Company has implemented an ongoing program to open new stores in locations
that it believes are favorable for its business and close underperforming
stores. Between October 31, 1995 and January 30, 1999, the Company opened 59
new stores and closed 70 stores. The Company intends to grow its sales and
EBITDA by continuing to implement its strategy of opening new stores in
locations that it believes are favorable for its business. The Company opened
six new Rave stores in the period from January 31, 1999 to May 1, 1999 and
anticipates opening approximately 24 new Rave stores in the remainder of fiscal
2000. The Company also anticipates opening six new Rave Girl stores in fiscal
2000.
The Company achieved positive same store sales on an annual basis in each of
fiscal 1995, 1996, 1997 and 1998. Same store sales growth was 3.1% during
fiscal 1995, 5.5% during fiscal 1996, 13.0% during fiscal 1997 and 4.5% during
fiscal 1998. However, the Company experienced a 2.2% decline in same store
sales in fiscal 1999. The Company believes that same store sales in fiscal 1999
were adversely affected by the significant time and attention required to be
spent by management in connection with the sale by the Predecessor of its
junior apparel retail business to the Company (an approximately ten-month
process), the complications of Petrie's bankruptcy proceedings described below
and the liquidity problems faced by the Predecessor as a result of Petrie using
substantially all of the Predecessor's excess cash to fund Petrie's own cash
needs. As a result of same store sales growth in fiscal 1995, 1996, 1997 and
1998 and the Company's store expansion program, the Company's sales per gross
square foot improved from $222 in fiscal 1995 to $290 in fiscal 1999 and the
Company's EBITDA as adjusted increased from $9.7 million in fiscal 1995 to
$27.9 million in pro forma fiscal 1999.
On August 28, 1998, the Company completed its acquisition of its junior apparel
retail business from the Predecessor by means of an asset transfer pursuant to
Section 363 of the United States Bankruptcy Code. See "The Acquisition." In
October 1995, Petrie, the Predecessor's parent, on behalf of itself and its
subsidiaries (including the Predecessor), filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. In December 1998, the
United States Bankruptcy Court for the Southern District of New York issued an
order confirming Petrie's plan of reorganization. The Predecessor's operating
performance was strong prior to and during the bankruptcy proceedings. The
Predecessor generated aggregate EBITDA as adjusted of $84.1 million and
aggregate net income of $27.0 million from the beginning of fiscal 1995 through
August 28, 1998. Management of the Company believes that the Company's
independence from Petrie and Petrie's recent Chapter 11 proceedings will
improve the Company's liquidity position by, among other things, improving the
Company's ability to purchase on credit and will enable the Company to enter
into longer term leases for its stores.
35
<PAGE>
The Acquisition was consummated on August 28, 1998 and funded by a net capital
contribution by the Parent to the Company of $49.8 million and $90.0 million of
borrowings under the Senior Bridge Notes, which were repaid out of the proceeds
of the units. The Acquisition was accounted for under the purchase method of
accounting. Accordingly, the Company's pro forma financial statements for
fiscal 1999 reflect the effects of purchase accounting adjustments (including
increased depreciation expense and amortization of goodwill).
Prior to the Acquisition, Petrie provided the Predecessor with payroll
administration and legal services, tax, real estate and employee benefits
support and insurance coverage. An estimate for the costs of these services has
been reflected in the financial statements of the Predecessor included
elsewhere herein. The Company no longer pays royalties that the Predecessor
paid to Petrie for the use of certain trademarks ($1.8 million in fiscal 1998),
since the Company purchased these trademarks in connection with the
Acquisition. The Predecessor obtained rent concessions during its bankruptcy
proceedings. Approximately $700,000 of these rent concessions remained
available to the Company at May 1, 1999, but may not continue to be available
to the Company in the future.
The Company intends to finance its future operations, including its expansion
plans, through cash flow from operations, borrowings under its revolving credit
facility and capitalized leases.
Statement of Income
The table below sets forth selected statement of income data of (1) the
Predecessor for fiscal 1997 and fiscal 1998, the period from February 1, 1998
to August 28, 1998 and the three months ended May 2, 1998 and (2) the Company
for the period from August 29, 1998 through January 30, 1999, pro forma fiscal
1999, the three months ended May 1, 1999 and pro forma three months ended May
1, 1999, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
------------------------- --------------------- ----------- --------------------
February 1, August 29, First First
Fiscal Year 1998 to 1998 to Pro Forma Fiscal Fiscal Pro Forma
------------ August 28, January 30, Fiscal Quarter Quarter First Fiscal
1997 1998 1998 1999 Year 1999 1999 2000 Quarter 2000
----- ----- ----------- ----------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin............ 37.4 38.0 34.9 39.8 37.0 35.9 36.2 36.2
Selling, general,
administrative
and buying expenses.... 28.8 27.8 30.3 27.5 27.6 29.1 28.5 28.5
Depreciation and
amortization expense... 1.7 1.6 1.7 3.9 3.8 1.8 4.4 4.4
Operating income........ 6.9 8.6 2.9 8.4 5.6 5.0 3.3 3.3
Interest expense, net... -- -- -- 5.6 4.7 -- 4.4 4.4
Income (loss) before
provision for income
taxes.................. 6.9 8.6 2.9 2.8 0.9 5.0 (1.1) (1.1)
Net income (loss)....... 4.1 5.1 1.7 1.5 0.6 2.9 (0.5) (0.6)
EBITDA as adjusted...... 9.3 10.9 5.2 12.3 9.5 7.3 7.7 7.7
</TABLE>
Comparison of First Fiscal Quarter 2000 and First Quarter 1999
The historical statement of income data for the three months ended May 1, 1999
is substantially the same as the pro forma statement of income data for such
period except for net interest expense and the related tax effect. The
difference in net interest expense is due to the fact that the historical data
reflects interest expense associated with the Senior Bridge Notes whereas the
pro forma data reflects interest expense associated with the notes, which were
issued in replacement of the Senior Bridge Notes.
36
<PAGE>
Net sales increased approximately $6.3 million, or 9.5%, to $72.7 million in
the first quarter of fiscal 2000 as compared to $66.4 million in the first
quarter of fiscal 1999. The increase in net sales was due to the opening of new
stores which contributed $4.1 million to net sales in the first quarter of
fiscal 2000 and a $2.2 million, or 3.4%, increase in same store sales compared
to the first quarter of fiscal 1999. Average sales per gross square foot
increased 4.5% to $70 in the first quarter of fiscal 2000 from $67 in the first
quarter fiscal 1999. The Company operated 428 stores at the end of the first
quarter of fiscal 2000 as compared to 415 stores at the end of the first
quarter of fiscal 1999, as a result of closing eight stores and opening 21 new
stores.
Gross margin after giving effect to occupancy costs increased approximately
10.9% to $26.4 million in the first quarter of fiscal 2000 from $23.8 million
in the first quarter of fiscal 1999. As a percentage of net sales, gross margin
increased from 35.9% in fiscal 1999 to 36.2% in the first quarter of fiscal
2000. This 0.3% increase resulted from a 0.4% increase in net merchandise
margins offset by a 0.1% increase in occupancy costs. The increase in the
merchandise margins as a percentage of net sales was due to an increase in the
initial mark-on which was partially offset by an increase in markdowns and a
reduction in vendor allowances. The increase in occupancy costs resulted
primarily from an increase in same store occupancy costs.
Selling, general, administrative and buying expenses increased 7.2%, from $19.3
million in the first quarter of fiscal 1999 to $20.7 million in the first
quarter of fiscal 2000. As a percentage of net sales, these expenses decreased
to 28.5% in the first quarter of fiscal 2000 as compared to 29.1% in the first
quarter of fiscal 1999. The $1.4 million increase resulted from additional
selling costs related to new store openings, an increase in same store selling
expenses and an increase in administrative costs partially offset by the
elimination of royalty expense in the first quarter of fiscal 2000 as compared
to approximately $400,000 of royalty expense in the first quarter of fiscal
1999. Fiscal 1999 royalty expense was a charge from Petrie for the use of
certain trademarks which were owned by Petrie. The Company purchased these
trademarks in connection with the Acquisition.
Depreciation and amortization expense for the first quarter of fiscal 2000 was
$3.2 million as compared to $1.2 million for the first quarter of fiscal 1999.
The increase of $2.0 million is attributable to the additional depreciation and
amortization related to the incremental value assigned to the property and
equipment and goodwill resulting from the Acquisition.
Net interest expense was $3.2 million, and as a percentage of net sales was
4.4%, for the first quarter of fiscal 2000 and pro forma first quarter of
fiscal 2000. The first quarter of fiscal 2000 interest expense reflects the
interest on the Senior Bridge Notes and the amortization of the related
issuance costs. The pro forma interest expense assumes the notes were
outstanding for the full quarter and assumes the amortization of the original
issue discount, the value assigned to the warrants issued as part of the units
and deferred financing costs. In the first quarter of fiscal 1999, the Company
did not have borrowings.
Income tax benefit for pro forma first quarter of fiscal 2000 was $327,000
compared to income tax expense of $1.3 million in the first quarter of fiscal
1999. The tax benefit in pro forma first quarter of fiscal 2000 compared to tax
expense in the first quarter of fiscal 1999 was due to a pre-tax loss in pro
forma first quarter of fiscal 2000 resulting from the interest expense on the
notes and the amortization of intangible assets. The income tax benefit rate
for pro forma first quarter of fiscal 2000 was 44.0% as compared to 41.2% for
the first quarter of fiscal 1999. The higher rate in pro forma first quarter of
fiscal 2000 was principally attributable to the fact that the Company has a
different legal structure relative to its Puerto Rico operations from the
Predecessor.
Net income decreased from $1.9 million in the first quarter of fiscal 1999 to a
loss of $415,000 in pro forma first quarter of fiscal 2000 due to the factors
discussed above.
37
<PAGE>
Comparison of Fiscal 1999 Year and Fiscal 1998 Year
The statement of income data for the seven-month period ended August 28, 1998
and the five-month period ended January 30, 1999 on a combined basis are the
same as the pro forma statement of income data for fiscal 1999 except for (1)
the increased depreciation and amortization resulting from the Acquisition as
if it occurred on February 1, 1998, (2) the additional interest expense
resulting from the notes as if the sale of the units including the notes
occurred on February 1, 1998 and (3) the related tax effect of each of these
pro forma adjustments.
Net sales increased approximately $7.5 million, or 2.6%, to $294.4 million in
fiscal 1999 as compared to $286.9 million in fiscal 1998. The increase in net
sales was due to the opening of new stores which contributed $13.6 million to
net sales in fiscal 1999, partially offset by a $6.1 million, or 2.2%, decrease
in same store sales. Average sales per gross square foot decreased 1.7% from
$295 in fiscal 1998 to $290 in fiscal 1999. Same store sales and average sales
per gross square foot in fiscal 1999 were adversely affected by the ten-month
sale process of the Predecessor's junior apparel retail business, Petrie's
bankruptcy proceedings and liquidity problems faced by the Predecessor as a
result of Petrie's operations. See "--Overview." The Company had 422 stores at
the end of fiscal 1999 as compared to 408 stores at the end of fiscal 1998, as
a result of closing eight underperforming stores and opening 22 new stores.
Gross margin after giving effect to occupancy costs decreased from $109.2
million in fiscal 1998 to $109.1 million in fiscal 1999. As a percentage of net
sales, gross margin decreased from 38.0% in fiscal 1998 to 37.0% in fiscal
1999. This 1.0% decrease resulted from a 0.3% decrease in net merchandise
margins and a 0.7% increase in occupancy costs as a percentage of sales. The
net decrease in the merchandise margin was due to an overall increase in
markdowns offset by a slight increase in the initial mark-on. The occupancy
cost increase resulted primarily from a decrease of $534,000 in rent
concessions which were available to the Predecessor in 1998 as a result of its
bankruptcy proceedings and an overall increase in store occupancy costs
primarily related to new store openings.
Selling, general, administrative and buying expenses increased 1.9%, from $79.7
million in fiscal 1998 to $81.2 million in fiscal 1999. As a percentage of net
sales, these expenses decreased to 27.6% in fiscal 1999 as compared to 27.8% in
fiscal 1998. The $1.5 million increase resulted from additional selling costs
related to new store openings, a marginal increase in same store selling
expenses and an increase in administrative costs, partially offset by the
elimination of royalty expense in fiscal 1999, as compared to $1.8 million of
royalty expense in fiscal 1998. Fiscal 1998 royalty expense was a charge from
Petrie for the use of certain trademarks which were owned by Petrie. The
Company purchased these trademarks in connection with the Acquisition.
Depreciation and amortization for the seven-month period ended August 28, 1998
and the five-month period ended January 30, 1999 on a combined basis was $8.0
million as compared to $4.5 million for fiscal 1998. The increase of $3.5
million was attributable to the additional depreciation and amortization in the
five-month period ended January 30, 1999 related to the incremental value
assigned to the property and equipment and goodwill resulting from the
Acquisition. Depreciation and amortization expense for pro forma fiscal 1999
was $11.1 million as compared to $4.5 million for fiscal 1998. The increase of
$6.6 million was attributable to the additional depreciation and amortization
related to the incremental value assigned to the property and equipment and
goodwill resulting from the Acquisition, as if the Acquisition occurred on
February 1, 1998.
Net interest expenses was $7.4 million, and as a percentage of net sales was
2.5%, for the seven-month period ended August 28, 1998 and the five-month
period ended January 30, 1999 on a combined basis. The interest expense
primarily reflects the interest on, and amortization of debt issuance costs
with respect to, the Senior Bridge Notes. Net interest expense was $13.8
million, and as a percentage of net sales was 4.7%, for pro forma fiscal 1999.
The pro forma interest expense assumes the notes were outstanding for all of
fiscal 1999 and assumes the amortization of associated deferred financing costs
of $1.1 million. In fiscal 1998, the Company did not have any borrowings.
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<PAGE>
Income tax expense for pro forma fiscal 1999 was $1.3 million compared to
income tax expense of $10.3 million for fiscal 1998. The decrease in tax
expense is primarily due to lower pre-tax income resulting from the pro forma
fiscal 1999 interest expense associated with the notes and amortization of
intangible assets. The effective income tax rate for pro forma fiscal 1999 was
43.9% as compared to 41.2% for 1998. The higher effective tax rate in pro forma
fiscal 1999 was principally attributable to the fact that the Company has a
different legal structure relative to its Puerto Rico operations from the
Predecessor.
Net income decreased $13.0 million to $1.7 million in pro forma fiscal 1999
from $14.7 million in fiscal 1998 due to the factors discussed above.
Comparison of Fiscal 1998 Year and Fiscal 1997 Year
Net sales increased approximately $20.5 million, or 7.7%, to $286.9 million in
fiscal 1998 as compared to $266.4 million in fiscal 1997. The increase in net
sales was due to the opening of new stores which contributed $9.0 million to
net sales in fiscal 1998 and an $11.5 million, or 4.5%, increase in same store
sales compared to fiscal 1997. Average sales per gross square foot increased
6.5% from $277 in fiscal 1997 to $295 in fiscal 1998. The Company had 408
stores at the end of fiscal 1998 as compared to 395 stores at the end of fiscal
1997, as a result of closing 12 underperforming stores and opening 25 new
stores.
Gross margin after giving effect to occupancy costs increased approximately
9.5% to $109.2 million in fiscal 1998 from $99.7 million in fiscal 1997. As a
percentage of net sales, gross margin increased from 37.4% in fiscal 1997 to
38.0% in fiscal 1998. This 0.6% increase resulted from a 0.2% increase in net
merchandise margins and a 0.4% decrease in occupancy costs. The increase in the
merchandise margin as a percentage of net sales was due to a decrease in
markdowns, and an increase in vendor allowances, which was slightly offset by a
decrease in the initial mark-on. The occupancy cost decrease, as a percentage
of net sales, resulted primarily from an increase in same store sales.
Selling, general, administrative and buying expenses increased 3.9%, from $76.7
million in fiscal 1997 to $79.7 million in fiscal 1998. As a percentage of net
sales, these expenses decreased to 27.8% in fiscal 1998 as compared to 28.8% in
fiscal 1997. The $3.0 million increase resulted from additional selling costs
related to new store openings and cost increases that were offset by lower
store closing costs due to closing 12 stores in fiscal 1998 versus closing 32
stores in fiscal 1997.
Depreciation and amortization expense for fiscal 1998 was 1.6% of net sales as
compared to 1.7% in fiscal 1997, and was approximately $4.5 million in both
years.
Income tax expense for fiscal 1998 was $10.3 million compared to income tax
expense of $7.6 million for fiscal 1997. The effective income tax rate was
41.2% for both fiscal years.
Net income increased $3.8 million to $14.7 million in fiscal 1998 from $10.9
million in fiscal 1997 due to the factors discussed above.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from operating
activities and borrowings under its revolving credit facility. The Company's
primary cash requirements are for (i) working capital, (ii) the construction of
new stores, (iii) the remodeling or upgrading of existing stores as necessary
and (iv) upgrading and maintaining computer systems.
Net cash used by operating activities in the first quarter of fiscal 2000 was
$4.2 million as compared to net cash provided by operating activities of
$378,000 in the first quarter of fiscal 1999. The decrease in net cash provided
by operating activities was principally due to the fact that accounts payable
and
39
<PAGE>
accrued expenses increased $3.4 million more during the first quarter of fiscal
1999 as compared to the first quarter of fiscal 2000 because Petrie used
substantially all of the Predecessor's excess cash to fund Petrie's own cash
needs. Fiscal 1999 net cash provided by operating activities totaled $27.7
million, an increase of $2.1 million as compared to fiscal 1998. This increase
was principally due to the payment of $7.8 million in liabilities by the
Predecessor in connection with the Acquisition.
Capital expenditures for the first quarter of fiscal 2000, the first quarter of
fiscal 1999 and fiscal 1999, 1998 and 1997 were $3.2 million, $1.6 million,
$6.2 million, $7.0 million and $2.0 million, respectively. Management estimates
that capital expenditures for the remaining three quarters of fiscal 2000 will
be approximately $13.8 million, which will be used primarily to fund new point
of sale equipment and software (approximately $6.5 million), the opening of an
estimated 36 new stores (six of which have been opened as of May 1, 1999),
including six Rave Girl stores (approximately $4.7 million), and the upgrading
of existing stores (approximately $2.6 million). The Company has received
approval from a lending institution for $5.0 million of lease financing for the
purchase of the point of sale equipment and software. As of May 1, 1999, no
lease financing was incurred under this arrangement.
The Company reviews the operating performance of its stores on an ongoing basis
to determine which stores, if any, to expand or close. The Company closed eight
stores in fiscal 1999 and anticipates closing approximately 12 stores during
fiscal 2000. No stores were closed during the first quarter of fiscal 2000.
Fiscal 1999 net cash provided by financing activities (excluding net
distributions to the Predecessor's parent) was $137.0 million, reflecting the
contribution of capital and the financing used for the Acquisition and
associated fees and expenses.
As of May 1, 1999, there were $90.0 million of Senior Bridge Notes outstanding.
Prior to their repurchase (as described below), the Senior Bridge Notes accrued
interest at one-month LIBOR plus 6% (10.92% as of May 1, 1999) which was
payable monthly in cash.
On May 17, 1999, the Company and the Parent issued 107,000 units, each
consisting of $1,000 principal amount of the Company's 11% Senior Notes due
2006 and one warrant to initially purchase 0.07672 shares of the Parent's Class
D common stock. The units were issued at a price equal to $931.40 per unit, for
a total price of approximately $99.7 million. Net proceeds of approximately
$94.7 million from the private placement of the units were used primarily to
repay in full and retire all of the Company's indebtedness under the Senior
Bridge Notes. See "Use of Proceeds."
On a pro forma basis, as of May 1, 1999, after giving effect to the sale of the
units, the Company's total debt would have been $99.0 million. See
"Capitalization" and "Description of the Notes."
As of May 1, 1999, the Company had $5.3 million in cash of which $7.0 million
was invested in a United States Treasury money market fund. The investment
exceeded the net cash balance due to cash float. The Company has historically
maintained negligible accounts receivable balances since the Company's
customers primarily pay for their purchases with cash, checks and third party
credit cards which are promptly converted to cash.
The Company's revolving credit facility (the "Revolving Credit Facility")
provides for a line of credit in an amount of up to $20.0 million (including a
sublimit of $10.0 million for letters of credit) and matures in October 2001.
The Revolving Credit Facility may be used for general operating, working
capital and other proper corporate purposes. Amounts available under the
Revolving Credit Facility are subject to the value of the Company's eligible
inventory (as defined in the Revolving Credit Facility) and to the satisfaction
of certain conditions. The borrowing base provides for seasonal fluctuations in
inventory. Peak borrowing periods occur in July, August, October and November.
Interest on
40
<PAGE>
outstanding borrowings under the Revolving Credit Facility is payable at 1.75%
over the adjusted Eurodollar Rate or at the Prime Rate. The Revolving Credit
Facility subjects the Company to a minimum tangible net worth (as defined in
the Revolving Credit Facility) covenant of $39.0 million and other customary
restrictive covenants. The Company's obligations under the Revolving Credit
Facility are secured by a lien on all or substantially all of the Company's
assets. See "Description of Revolving Credit Facility."
As of May 1, 1999, the Company had no borrowings outstanding under the
Revolving Credit Facility, but had $681,000 of letters of credit outstanding
thereunder, and $15.5 million of availability thereunder.
In addition to the covenants in the Revolving Credit Facility, the Company is
subject to customary restrictive covenants in the indenture for the notes. See
"Description of the Notes--Certain Covenants."
The Company has minimum annual rental commitments of approximately $18.5
million in fiscal 2000 under existing store leases and the leases for its
corporate headquarters and distribution center.
The Company is not aware of any material environmental liabilities relating to
either past or current properties owned, operated or leased by it. There can be
no assurance that such liabilities do not currently exist or will not exist in
the future.
Management believes that the Company's cash flow from operating activities,
cash on hand and borrowings under the Revolving Credit Facility will be
sufficient to meet the Company's operating and capital expenditure requirements
through the end of fiscal 2000. In addition, the Company believes that cash
flow from operations will be sufficient to cover the interest expense arising
from the Revolving Credit Facility and the notes. However, the Company's
ability to meet its operating and capital expenditure requirements depends upon
its future performance, which in turn, is subject to general economic
conditions and financial, business and other factors affecting the operations
of the Company, including factors beyond its control. See "Risk Factors."
Accordingly, there can be no assurance that cash flow from operations and cash
on hand will be sufficient to meet the Company's debt service obligations or
that cash flow from operations, cash on hand and borrowings under the Revolving
Credit Facility will be sufficient to meet the Company's other operating and
capital expenditure obligations.
In addition, upon a change of control of the Parent or the requirement that the
Parent pay cash dividends on its preferred stock, the Parent may not have
sufficient funds to pay such payments or redeem the preferred stock on a change
of control unless the Company pays a dividend of such amount to the Parent. See
"Principal Stockholders."
Seasonality and Quarterly Results
Due to the seasonal nature of the Company's business, working capital
requirements increase as inventory levels peak in anticipation of the back-to-
school and Christmas shopping seasons. Working capital at May 1, 1999 was $1.4
million compared to a negative $10.9 million at May 2, 1998. Working capital at
January 30, 1999 was $2.0 million as compared to negative working capital of
$13.1 million and $6.9 million, respectively, at January 31, 1998 and February
1, 1997. The negative working capital at May 2, 1998, January 31, 1998 and
February 1, 1997 was due to the Predecessor transferring all of its excess cash
to Petrie.
The Company's fourth fiscal quarter historically accounts for the largest
percentage of the Company's annual net sales. The Company's first fiscal
quarter historically accounts for the smallest percentage of annual net sales.
In fiscal 1999, the Company's fourth quarter accounted for approximately 29.6%
of the Company's annual net sales. The Company's quarterly results of
operations may also fluctuate significantly as a result of a variety of
factors, including the timing of store openings, the amount of revenue
contributed by new stores, changes in the mix of products sold, the timing and
level of markdowns, the timing of store closings and expansions, competitive
factors and general economic conditions.
41
<PAGE>
The following table sets forth (1) certain statement of operations and
operating data for the Predecessor for each fiscal quarter in fiscal 1998 and
(2) certain pro forma statement of operations and operating data for the
Company for each fiscal quarter in fiscal 1999 and the first fiscal quarter in
fiscal 2000. This quarterly data was derived from unaudited financial
statements of the Predecessor and the Company, which in the opinion of
management of the Company contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation thereof.
<TABLE>
<CAPTION>
Pro Forma
Fiscal 1998 Pro Forma Fiscal 1999 Fiscal 2000
------------------------------- ---------------------------------- -----------
First Second Third Fourth First Second Third Fourth First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(Dollars in thousands) ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $66,043 $69,961 $66,840 $84,094 $66,398 $71,634 $69,248 $87,110 $72,733
Net income (loss)....... 2,713 2,967 1,720 7,289 (745) (1,257) (1,065) 4,756 (415)
EBITDA as adjusted...... 6,168 6,629 4,459 14,049 4,874 4,008 4,307 14,690 5,631
</TABLE>
Year 2000 Compliance
The Company has completed a review of its own information technology and non-
information technology systems to determine whether they are year 2000
compliant.
The Company's merchandise system, which includes purchase order management,
open order reporting, allocation and distribution, material handling, price
management and inventory reporting, is written in an application that provides
four digits rather than two digits to define the year end, accordingly, is
inherently year 2000 compliant. The Company's financial systems, which include
sales audit, inventory control and accounts payable, are written in the same
application language as its merchandise system. The Company's general ledger
system was recently purchased and has been certified by the software vendor to
be year 2000 compliant. An outside service provides payroll and payroll related
tax services and, based on the documentation obtained from this vendor, these
systems are compliant with the year 2000.
The Company plans to install new point of sale equipment in all of its stores
during fiscal 2000 and fiscal 2001. In the event the Company is not successful
with this implementation, the Company believes that its current point of sales
terminals will continue to adequately support the Company's store operations,
including the ability to obtain authorization of third party credit cards in
the year 2000. The Company's current point of sale devices are unsophisticated
terminals and the current date must be entered manually each day.
The Company is in the process of asking its significant suppliers the status of
their year 2000 readiness. To date, the Company is not aware of any third party
year 2000 issue that would materially impact the Company's business, financial
condition or results of operations. However, the Company has no means of
ensuring that its suppliers will be year 2000 compliant. The inability of
suppliers to complete their year 2000 resolution process in a timely fashion
could materially impact the Company. The Company is unable to determine the
effect of non-compliance by its suppliers.
In addition, there can be no assurance that the systems of other third parties
with which the Company interacts will not suffer from year 2000 problems, or
that such problems would not have a material adverse effect on the Company's
business, financial condition or results of operations. In particular, year
2000 problems that have been or may in the future be identified with respect to
information technology and non-information technology systems of third parties
having widespread national and international interactions with persons and
entities generally (for example, governmental agencies, utilities and
information and financial networks) could have a material adverse impact on the
Company's business, financial condition or results of operations.
42
<PAGE>
Inflation
The Company does not believe that inflation has had a material effect on the
results of operations during the past three fiscal years. However, there can be
no assurance that the Company's business will not be affected by inflation in
the future.
New Accounting Pronouncements
In 1998, the Company adopted Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14,
Financial Reporting for Segments of a Business Enterprise. The adoption of SFAS
131 did not affect the results of the Company's operations or financial
position.
The Company conducts business in one operating segment. The Company determined
its operating segment based on individual stores that the chief operating
decision maker reviews for purposes of assessing performance and making
operational decisions. These individual operations have been aggregated into
one segment because the Company believes it helps the users to understand the
Company's performance. The combined operations have similar economic
characteristics and each operation has similar products, services, customers
and distribution network.
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BUSINESS
General
The Company is a leading national mall-based retailer of popular price female
junior apparel. For over 30 years, the Company has built a reputation for
providing fashion apparel and accessories distinctly targeted at teenaged
women. The Company closely monitors the fashion trends of its core customers,
young women principally between the ages of 13 to 19 years old, who, together
with male teenagers, represent the fastest growing segment of the consumer
market. The Company sells substantially all of its merchandise under private
label names including Rave, Rave Up and In Charge, which provide the Company's
customers with fashionable, quality apparel and accessories at lower prices
than brand name merchandise. The Company's emphasis on sourcing merchandise
domestically and its efficient distribution system provide it with short
inventory lead times, which enable the Company to respond quickly to the latest
fashion trends and thereby achieve high inventory turns and reduce markdowns.
The Company's pricing strategy, which emphasizes delivering consistent value to
its customers rather than driving sales with periodic promotions, also
contributes to reducing markdowns.
As of May 1, 1999, the Company had 441 stores, generally in major enclosed
regional shopping malls, throughout the United States, Puerto Rico and the U.S.
Virgin Islands primarily under the G+G and Rave names. The Company uses the
same store format for both its G+G and Rave stores and applies this format in
all of its markets. The Company's stores average approximately 2,400 gross
square feet with approximately 25 feet of mall frontage and are designed to
create a lively and exciting shopping experience for the Company's teenaged
customers. The Company's sales per gross square foot increased from $222 in
fiscal 1995 to $290 in fiscal 1999 (representing a compound annual growth rate
of 6.9%) and EBITDA as adjusted increased from $9.7 million in fiscal 1995 to
$27.9 million in pro forma fiscal 1999 (representing a compound annual growth
rate of 30.1%). In addition, from fiscal 1995 to fiscal 1999 the Company's same
store sales (based on 359 stores open throughout this period) grew 23.6%.
The retail business conducted by the Company was founded in the 1930s by Jay
Galin's father and uncle. The first stores offered only lingerie and hosiery
for sale. In 1969, the business opened its first mall-based store and
introduced female junior sportswear. Due to the success of its mall-based
stores offering sportswear, the business began focusing exclusively on opening
mall-based stores and selling sportswear in these stores. In 1969, an initial
public offering of common stock was completed. In 1980, the business was
acquired by Petrie Stores, Inc. In October 1995, Petrie, the Predecessor's
parent, on behalf of itself and its subsidiaries (including the Predecessor),
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. In December 1998, the United States Bankruptcy Court for the
Southern District of New York issued an order confirming Petrie's plan of
reorganization. The Predecessor's operating performance was strong prior to and
during the bankruptcy proceedings. The Predecessor generated aggregate EBITDA
as adjusted of $84.1 million and aggregate net income of $27.0 million from the
beginning of fiscal 1995 through August 28, 1998. On August 28, 1998, senior
management, together with an investor group led by affiliates of Pegasus,
acquired the business currently conducted by the Company from the Predecessor
by means of an asset transfer pursuant to Section 363 of the United States
Bankruptcy Code. The Company was incorporated in the State of Delaware on June
26, 1998. The Parent was incorporated in the State of Delaware on August 24,
1998 and acquired 100% of the outstanding capital stock of the Company on
August 27, 1998 to effectuate the Acquisition.
The Parent's only material asset is shares of the Company's common stock, and
it conducts no business other than owning shares of the Company's common stock.
Business Strategy
The Company's business strategy is to expand its operations and increase its
sales and EBITDA through the opening of new Rave stores (including through the
acquisition of groups of or individual
44
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leases) primarily in mall locations that it believes are favorable for its
business. The Company opened 22 new stores in fiscal 1999 and six new stores in
the period from January 31, 1999 to May 1, 1999; the Company anticipates
opening approximately 24 new stores during the remainder of fiscal 2000. The
Company believes that its strong relationships with its existing landlords,
coupled with the fact that it no longer is hampered by the Predecessor's recent
bankruptcy proceedings, provide it with a good opportunity to negotiate
favorable leases in new locations. The Company believes that at least 200
locations exist at where the opening of new stores would be attractive. The
Company believes that its current distribution infrastructure can support a
total of 700 stores without a material increase in cost.
In addition, the Company intends to test the market for sales to 8- to 12-year-
old girls by opening approximately six mall stores under the name Rave Girl
during fiscal 2000. The Company believes that the market for the sale of
popularly priced fashion apparel to this age group is currently under-served.
The Company intends to enter this market at a relatively low incremental cost
by leveraging its existing administrative, distribution and marketing
infrastructure. The Company's prototype Rave Girl store is approximately 1,500
square feet with a design aimed at appealing to 8- to 12-year-old girls. If
this market test succeeds, the Company will seek to opportunistically open
additional Rave Girl stores.
The Company recently launched, and is in the process of expanding, an Internet
web site that provides information about the Company's merchandise offerings,
promotions and store sites. The address of this web site is www.gorave.com. The
Company intends to actively monitor the popularity of this web site and its
potential for additional applications.
Merchandising and Marketing
Merchandising Strategy
The Company's merchandising strategy is to deliver the latest fashions to its
teenaged customers more quickly and at lower prices than its competitors. The
Company's merchandise is designed primarily to appeal to young women between
the ages of 13 and 19 years old who desire fashion, quality and value. Due to
the Company's merchandise and its geographic diversity, over the past few years
the Company's stores also have increasingly attracted the 20- to 30-year-old
female customer. Substantially all of the Company's merchandise is private
label that is manufactured to the Company's specifications, which gives the
Company tighter control over apparel production and delivery than it would have
if it purchased and sold brand name merchandise. The Company's stores offer the
latest fashion in both apparel and accessories in stores that are designed to
be bright, energetic and welcoming to create a fun and enjoyable shopping
experience. The Company's apparel offerings include tops, bottoms, dresses,
lingerie, coordinates and outerwear. The Company utilizes an everyday value
pricing strategy as opposed to offering discounts on marked-up merchandise.
During fiscal 1999, the average selling price of the items the Company sold was
$10.50.
During fiscal 1997, 1998 and 1999 and the first fiscal quarter of fiscal 2000,
tops, bottoms and dresses each accounted for more than 10% of the Company's net
sales (except for dresses in fiscal 1999 and the first fiscal quarter of fiscal
2000, which accounted for 9.1% and 5.8%, respectively), as indicated in the
table presented below. No other category of merchandise sold by the Company
accounted for more than 10% of the Company's net sales in fiscal 1997, 1998 or
1999 or the first fiscal quarter of fiscal 2000.
<TABLE>
<CAPTION>
Percentage of Net Sales
------------------------------------------------
First Fiscal
Merchandise Category Fiscal 1997 Fiscal 1998 Fiscal 1999 Quarter 2000
- -------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Tops........................... 42.3% 46.9% 47.4% 45.7%
Bottoms........................ 18.8 21.0 21.5 29.6
Dresses........................ 14.7 11.0 9.1 5.8
</TABLE>
45
<PAGE>
In order to react quickly to teenagers' changing tastes and keep stores stocked
with current fashions, the Company sources approximately 90% of its merchandise
domestically. Maintaining current merchandise allows the Company to achieve
high inventory turns and sales per square foot while improving profitability.
The speed of the Company's merchandising and product sourcing capability
enables the Company to change its product mix in season and respond immediately
to, rather than try to anticipate, teenaged fashion trends. From fiscal 1995
through fiscal 1999, the Company's inventory turns increased from 5.1x to 6.2x
and its sales per gross square foot improved from $222 to $290.
The Company's merchandising strategy is established by the collective efforts
of its six divisional merchandise managers who report to Jay Galin, the
Company's Chairman of the Board and Chief Executive Officer. These managers
identify and target fashion trends and customer demand by, among other things,
shopping the better domestic and European markets, reviewing magazines and
catalogs and viewing television shows and movies directed to the Company's
customers, monitoring sell-through trends and attending certain fashion shows.
The Company also maintains an office in California to ensure proper coverage of
the trend-setting West Coast market. Inventory levels are constantly reviewed
and planned on a store-by-store basis by the Company's planning and
distribution staff whose main responsibility is matching the fashion desires of
the Company's customers, who are primarily young and in demand of the latest
fashion trends.
Visual Presentation and Advertising
The Company believes that effective and strong visual merchandising is critical
in order to capture a customer's interest in the few seconds she is exposed to
the store front. At G+G and Rave, presentation is a product of store design,
use of fixtures and in-store marketing which complement the merchandise
offering. The merchandise floorset, which is integral to a store's merchandise
presentation, is jointly executed in a store by the merchants and the marketing
department. Once approved, a consistent floor set is communicated to all of the
stores in the chain through a formal floorset layout. The floorsets are
finalized based on seasonal and climatic differences among the Company's
regional markets. Major floorsets are prepared for each major selling season
and sale period. Modifications to the floorset are forwarded to the stores on a
bi-weekly basis.
The Company primarily advertises in its stores, stressing fashion, quality and
value in support of its everyday value pricing strategy. The marketing
department creates a seasonal sign package that accentuates the merchandise
presentation. Each season, key items are selected and highlighted with a
comprehensive in-store poster and signage program. The sign package reflects
new merchandise colors and fashion trends to keep the stores looking current
and visually stimulating. The merchandise package also targets the customer
with hard-hitting value pricing slogans in the form of large store-spanning
banners and rack-top signage. Store bags, boxes, name badges and other store
peripherals all emphasize fashion and value.
Merchandise Planning
The Company's seasonal merchandise plans are prepared by the Company's
financial division and are approved by senior management. The monthly corporate
merchandise plan is then allocated by merchandise department based on
historical and current trends. The preparation and monitoring of merchandise
plans independently of purchasing functions is essential for controlling
inventory levels. The Company monitors its inventory through a perpetual
inventory system. The Company uses four merchandise seasons each year, which
enables it to identify inventory age. The Company maintains a current base of
inventory, which is extremely important in ensuring a proper mix of seasonal
inventory to match customer buying patterns and a profitable sell-down at the
end of a season.
Based on the Company's ability to procure the majority of its merchandise
within two to four weeks from delivery of a purchase order, the Company
purchases seasonal merchandise within the season and is able to quickly
identify, address and correct any negative sales trends or to quickly react and
46
<PAGE>
capitalize on positive sales trends. This fluid purchasing practice prevents
significant over-inventoried positions which could adversely affect the
Company's profitability and cash flow.
The table below reflects average store inventory and average annual inventory
turn over the last five fiscal years.
<TABLE>
<CAPTION>
Average Store Average Annual
Fiscal Year Retail Inventory Inventory Turn
- ----------- ---------------- --------------
<S> <C> <C>
1995............................................ $102,900 5.1x
1996............................................ 103,400 5.4
1997............................................ 102,800 6.4
1998............................................ 107,300 6.6
1999............................................ 113,100 6.2
</TABLE>
Sourcing and Suppliers
All of the Company's inventory is purchased from third-party suppliers or
manufacturers. The Company owns no manufacturing facilities. Approximately 90%
of the Company's private label merchandise is manufactured domestically, with
the remainder manufactured overseas. The Company supplies the design and the
specifications to the manufacturers. The Company's manufacturers continually
consult with the Company regarding developing fashion trends so that they can
respond quickly to the Company's merchandise orders. Prior to delivery, the
Company regularly inspects samples of its manufactured goods for quality based
on materials, color, sizing specifications and shrinkage. The Company's
merchants also routinely inspect the factories of the Company's suppliers to
ensure that the Company's goods are of high quality.
The Company believes that it has established relationships with an adequate
number of suppliers to meet its ongoing inventory needs and that it has strong
relationships with these suppliers. During fiscal 1999, the Company purchased
its inventory from more than 300 suppliers. The Company has purchased inventory
from its top three suppliers for more than five years. The Company has no long-
term contracts with its suppliers and transacts business principally on an
order-by-order basis. During the first fiscal quarter of fiscal 2000, the
Company's top three suppliers accounted for 12.7%, 10.4% and 8.2% of the
Company's inventory purchases. During fiscal 1999, the Company's top three
suppliers accounted for 12.8%, 11.2% and 9.8% of the Company's inventory
purchases. During the first fiscal quarter of fiscal 2000 and during fiscal
1999, no other single supplier accounted for more than 5.0% of the Company's
inventory purchases.
Distribution and Transportation
The Company maintains a 165,000 square foot leased distribution center in North
Bergen, New Jersey. All of the Company's vendors ship the purchased merchandise
to the Company's distribution center, which then ships such merchandise to the
Company's stores.
Merchandise allocation begins the day before a vendor's delivery, with the
vendor making a receiving appointment. This pre-allocation process allows the
merchandise to be shipped to stores generally within 24 hours from receipt. To
expedite delivery, the Company's vendors which are located on the West Coast
ship merchandise by air to the distribution center.
The Company employs an in-house developed allocation system which interfaces
with the Company's store cash registers, as well as the Company's order and
receiving system and distribution system. The allocation system maintains unit
inventory and sales data by store at the style level, which enables the Company
to identify specific store needs for replenishment.
47
<PAGE>
The Company uses national and regional package carriers to ship merchandise to
its stores and also uses air freight to ship merchandise to stores in certain
regions. Transit time to stores generally is two to three days and merchandise
is available for sale by stores the same day it is received. Accordingly, the
time period from receipt of goods at the distribution center to display in the
Company's stores generally is less than five days.
During fiscal 1999, the Company estimates that more than 50% of merchandise
coming into the distribution center was pre-ticketed and a substantial portion
of merchandise coming into the distribution center was vendor pre-packed. Pre-
ticketing and pre-packing save time, reduce labor costs and enhance inventory
management.
The Company's distribution and allocation operations are managed by the Vice
President-Warehouse and Distribution. On the distribution side, the Vice
President-Warehouse and Distribution supervises the distribution center manager
who in turn oversees supervisors for receiving, packing and shipping. On the
allocation side, the Vice President-Warehouse and Distribution supervises
planners and distributors who prepare store merchandise allocations.
Management of the Company believes that the Company's current distribution
infrastructure can support a total of 700 stores.
Stores
Store Locations
As of May 1, 1999, the Company had 441 stores in 39 states in the United
States, Puerto Rico and the U.S. Virgin Islands. The following chart shows the
number of stores that the Company had in each state, Puerto Rico and the U.S.
Virgin Islands as of May 1, 1999.
<TABLE>
<CAPTION>
Number
State/Territory of Stores
- --------------- ---------
<S> <C>
Alabama................. 9
Arkansas................ 2
Arizona................. 4
California.............. 34
Colorado................ 6
Connecticut............. 7
Delaware................ 1
Florida................. 49
Georgia................. 12
Hawaii.................. 1
Idaho................... 1
Illinois................ 17
Indiana................. 5
Kentucky................ 2
Louisiana............... 13
Maine................... 1
Maryland................ 17
Massachusetts........... 17
Michigan................ 20
Missouri................ 6
Mississippi............. 3
</TABLE>
<TABLE>
<CAPTION>
Number
State/Territory of Stores
- --------------- ---------
<S> <C>
Nebraska................ 1
Nevada.................. 1
New Hampshire........... 4
New Jersey.............. 13
New Mexico.............. 2
New York................ 40
North Carolina.......... 9
Ohio.................... 16
Oregon.................. 2
Pennsylvania............ 22
Puerto Rico............. 41
Rhode Island............ 2
South Carolina.......... 2
Tennessee............... 8
Texas................... 27
Virginia................ 8
Virgin Islands.......... 2
Washington.............. 9
Wisconsin............... 3
West Virginia........... 2
</TABLE>
48
<PAGE>
Store Format
The Company uses the same store format for both its G+G and Rave stores and
consistently applies its store format in all the markets served by the Company.
In general, the G+G name is used in the New York, New Jersey and Connecticut
markets and the Rave name is used in the other markets served by the Company.
The Company's stores are predominantly located in major enclosed regional
shopping malls, including Roosevelt Field in Garden City, New York and Florida
Mall in Orlando, Florida. Within malls, the Company seeks locations in
proximity to stores and areas having high teen traffic flow such as music
stores, shoe stores and food courts. Each store is typically 2,400 gross square
feet in size with approximately 25 feet of mall frontage.
The Company's stores are designed to create a lively and exciting shopping
experience for the Company's teenaged customer. The stores are fitted with
various fixtures to display the merchandise in the appropriate fashion.
Approximately 15% of a store's total space is committed to fitting rooms and
storage space. The store layout and merchandise placement is centrally
controlled by the Company's merchandising staff. Store and merchandise layouts
are updated approximately every six weeks, or sooner when necessary, to stay
current with the seasons and fashion trends.
The clean design of the Company's stores allows the Company to enjoy a
relatively low level of maintenance expenditures ($3.2 million in fiscal 1999)
while retaining an attractive, well-maintained store base. Sales have been
evenly balanced among the Company's store base, with its highest volume store
accounting for less than 1.0% of gross sales during fiscal 1999.
Store Operations
All aspects of store operations (other than purchasing) are managed by
district/area managers, each of whom is responsible for six to ten stores. Each
district/area manager reports to a regional manager who oversees seven to eight
district/area managers, and the regional managers report to the Vice President-
Store Operations.
Generally, each store employs five to ten employees, consisting of a store
manager, who is in charge of all aspects of operations including recruiting,
training, customer service and merchandising, two assistant managers and sales
employees. Store managers report to a district/area manager and assistant
managers and sales employees report to a store manager.
The Company seeks to hire sales employees who have prior retail sales
experience and an entrepreneurial spirit. Sales personnel are knowledgeable
about the merchandise. The Company's sales personnel and assistant store
managers are trained by experienced store managers, and the Company's store
managers are trained by experienced district/area managers, in each case to
offer the customer courteous and knowledgeable service.
The Company's customers may pay for merchandise with cash, checks or third
party credit cards. During fiscal 1999, 80% of purchases were made with cash or
checks and 20% were made with credit cards.
The Company's merchandise return policy permits returns if made within 30 days
from the date of purchase. A refund will be given if the customer has a
receipt; otherwise a store credit will be issued.
Store Openings and Closings
Since 1995, the Company has implemented an ongoing program to open new stores
in locations that it believes are favorable for its business and close
underperforming stores through negotiations with
49
<PAGE>
landlords. Between October 31, 1995 and January 30, 1999, the Company opened 59
new stores. During this same period, the Company closed 70 underperforming
stores. This program benefitted from the legal protections available to the
Predecessor under the United States Bankruptcy Code after it filed for relief
under Chapter 11 in October 1995. This program has improved the quality of the
Company's store base and store productivity as measured by sales per gross
square foot which increased from $222 in fiscal 1995 to $290 in fiscal 1999.
The Company opened six new Rave stores in the period from January 31, 1999 to
May 1, 1999 and plans to open approximately 24 new Rave stores by the end of
fiscal 2000. The Company believes that its strong relationships with its
existing landlords, coupled with the fact that its business is no longer
hampered by the Predecessor's recent bankruptcy proceedings, provide it with a
good opportunity to negotiate favorable leases in new locations. The Company
anticipates closing approximately 12 stores by the end of fiscal 2000.
In deciding whether to open or close a store, the Company considers several
factors, including (i) the extent of competition from other mall tenants, (ii)
the location of the store in the mall, (iii) the rental rate for the property
where the store is or will be located, (iv) the performance of other apparel
retail stores in the mall (which information is often made available to the
Company from mall owners), (v) whether the mall's environment is suitable for
the store, (vi) the anticipated return on investment and (vii) the quality of
anchor stores in the mall in which the store is or will be located.
The opening of a new store requires an investment in leasehold improvements and
fixtures (an average of approximately $110,000 in fiscal 1999) plus the cost of
inventory (approximately $62,500 in fiscal 1999).
Furthermore, the Company intends to test the market for sales to 8- to 12-year-
old girls by opening approximately six mall stores under the name Rave Girl
during fiscal 2000. The Company believes that the market for the sale of
popularly priced fashion apparel to this age group is currently under-served.
The Company intends to enter this market at a relatively low incremental cost
by leveraging its existing administrative, distribution and marketing
infrastructure. The Company's prototype Rave Girl store is approximately 1,500
square feet with a design aimed at appealing to 8- to 12-year-old girls. If
this market test succeeds, the Company will seek to opportunistically open
additional Rave Girl stores.
Teen Market
Teenagers represent both a growing part of the U.S. population and an
increasing source of purchasing power. The teenaged population reached
approximately 31 million in 1998 and is projected to grow to approximately 34
million by 2005, representing a projected average annual growth rate nearly
twice that of the overall United States population. This rapid growth is
primarily the result of the growing up of the children of the baby boomers.
In addition to the growing number of teenagers, teen purchasing power is also
growing. Income for teens reached a record $119.9 billion in 1998, up from
$75.0 billion in 1995, and is expected to grow at a compound annual growth rate
of approximately 4.4% to reach $148.5 billion in 2003. Teen income stems from
three main sources: (1) part- and full-time employment, comprising
approximately 22% of teenagers' total income; (2) allowances, comprising
approximately 30% of teenagers' total income; and (3) gifts and occasional odd
jobs, comprising the remaining approximately 48% of teenagers' total income.
Teenage income from employment is expected to rise as a result of teens having
an easier time finding jobs in such fields as retail, foodservice, and
construction and recent raises in the federal minimum wage. On October 1, 1996,
the minimum wage increased to $4.75 or 12.0% over the previous level of $4.25,
and on September 1, 1997, the minimum wage was raised an additional 8.4% to
$5.15. Teen purchasing power is further bolstered by parents from whom most
teens (84%) receive money when needed. The buying power of today's teenager is
also aided by easier
50
<PAGE>
access to cash via credit cards, whether their own or those of their parents.
With rising wages and increasing parental support, teens are predicted to have
more spending money in the future.
The bulk of teenagers' income is discretionary since most teenagers live with
their parents. Teenage girls spend the largest percentage of their total
income, approximately 42%, on clothing and jewelry.
Malls serve as social centers for teenagers. Teens go to malls 40% more
frequently than older shoppers, with approximately 63% of teens shopping at a
mall at least once a week. In general, teens choose malls as their favorite
shopping destination, with teenage girls tending to shop at mall specialty
clothing and beauty stores. Each mall trip averages 90 minutes with 56% of
teens making purchases averaging $35.
Teens have become increasingly fashion conscious. In addition, teens alter
their wardrobes more frequently than adults.
Competition
The junior apparel retail business is highly competitive, with fashion,
quality, price, location, store environment and customer service being the
principal competitive factors. While the Company believes that it is able to
compete favorably with respect to each of these factors, the Company believes
it competes primarily on the basis of fashion, price and quality.
The Company competes with a number of mall-based popular priced junior fashion
retailers, but has few direct competitors in its price points and levels of
fashion and quality. The Company's competitors include Wet Seal/Contempo
Casual, a mall-based junior apparel retailer based in Irvine, California which
offers current fashions at higher price points than the Company. In addition,
the Company competes with several discount department stores and local and
regional department store chains which overlap with the Company's merchandise
offerings and price points. Some of the Company's competitors are larger and
may have greater financial, marketing and other resources than the Company. In
addition, the Company competes for favorable site locations and lease terms in
shopping malls. In the future, the Company may experience increased competition
from catalog and Internet retailers.
Properties
As of May 1, 1999, the Company had 441 stores in 39 states in the United
States, Puerto Rico and the U.S. Virgin Islands. All of the Company's store
sites are leased.
As of May 1, 1999, the average remaining lease term of the Company's stores
(excluding stores with month-to-month leases) was approximately 40 months,
assuming renewal options are not exercised (or approximately 52 months,
assuming renewal options are exercised). The table below reflects the fiscal
years in which the leases on the Company's stores, as of May 1, 1999, expire
(assuming renewal options are not exercised):
<TABLE>
<CAPTION>
Number of
Fiscal Year Leases Expiring*
----------- ----------------
<S> <C>
2000..................................................... 98**
2001..................................................... 70
2002..................................................... 65
2003..................................................... 45
2004 and thereafter...................................... 118
---
396
===
</TABLE>
- --------
* As of May 1, 1999, the Company also had 45 stores with expired leases; the
Company occupies such premises on a month-to-month basis.
** Does not include leases for eight stores which expired in the period between
January 31, 1999 and May 1, 1999; the Company occupies such premises on a
month-to-month basis (see * above).
51
<PAGE>
The Company believes that its real estate staff has strong relationships with
the Company's present landlords. The Company believes that the strength of
these relationships is based, among other things, upon the credibility
established from the many years of the Company doing business with the key
leasing personnel at its major landlords, the Company's long history in the
female junior apparel business, the national scope of the Company's business,
the Company's consistent financial results, the attractive tenant use offered
by the Company's stores and the Company's expansion strategy. As of May 1,
1999, the Company's two largest landlords leased the Company 16% and 7.7%,
respectively, of its stores. However, despite these factors and its
relationships with landlords, during the Predecessor's Chapter 11 proceedings,
the Company often was unable to negotiate long-term leases. Now that the
Company is independent from Petrie, it believes that it will be able to
negotiate longer and more favorable store leases. However, no assurance can be
given that the Company can renew existing leases on favorable terms. Between
August 28, 1998 (the date on which the Acquisition was consummated) and May 1,
1999, the Company renewed leases for 78 stores and entered into leases for 29
new stores. In addition, as of May 1, 1999, the Company was negotiating
renewals for 137 of the 143 stores which have leases expiring during fiscal
2000 or expired leases; with respect to these 137 stores, the Company's
negotiations had progressed, as of such date, to the final documentation phase
for 50 stores.
The Company leases its distribution center located in North Bergen, New Jersey.
The lease expires in August 2004. The Company has one five-year renewal option
pursuant to which the rent will be equal to 90% of the fair market value of the
premises.
The Company's headquarters are located in New York City and consist of 35,000
square feet of leased office space. From the Company's headquarters, the
Company administers its purchasing, merchandising, finance, store operations,
management information systems, marketing, real estate, human resources and
store construction functions. The lease for the Company's headquarters will
expire in January 2000 unless extended pursuant to the Company's three-year
renewal option. The Company's chief executive office is located at 520 Eighth
Avenue, New York, NY 10018 and its telephone number is (212) 279-4961.
Management Information Systems
The Company has a computer system that is fully integrated using an IBM RISC
6000 computer. The Company's management information and control systems provide
management, buyers, planners and distributors information by the next business
day to identify sales trends, replenish depleted store inventories, re-price
merchandise and monitor merchandise mix. The automated and integrated
allocation and material handling systems enable the Company to move the
majority of its merchandise through its distribution center within 24 hours of
receipt.
All of the Company's stores have point of sales terminals that record sales at
the style level, markdowns, distribution center receipts, inter-store transfers
and store payroll. This information is transmitted daily to the Company's host
systems. During fiscal 2000 and 2001, the Company intends to replace its
existing point of sale equipment and software with new state-of-the-art PC-
based, point of sale equipment and software, which will give the Company the
capability of bar code scanning, price look-up and inventory tracking and will
enhance store productivity and reporting. The Company estimates the cost of the
upgrade to be approximately $6.8 million and expects to finance a substantial
portion of the upgrade with capital leases. The Company has already begun the
pilot phase for this project.
Trademarks and Service Marks
The Company owns numerous trademarks, service marks and trade names which are
used in its business. G+G and In Charge are registered on the federal principal
trademark register for use in
52
<PAGE>
connection with retail services and items of apparel. Rave and Rave Up are
registered under the laws of the states in which the Company transacts business
for use in connection with retail services and items of apparel. These
registrations are renewable indefinitely so long as the marks are used by the
Company. The Company intends to maintain its marks and the related
registrations. The Company is not aware of any claims of infringement or other
challenges to the Company's right to use its marks in the United States.
Employees
As of May 1, 1999, the Company had a total of 3,901 employees, consisting of
778 full-time salaried employees, 1,316 full-time hourly employees and 1,807
part-time hourly employees. The number of part-time hourly employees fluctuates
due to the seasonal nature of the Company's business.
As of May 1, 1999, the Local 2326 of the UAW/AFL/CIO represented 132 hourly
employees in the Company's distribution center. The collective bargaining
agreement covering these employees expires on January 31, 2002. None of the
Company's other employees are members of a union. The Company has never had a
strike or work stoppage.
The Company considers its relations with both its union and non-union employees
to be favorable. The Company believes that its employees are paid competitively
with current standards in the industry. Despite the Predecessor's recent
Chapter 11 case, the Company has experienced little turnover among its regional
managers and district/area managers.
Litigation
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Prospectus, the Company was not engaged in any legal proceedings which
are expected, individually or in the aggregate, to have a material adverse
effect on the Company.
53
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees of the Company
The Company's directors, executive officers and key employees, each of whom
assumed his or her position with the Company on August 31, 1998, are as follows
as of June 15, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jay Galin......................... 63 Chairman of the Board of Directors and
Chief Executive Officer
Scott Galin....................... 40 President, Chief Operating Officer and
Director
Craig Cogut....................... 45 Director
Donald D. Shack................... 70 Director
Lenard B. Tessler................. 47 Director
Michael Kaplan.................... 45 Vice President, Chief Financial Officer,
Treasurer and Secretary
James R. Dodd..................... 57 Vice President-Store Operations
Robert W. Tinbergen............... 51 Vice President-Warehouse and Distribution
Jeffrey Galin..................... 37 Vice President/Divisional Merchandise
Manager
Donna D'Angelo.................... 43 Divisional Merchandise Manager
Carol J. Harren................... 54 Divisional Merchandise Manager
Robert B. Lembersky............... 43 Divisional Merchandise Manager
Denise Vazquez.................... 46 Divisional Merchandise Manager
Joshua S. Podell.................. 29 Director of Real Estate
</TABLE>
Jay Galin worked for the Predecessor for over 40 years and served as President
of the Predecessor from 1972 to August 1998. Mr. Galin was responsible for
developing the Company from a lingerie and hosiery shop into a women's
specialty retailer. Mr. Galin also served as Senior Vice President of Petrie
Retail, Inc. from 1981 to 1990. Mr. Galin served as Executive Vice President of
Petrie Stores Corporation/Petrie Retail, Inc. from 1990 to 1995. Mr. Galin held
various management and executive positions with the Predecessor from 1956 to
1972. Mr. Galin served as a board member of Petrie Stores Corporation (Petrie's
predecessor) from 1980 to 1995 and is a member of the board of directors of Ark
Restaurants Corp. Mr. Galin is the father of Scott Galin and Jeffrey Galin.
Scott Galin served as Executive Vice President and Chief Operating Officer of
the Predecessor from 1992 to August 1998. From 1985 to 1992, Mr. Galin served
as a Senior Vice President of the Predecessor and held executive positions in
real estate, finance and store operations. Mr. Galin served as Senior Vice
President of Petrie Stores/Petrie Retail, Inc. from 1985 to 1995. From 1980 to
1984, Mr. Galin held various buying and merchandising positions at the
Predecessor. From 1977 to 1980, Mr. Galin held various part-time and training
positions with the Predecessor. Scott Galin is the son of Jay Galin and the
brother of Jeffrey Galin.
Craig Cogut is a senior founding principal of Pegasus Investors, L.P., a
partnership which was formed in 1996 and manages $220.0 million in equity
capital. From 1990 to 1995, Mr. Cogut was a senior principal of Apollo
Advisors, L.P. and Lion Advisors, L.P., partnerships which managed several
billion dollars of equity capital for investment partnerships and private
accounts. From 1984 to 1990, Mr. Cogut served as a consultant and advisor to
Drexel Burnham Lambert Incorporated and associated entities. From 1979 to 1984,
Mr. Cogut practiced law with Irell & Manella in Los Angeles, California. Mr.
Cogut serves as a member of the board of directors of Vail Resorts, Inc. Mr.
Cogut received a J.D. from Harvard Law School and a B.A. from Brown University.
Donald D. Shack is a founding director of the law firm of Shack & Siegel, P.C.,
general counsel to the Company and the Parent. Prior to the formation of Shack
& Siegel, P.C. in April 1993, Mr. Shack was
54
<PAGE>
a member of the law firm of Whitman and Ransom from January 1990 to April 1993.
Mr. Shack received a B.A. (1948) from Williams College and an LLB (1951) from
Harvard Law School. He completed service with the U.S. Army in Korea in 1953
when he joined the law firm of Golenbock and Barell, becoming a partner in
1959. Mr. Shack is a member of the board of directors of Ark Restaurants Corp.,
the Andover Apparel Group, Inc., Just Toys, Inc. and International Citrus, Inc.
Lenard B. Tessler is a founding principal of TGV Partners, a private investment
partnership which was formed in April 1990. Mr. Tessler served as Chairman of
the Board of Empire Kosher Poultry from 1994 to 1997, after serving as its
President and Chief Executive Officer from 1992 to 1994. Before founding TGV
Partners, Mr. Tessler was a founding partner of Levine, Tessler, Leichtman &
Co., a leveraged buyout firm formed in 1987. From 1982 to 1987, Mr. Tessler was
a founder, director and executive vice president of Walker Energy Partners, a
publicly traded master limited partnership in the oil and gas industry, and
subsequently he served as an independent financial consultant to financially
troubled companies in that industry. Prior thereto, Mr. Tessler practiced
accounting in New York as a certified public accountant, specializing in tax.
Mr. Tessler received an M.B.A. from Fairleigh Dickinson University and a B.B.A.
from the University of Miami. Mr. Tessler currently serves as a member of the
board of directors of Opinion Research Corporation, and Garfield & Marks
Designs Ltd., Inc.
Michael Kaplan served as Vice President and Chief Financial Officer of the
Predecessor from 1988 to August 1998. From 1986 to 1988, Mr. Kaplan was
employed as controller for Brooks Fashions Stores, Inc. From 1983 to 1985, he
was a consultant for Deloitte & Touche, LLP. From 1980 to 1983, he served as
corporate controller for Ormond Shops Inc. Mr. Kaplan is a certified public
accountant and from 1976 to 1980 held various auditing positions with Ernst &
Young LLP.
James R. Dodd served as Vice President of Store Operations of the Predecessor
from April 1998 to August 1998. From 1995 to 1998, he was Vice President-Retail
Division for JH Collectibles in Milwaukee, Wisconsin. On October 4, 1996, JH
Collectibles filed a voluntary petition pursuant to Chapter 11 of the United
States Bankruptcy Code with the United States Bankruptcy Court for the Eastern
District of Wisconsin-Milwaukee; as of March 31, 1999, the plan of liquidation,
which was confirmed and has become effective, was substantially consummated.
From 1990 to 1995, he was Vice President of Operations for several companies
including Tommy Hilfiger, London Fog and Cape Island Knitters. From 1982 to
1990, he held several positions with The Limited, Inc., including Vice
President of Operations for Lane Bryant from 1988 to 1990. From 1974 to 1982,
he was employed by Damschroders, Inc., a midwestern retailer where he held
several positions, including Vice President of Operations. In the early 1970's,
he was associated with The Limited, Inc., and before that he was employed by
International Business Machines Corporation.
Robert W. Tinbergen served as Vice President of Planning and Distribution of
the Predecessor from 1988 to August 1998. From 1982 to 1987, he served as
director of distribution for Orbachs. From 1980 to 1982, Mr. Tinbergen was
employed as a senior consulting manager for Ernst & Whinney in their retailing
group. From 1973 to 1980, Mr. Tinbergen served as the manager of planning and
distribution for K-Mart Apparel Corp.
Jeffrey Galin served as Divisional Merchandise Manager of the Predecessor from
1991 to August 1998. From 1989 to 1991, Mr. Galin was employed as a sales
associate for Bergdorf Goodman. From 1985 to 1988, Mr. Galin served as a
commercial real estate salesperson. Mr. Galin started his career as an
associate buyer of the Predecessor from 1983 to 1984. Jeffrey Galin is the son
of Jay Galin and the brother of Scott Galin.
Donna D'Angelo served as Divisional Merchandise Manager of the Predecessor from
1986 to August 1998. From 1981 to 1986, Ms. D'Angelo was employed as a buyer
for the Predecessor. From 1975 to 1981, she was a buyer for Felix Lilenthal &
Company.
55
<PAGE>
Carol J. Harren served as Divisional Merchandise Manager of the Predecessor
from 1992 to August 1998. From 1989 to 1991, Ms. Harren was employed as a buyer
for Weathervane Stores. From 1986 to 1989, she served as head of merchandising
for Sebo Knitwear. Ms. Harren served as vice president of merchandise for
Brooks Fashion Stores from 1984 to 1986. From 1980 to 1984, she was the
merchandise manager for Lane Bryant Stores. From 1972 to 1980, Ms. Harren was a
buyer for Gimbels New York. Ms. Harren was also a buyer for R.H. Macy & Co.
from 1966 to 1972.
Robert B. Lembersky served as Divisional Merchandise Manager of the Predecessor
from 1993 to August 1998. From 1990 to 1992, Mr. Lembersky held various
positions at Networks, a division of Worth Stores, including Vice President,
merchandise manager and divisional merchandise manager. From 1984 to 1990, Mr.
Lembersky was employed as sales manager and executive vice president of
Barefoot Miss.
Denise Vazquez served as buyer and Divisional Merchandise Manager of the
Predecessor for the Puerto Rico Division from 1988 to August 1998. From 1981 to
1988, Mrs. Vazquez was employed as a buyer for Goldrings. From 1979 to 1981,
Mrs. Vazquez was a buyer for Melburn Shops. From 1969 to 1979, Mrs. Vazquez
held various positions for Gimbels New York, including executive training,
assistant buyer, buyer and department manager.
Joshua S. Podell served as Director of Real Estate of the Predecessor from
August 1997 to August 1998, and as real estate manager of the Predecessor from
January 1997 to August 1997. From January 1996 to January 1997, Mr. Podell
served as director of real estate for Speedo Authentic Fitness Stores. From
January 1994 to January 1996, Mr. Podell held various positions at The
Greenberg Group, Inc., including retail tenant consultant, site analyst and
retail real estate broker. From January 1992 to December 1993, Mr. Podell was
employed as an advertising salesperson at K-III Corporation.
The Company's Board of Directors consists of five members. All of the Company's
directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. Pursuant to the Parent's
certificate of incorporation, so long as the Parent controls the Company, the
Parent is required to cause the Company's Board of Directors to be identical to
the Parent's Board of Directors. The Parent's Board of Directors consists of
five members. Holders of shares of Class A common stock of the Parent ("Class A
Common Stock") are currently entitled to elect three directors and holders of
shares of Class B common stock of the Parent ("Class B Common Stock") are
currently entitled to elect two directors. Jay Galin, Scott Galin and Donald D.
Shack were elected to the Parent's Board of Directors by the Class A Common
Stock holders and Craig Cogut and Lenard Tessler were elected to the Parent's
Board of Directors by the Class B Common Stock holders. As of March 31, 1999,
Jay and Scott Galin collectively owned (assuming the exercise of their stock
options exercisable as of March 31, 1999) approximately 81% of the issued and
outstanding Class A Common Stock and affiliates of Pegasus owned 100% of the
Class B Common Stock. See "Principal Stockholders."
Upon the occurrence of certain events, holders of shares of Class A Common
Stock will be entitled to elect two directors and holders of shares of Class B
Common Stock will be entitled to elect three directors. Such events include (1)
the Parent's consolidated earnings before interest, taxes, depreciation and
amortization for the twelve most recent full months being less than $15.0
million, (2) the occurrence of certain defaults under any of the Parent's or
the Company's debt facilities, (3) termination of the employment of either of
Jay or Scott Galin by the Company for "cause" or by such employee without "good
reason" (as such terms are defined in such executive's employment agreement)
and (4) the failure of the Parent to perform certain obligations to the holders
of its Series B Preferred Stock.
From and after such time as there are no longer any shares of Class B Common
Stock or Class C common stock or Class D common stock of the Parent
outstanding, the Parent's Board of Directors will be elected at each annual
meeting of stockholders of the Parent by a plurality of the votes cast by
holders of Class A Common Stock.
56
<PAGE>
Pursuant to an agreement dated August 28, 1998, Pegasus G&G Retail, L.P.,
Pegasus Partners, L.P. and Pegasus Related Partners, L.P. (the "Pegasus Group")
have agreed that, for so long as (1) TGV/G+G Investors LLC, an affiliate of TGV
Partners, of which Lenard Tessler is a principal, is a limited partner of
Pegasus G&G Retail, L.P. and (2) the Pegasus Group has the power to elect at
least two directors to the Board of Directors of the Parent, they will elect
Lenard Tessler as one of such directors. See "Principal Stockholders." In the
event that Lenard Tessler votes, or after inquiry indicates his intention to
vote, on any issue brought before the Board of Directors of the Parent
differently from the other director elected by the Pegasus Group, then the
Pegasus Group's obligation to elect Lenard Tessler to the Parent's Board of
Directors will terminate, Lenard Tessler will immediately resign from the Board
of Directors of each of the Parent and the Company and the Pegasus Group will
be entitled to elect a new director to replace Lenard Tessler. In such event,
the Pegasus Group will appoint Lenard Tessler or another individual acceptable
to the Pegasus Group as an observer at meetings of the Parent's Board of
Directors until such time as their obligation to elect Lenard Tessler as a
director would otherwise have terminated.
The executive officers of the Company were elected to serve in such capacities
until the next annual meeting of the Board of Directors and until their
respective successors are elected and qualified or until their earlier
resignation or removal. In addition, Jay Galin and Scott Galin are employed by
the Company pursuant to employment agreements. See "--Employment Contracts and
Severance Agreements."
See "Certain Relationships and Related Transactions" for descriptions of
certain agreements relating to the stock ownership and management of the
Company.
Compensation of Directors
As of the date of this Prospectus, the directors of the Company do not receive
any compensation for their services as directors.
57
<PAGE>
Executive Compensation
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to the Predecessor from February 1,
1998 to August 28, 1998 and to the Company from August 31, 1998 to January 30,
1999 of those persons (collectively, the "Named Officers") who served as Chief
Executive Officer and the four next most highly compensated executive officers
of the Company during the fiscal year ended January 30, 1999. In connection
with the Acquisition, the Named Officers terminated their employment with the
Predecessor and became officers of the Company.
Summary Compensation Table For 1999 Fiscal Year
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------
Name and Principal Other Annual All Other
Position Salary Bonus Compensation Compensation(1)
- ------------------ ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Jay Galin............... $1,116,666(2) -- $152,987(3) $15,460(4)
Chairman of the Board
and Chief Executive
Officer
Scott Galin............. $ 502,884(5) -- $150,163(3) $15,460(4)
President and Chief
Operating Officer
Michael Kaplan.......... $ 259,325(6) $ 26,500(7) -- $11,401
Vice President, Chief
Financial Officer,
Treasurer and Secretary
Jeffrey Galin........... $ 194,326(8) $ 20,500(7) -- $ 8,718
Vice
President/Divisional
Merchandise Manager
Robert W. Tinbergen..... $ 149,182(9) $ 15,000(7) -- $10,768
Vice President-
Warehouse
and Distribution
</TABLE>
- --------
(1) Reflects actual premiums paid under the Executive Medical Reimbursement
Plan by the Company and estimates of premiums paid by the Predecessor under
this plan, which estimates assume that the premiums paid by the Predecessor
were identical to the premiums paid by the Company because both companies
offered the same plan. The plan, which is available to full-time employees
at or above the assistant director level, reimburses covered employees for
medical, dental, vision and deductible expenses not covered by the
Company's primary healthcare plan, which is available to all of the
Company's full-time employees. The premiums paid under the plan for each of
the Named Officers were as follows: Jay Galin ($8,118), Scott Galin
($8,118), Michael Kaplan ($4,059), Jeffrey Galin ($1,376) and Robert W.
Tinbergen ($4,059). Also includes contributions to the G+G Retirement Plan
and Trust made by the Company for the benefit of the Named Officers as
follows: Jay Galin ($7,342), Scott Galin ($7,342), Michael Kaplan ($7,342),
Jeffrey Galin ($7,342) and Robert W. Tinbergen ($6,709).
(2) $679,166 for service to the Predecessor and $437,500 for service to the
Company.
(3) For each of Jay Galin and Scott Galin, represents $143,278 of personal
legal fees and disbursements incurred in connection with the Acquisition
reimbursed by Petrie ($17,205), the Predecessor ($32,795) and the Company
($93,278). Also includes reimbursement for automobile-related expenses and
commuting expenses.
(4) Each of these Named Officers also received a success fee equal to
$1,378,000 in cash and a note payable by the Company in the amount of
$272,000 in connection with their assistance in the sale of the junior
apparel retail business conducted by the Predecessor prior to August 28,
1998. See "Certain Relationships and Related Transactions--Purchase of
Stock in Parent; Success Fees; Loans From Company."
(5) $274,519 for service to the Predecessor and $228,365 for service to the
Company.
(6) $143,654 for service to the Predecessor and $115,671 for service to the
Company.
(7) Reflects a bonus earned by each of these Named Officers during fiscal 1999
and prior fiscal years during which the Predecessor operated under the
protection of Chapter 11 of the United States Bankruptcy Code as a reward
for remaining with the Predecessor during the pendency of its Chapter 11
case. The Company paid these bonuses on or about March 15, 1999.
(8) $109,615 for service to the Predecessor and $84,711 for service to the
Company.
(9) $84,115 for service to the Predecessor and $65,067 for service to the
Company.
58
<PAGE>
Employment Contracts and Severance Agreements
Jay Galin is employed by the Company as its Chairman of the Board and Chief
Executive Officer pursuant to an employment agreement which expires on August
28, 2000. Under his employment agreement, Jay Galin is entitled to receive a
base salary of $1,050,000 per year, which increases to $1,075,000 per year on
August 28, 1999, and a bonus pursuant to the Bonus Plan for Senior Management
Employees of the Company. See "--Bonus Plan." At any time during the term of
his employment agreement, Jay Galin may, upon three months prior written notice
to the Company, terminate his employment agreement and enter into a three-year
consulting agreement with the Company. The consulting agreement would require
Jay Galin to provide consulting services to the Company for up to half normal
working time, in exchange for annual consulting fees equal to one-half of his
annual salary at the time of termination of his employment agreement.
Scott Galin is employed by the Company as its President and Chief Operating
Officer pursuant to an employment agreement which expires on August 28, 2003.
Under his employment agreement, Scott Galin is entitled to receive a base
salary of $525,000 per year, which increases by $25,000 on an annual basis, and
a bonus pursuant to the Bonus Plan for Senior Management Employees of the
Company. See "--Bonus Plan." In addition, in the event Jay Galin's employment
is terminated for any reason (including the exercise of his consulting option
described above), Scott Galin will serve as Chief Executive Officer of the
Company for the remaining term of his employment agreement, and his base salary
initially will be increased to $750,000 per year (subject to further annual
increases of $25,000).
In the event the employment of Jay or Scott Galin is terminated by the Company
without "cause" or by such executive for "good reason" (as such terms are
defined in the employment agreements), such executive is entitled to receive,
as severance, the salary, bonus and benefits to which he would have been
entitled for the remainder of the employment term. In the event the employment
of Jay or Scott Galin is terminated upon "disability" (as defined in the
employment agreements), such executive will receive his full salary and
benefits for one year and 50% of his salary and full benefits for an additional
six months. Upon the death of Jay or Scott Galin, the Company is required to
pay to such executive's designated beneficiary his salary and bonus for one
year following his death, provided that the Company has obtained key-man life
insurance covering such executive at a reasonable cost. In the event Jay Galin
exercises his consulting option described above, his consulting agreement would
include termination provisions substantially similar to those contained in his
employment agreement.
Each employment agreement also contains covenants precluding the executive
from, among other things, competing with the Company or soliciting its
customers or employees until the earlier of (i) the expiration of the initial
term of the employment agreement or (ii) the date which is 18 months after the
termination of his employment with the Company. In the event Jay Galin
exercises his consulting option, his consulting agreement would contain
substantially similar covenants not to compete or solicit.
The Company has also entered into separate agreements with Michael Kaplan, a
Vice President and the Chief Financial Officer of the Company, and Jeffrey
Galin, Vice President/Divisional Merchandise Manager of the Company, which
provide for severance payments in the event the Company terminates the
executive's employment without "cause" (as such term is defined in the
severance agreement). These severance payments consist of the executive's base
salary for one year and, if the executive elects to continue coverage under the
Company's medical insurance, the payment of a portion of the premiums for such
insurance equal to the portion which would have been paid had he remained in
the Company's employ for up to one year.
Bonus Plan
The Company's Board of Directors adopted a Bonus Plan for Senior Management
Employees of the Company (the "Bonus Plan") which became effective on February
2, 1999. Participants in the Bonus
59
<PAGE>
Plan include Jay Galin, the Company's Chairman of the Board and Chief Executive
Officer, and Scott Galin, the Company's President and Chief Operating Officer,
and other members of the Company's senior management selected by the Company's
Chairman of the Board/Chief Executive Officer and President/Chief Operating
Officer. Under the Bonus Plan, participants are eligible to receive annual cash
bonuses in addition to their base salaries.
The payment of bonus awards for each fiscal year is based upon the Company's
financial performance for such fiscal year measured by the Company's earnings
before interest, taxes, depreciation and amortization ("EBITDA") for such
fiscal year. The Bonus Plan provides for several Company performance levels,
each of which is based on (i) a percentage of the Company's projected EBITDA
for the relevant fiscal year established by the Company's Board of Directors
and (ii) the dollar amount of bonuses payable to participants in the Bonus Plan
for the relevant fiscal year at such performance level.
The dollar amount of bonus awards is based on a percentage of each
participant's base salary and ranges from 0% to 40% of a participant's salary
(or, for the Chairman of the Board/Chief Executive Officer or the
President/Chief Operating Officer, 0% to 65% of such participant's salary)
based on the performance level attained by the Company.
The Bonus Plan is administered by the Company's Board of Directors. The Bonus
Plan may be amended or terminated at any time upon the recommendation of the
Company's Chairman of the Board/Chief Executive Officer and President/Chief
Operating Officer.
Stock Option Plan
Effective as of March 15, 1999, the Parent adopted its 1999 Stock Option Plan
(the "Option Plan") providing for the granting of options to purchase shares of
its Class A Common Stock to its employees and employees of its subsidiaries.
The Option Plan is administered by the Board of Directors of the Parent, which
is authorized to grant incentive stock options and/or non-qualified stock
options to purchase up to 7,000 shares of Class A Common Stock.
The Board of Directors of the Parent will determine the number of shares
subject to each option, the time(s) when the options will be granted, the
time(s) when each option may be exercised, and any other matters which it deems
appropriate. The exercise price of the options is $300.00 per share; however,
for incentive stock options, the exercise price per share may not be less than
100% of the fair market value of one share of the Class A Common Stock at the
time the option is granted, nor less than 110% of the fair market value of one
share of the Class A Common Stock at the time the option is granted if the
option is granted to an employee who owns more than ten percent of all voting
stock of the Parent. Each option will terminate on the date specified by the
Board of Directors of the Parent, but in no event later than ten years from the
date on which the option was granted. However, if an incentive stock option is
granted to an employee who owns more than ten percent of all voting stock of
the Parent, the option must terminate no later than five years from the date of
grant. The Board of Directors of the Parent will determine whether each option
granted shall be an incentive stock option or a non-qualified stock option.
However, if, at the time of grant, the fair market value of the Class A Common
Stock underlying the incentive stock options to be granted exceeds $100,000 on
the date they first become exercisable, such options shall be treated as non-
qualified stock options to the extent of such excess. The incentive stock
options are non-transferrable other than by will or the laws of descent and
distribution. The non-qualified stock options may not be transferred other than
by will or the laws of descent and distribution, unless transfer is permitted
by the Board of Directors of the Parent and set forth in the option instrument.
The Option Plan will terminate on March 14, 2009, unless terminated earlier by
the Board of Directors of the Parent. Termination of the Option Plan will not
terminate any option that was granted prior to termination.
60
<PAGE>
Effective as of March 15, 1999, the Parent granted under the Option Plan
options to purchase 5,000 shares of its Class A Common Stock, of which 1,250
are currently exercisable. These options, which are non-qualified stock
options, were granted to Jay Galin, the Company's Chairman of the Board and
Chief Executive Officer, and Scott Galin, the Company's President and Chief
Operating Officer (2,500 options each). Pursuant to the Option Plan, an
aggregate of 5,000 options may be granted to Jay Galin and Scott Galin.
Retirement Plans
The Company currently maintains three tax-qualified retirement plans. The G+G
Retirement Plan and Trust (the "G+G Retirement Plan") and the G+G Retail, Inc.
401(k) Savings Plan (the "G+G 401(k) Plan") cover all employees, except those
covered under a collective bargaining agreement or, with respect to the G+G
401(k) Plan, those employed in Puerto Rico. The G+G Retail-UAW Local
Collectively Bargained 401(k) Plan (the "Local 2326 401(k) Plan") covers
employees employed under a collective bargaining agreement with Local 2326 of
the UAW. Each of these plans is a "defined contribution plan" under applicable
pension laws and, as such, the Company's only obligation to them is to make any
contribution required by their terms. The Company can have no contingent
liability to such plans based on poor investment returns or other factors. The
Company has the discretion, but not the obligation, to make a contribution in
any year to the G+G Retirement Plan. The Company has no obligation make a
contribution to the G+G 401(k) Plan. The Company is obligated to make a
contribution to the Local 2326 401(k) Plan equal to 2% of each participant's
compensation, up to a maximum of $30,000 in compensation; the Company also must
"match" 50% of a participant's contribution to the plan, up to a maximum
matching contribution of the lesser of 1% of the participant's compensation or
$300. The Company intends to establish a 401(k) plan for employees in Puerto
Rico during fiscal 2000 but does not expect to have a contribution obligation
to such plan.
Indemnification Agreements
The Company has entered into separate, identical indemnification agreements
with each of the directors of the Company. Pursuant to each indemnification
agreement, the Company agreed to hold harmless and indemnify, to the fullest
extent provided by Sections 145(a) and (b) of the Delaware General Corporation
Law, the director against all expenses, judgments, fines and amounts paid in
settlement reasonably incurred by the director in connection with any
threatened, pending or completed civil or criminal action, suit or proceeding
(including derivative actions) to which the director is, was or becomes a
party, or is threatened to be made a party, as a result of being a director or
former director of the Company. The obligation of the Company to indemnify a
director is subject to the conditions that the director acted in good faith and
in a manner he reasonably believed to be in the best interest of and not
opposed to the Company and, with respect to a criminal proceeding, had no
reason to believe such conduct was unlawful. In addition, the obligation of the
Company to indemnify a director is subject to certain limited exclusions set
forth in the indemnification agreement. Pursuant to each indemnification
agreement, a director also is entitled to receive from the Company an advance
for expenses incurred by such director in defending any action, suit or
proceeding, which advance is subject to repayment if a court ultimately
determines that the director was not entitled to be indemnified.
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The Parent owns all of the outstanding capital stock of the Company. The
following table sets forth certain information concerning the beneficial
ownership of shares of the Parent's capital stock on May 1, 1999 by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of the Parent's voting securities, (ii) each director of the Company,
(iii) each Named Officer and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Percentage Percent of Percentage Percentage
Ownership Vote of all Number of Ownership Number of Ownership
Number of all Classes of Shares of of Shares of of
of Shares of Classes of Voting Series A Series A Series B Series B
Name of Beneficial Common Common Common Preferred Preferred Preferred Preferred
Owner(1)(2) Stock(3) Stock Stock Stock(4) Stock Stock (5) Stock
- ------------------ ------------ ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pegasus Related
Partners, L.P.......... 26,362(6) 39.0% 25.2% -- -- 15,724.459 49.4%
Paul Gunther, as
Liquidating Trustee
under Liquidating Trust
Agreement dated as of
December 18, 1998...... 15,000(7) 30.0% -- -- -- -- --
Cerberus G&G Company,
L.L.C.................. 14,000(8) 21.9% -- 18,855.749 100.0% -- --
Pegasus G&G Retail,
L.P.................... 11,924(9) 20.6% 11.4% -- -- 7,112.637 22.3%
Pegasus Partners, L.P... 10,137(10) 17.9% 9.7% -- -- 6,045.582 19.0%
Jay Galin............... 7,465(11) 14.7% 21.0% -- -- -- --
Scott Galin............. 7,465(11) 14.7% 21.0% -- -- -- --
Pegasus G&G Retail II,
L.P.................... 4,977(12) 9.3% 4.8% -- -- 2,969.703 9.3%
Donald D. Shack......... 20(13) * * -- -- -- --
Craig Cogut (14)........ -- -- -- -- -- -- --
Lenard Tessler.......... -- -- -- -- -- -- --
Michael Kaplan.......... 600(15) 1.2% 1.7% -- -- -- --
Jeffrey Galin........... 1,420(16) 2.8% 4.1% -- -- -- --
Robert Tinbergen........ 150(13) * * -- -- -- --
All directors and
executive officers as a
group (9 individuals).. 17,270 33.7% 47.6% -- -- -- --
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote and dispose of all shares beneficially owned by it.
(2) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of the Parent's capital stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days of May 1, 1999 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.
(3) The Parent has four authorized classes of common stock, par value $.001
per share (the "Common Stock"). Except with respect to the election of
directors, holders of shares of Class A Common Stock and Class B Common
Stock vote together as a single class on all matters submitted to the
stockholders for action. Holders of shares of Class A Common Stock are
currently entitled to elect three directors of the Parent and holders of
shares of Class B Common Stock are currently entitled to elect two
directors of the Parent. From and after the occurrence of certain events,
holders of shares of Class A Common Stock will be entitled to elect two
directors of the Parent and holders of shares of Class B Common Stock will
be entitled to elect three directors of the Parent. See "Management--
Directors, Executive Officers and Key Employees of the Company." In
addition, the Parent and the Company are prohibited from taking certain
actions without the affirmative vote or written consent of holders of a
majority of the issued and outstanding shares of Class B Common Stock.
Such restricted actions include, among other things, issuance or
redemption of securities, incurrence of indebtedness in excess of
specified amounts, effecting a liquidation or sale of the Parent or the
Company or initiating a public offering (subject to limited exceptions).
Except as required by the Delaware General Corporation
Law, holders of shares of Class C common stock ("Class C Common Stock") and
Class D
62
<PAGE>
common stock ("Class D Common Stock") do not have the right to vote on any
matter. Upon the occurrence of a public offering after the consummation of
which at least 20% of the Common Stock is listed or admitted for trading
on a national securities exchange or quoted on the Nasdaq Stock Market,
each share of Class B Common Stock, Class C Common Stock and Class D
Common Stock then issued and outstanding will automatically be converted
into one share of Class A Common Stock.
(4) Holders of shares of Series A Exchangeable Preferred Stock ("Series A
Preferred Stock") are entitled to receive dividends at an annual rate of
15%, which increases to 17% upon the occurrence of certain triggering
events. The Parent is prohibited from taking certain actions without the
affirmative vote or written consent of holders of a majority of the
shares of Series A Preferred Stock. Otherwise, except as required by the
Delaware General Corporation Law, holders of shares of Series A Preferred
Stock do not have the right to vote on any matter. The holders of shares
of Series A Preferred Stock are exchangeable at the option of the Parent
for notes which contain terms which are substantially similar to the
terms of the Series A Preferred Stock.
(5) Holders of shares of Series B Exchangeable Preferred Stock ("Series B
Preferred Stock") are entitled to receive dividends at an annual rate of
12%, which increases to 17% upon the occurrence of certain triggering
events. Except as required by the Delaware General Corporation Law,
holders of shares of Series B Preferred Stock do not have the right to
vote on any matter. The shares of Series B Preferred Stock are
exchangeable at the option of the Parent for notes which contain terms
which are substantially similar to the terms of the Series B Preferred
Stock.
(6) Includes 8,837 shares of Class B Common Stock (49.4% of the issued and
outstanding Class B Common Stock) and warrants to purchase 17,525 shares
of Class D Common Stock. The address of this stockholder is c/o Pegasus
Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807.
(7) Class C Common Stock. These shares were issued to the Predecessor in
connection with the Acquisition and were transferred to the Liquidating
Trustee in the bankruptcy proceedings for Petrie and its subsidiaries.
The address of this stockholder is c/o Petrie Retail, Inc., 150
Meadowlands Parkway, Secaucus, New Jersey 07094.
(8) Warrants to purchase Class D Common Stock. The address of this
stockholder is c/o Cerberus Partners, 450 Park Avenue, 28th Floor, New
York, New York 10022.
(9) Includes 3,997 shares of Class B Common Stock (22.3% of the issued and
outstanding Class B Common Stock) and warrants to purchase 7,927 shares
of Class D Common Stock. The address of this stockholder is c/o Pegasus
Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807.
(10) Includes 3,398 shares of Class B Common Stock (19.0% of the issued and
outstanding Class B Common Stock) and warrants to purchase 6,739 shares
of Class D Common Stock. The address of this stockholder is c/o Pegasus
Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807.
(11) Class A Common Stock. Includes options to purchase 625 shares of Class A
Common Stock which are currently exercisable. Assuming these options were
exercised, these shares represent 42.1% of the issued and outstanding
Class A Common Stock. The address of this stockholder is c/o G+G Retail,
Inc., 520 Eighth Avenue, New York, New York 10018.
(12) Includes 1,668 shares of Class B Common Stock (9.3% of the issued and
outstanding Class B Common Stock) and warrants to purchase 3,309 shares
of Class D Common Stock. The address of this stockholder is c/o Pegasus
Investors, L.P., 99 River Road, Cos Cob, Connecticut 06807.
(13) Class A Common Stock. Represents less than 1% of the issued and
outstanding Class A Common Stock.
(14) Craig Cogut may be deemed to beneficially own 17,900 shares of Class B
Common Stock, 35,500 shares of Class D Common Stock and 31,852.381 shares
of Series B Preferred Stock, through his indirect ownership interest in
Pegasus Partners, L.P. ("PPLP"), Pegasus Related Partners, L.P.
("PRPLP"), Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. Craig
Cogut beneficially owns 100% of the issued and outstanding capital stock
of Pegasus Investors GP, Inc., a Delaware corporation, which is the
general partner of Pegasus Investors, L.P., a Delaware limited
partnership. Pegasus Investors, L.P. is the general partner of each of
PPLP and PRPLP. PPLP and PRPLP collectively own 100% of the issued and
outstanding capital stock of Pegasus G&G Retail GP, Inc., a Delaware
corporation, which is the general partner of each of Pegasus G&G Retail,
L.P. and Pegasus G&G Retail II, L.P.
(15) Class A Common Stock. Represents 3.5% of the issued and outstanding Class
A Common Stock.
(16) Class A Common Stock. Represents 8.3% of the issued and outstanding Class
A Common Stock.
63
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Purchase of Stock in Parent; Success Fees; Loans From Company
In connection with the Acquisition, affiliates of Pegasus--Pegasus Related
Partners, L.P., Pegasus G&G Retail, L.P. and Pegasus Partners, L.P.
(collectively, with Pegasus G&G Retail II, L.P., the "Pegasus Affiliates")--
purchased in the aggregate 17,900 shares of, or 100% of the outstanding, Class
B Common Stock, 30,000 shares of, or 100% of the outstanding, Series B
Preferred Stock and warrants to purchase 35,500 shares of Class D Common Stock
for $0.01 per share for an aggregate purchase price equal to $31,346,400. In
December 1998, Pegasus Partners, L.P. and Pegasus Related Partners, L.P.
transferred certain of their shares of Class B Common Stock, Series B Preferred
Stock and warrants to another affiliate of Pegasus, Pegasus G&G Retail II, L.P.
From the Acquisition to March 31, 1999, the Pegasus Affiliates have received in
the aggregate an additional 1,852.37 shares of Series B Preferred Stock, as
dividends on their Series B Preferred Stock. The shares of Class B Common Stock
owned by the Pegasus Affiliates represent approximately 51.1% of the voting
common equity of the Parent outstanding on May 1, 1999 (or 49.4%, assuming the
exercise of stock options exercisable as of May 1, 1999). As a result of their
ownership of the Parent, the Pegasus Affiliates have the ability to determine
the outcome of most corporate actions which are required to be submitted to the
stockholders of the Parent for their approval, other than, currently, the
election of a majority of the Parent's board of directors. In addition, as
holders of Class B Common Stock, the Pegasus Affiliates have special veto
rights which allow them to control the timing and occurrence of certain major
corporate transactions by the Parent and the Company. Craig Cogut, a director
of the Company and the Parent, has an indirect ownership interest in each of
the Pegasus Affiliates. See "Principal Stockholders."
TGV Partners, of which Lenard Tessler, a director of the Company and the
Parent, is a principal, and certain of its affiliates hold limited partnership
interests in Pegasus G&G Retail L.P. and Pegasus G&G Retail II, L.P. Pegasus
G&G Retail, L.P. and Pegasus G&G Retail II, L.P. own 22.3% and 9.3%,
respectively, of the shares and warrants to purchase shares of the Parent held
by the Pegasus Affiliates described above. See "Principal Stockholders."
Pursuant to the limited partnership agreement of Pegasus G&G Retail, L.P., in
the event the Parent has not consummated an initial public offering of the
Common Stock on or prior to August 28, 2003, TGV Partners may require Pegasus
G&G Retail, L.P. to exercise its demand registration rights described below.
See "--Stockholder Agreements; Management Fees."
In connection with the Acquisition, the Company and the Parent assumed the
Predecessor's obligation to pay a success fee to Jay Galin, the Chairman of the
Board and the Chief Executive Officer of the Company and the Parent, and Scott
Galin, the President, Chief Operating Officer and a director of the Company and
the Parent. The success fee was payable pursuant to an agreement among Petrie,
the Predecessor, Jay Galin and Scott Galin. In that agreement, Jay Galin and
Scott Galin agreed, among other things, to provide their full cooperation and
assist in the sale of the Predecessor's business, to provide prospective
purchasers with information which would enable them to evaluate the
Predecessor's assets, to conduct meetings and presentations and, under certain
circumstances, to make themselves available on a full-time basis for up to six
months after a closing of the sale to a successful purchaser. To satisfy their
obligation in respect of the success fee, the Company and the Parent paid to
each of Jay Galin and Scott Galin $1,378,000 in cash and issued to each of them
a note payable by the Company in the amount of $272,000. These notes were non-
interest bearing and were paid in full by the Company on their maturity date,
January 4, 1999. In addition, in the agreement providing the success fee,
Petrie and the Predecessor agreed to reimburse Jay Galin and Scott Galin for
certain professional fees and disbursements incurred by them. An aggregate of
$286,555 of such professional fees and disbursements was paid by the
Predecessor, Petrie and the Company.
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In connection with the Acquisition, each of Jay Galin and Scott Galin purchased
7,130 shares of Class A Common Stock for $841,500. Each of Jay Galin and Scott
Galin transferred 290 shares of his Class A Common Stock to Jeffrey Galin, the
Company's Vice President/Divisional Merchandise Manager and a son of Jay Galin.
Of the 290 shares transferred by each of Jay Galin and Scott Galin, 169 shares
were given to Jeffrey Galin as a gift and 121 shares were sold to Jeffrey Galin
in exchange for a promissory note. The shares of Class A Common Stock owned by
Jay and Scott Galin represent approximately 81% of the outstanding shares of
Class A Common Stock, and approximately 41.2% of the voting common equity of
the Parent, as of March 31, 1999 (assuming the exercise of stock options
exercisable as of March 31, 1999). In addition, holders of Class A Common Stock
currently are entitled to elect three-fifths of the Parent's Board of
Directors. See "Principal Stockholders."
In connection with the Acquisition, the Parent afforded Donald D. Shack, a
director of the Company, the opportunity to purchase shares of Class A Common
Stock. Pursuant to this program, Donald D. Shack and four of his fellow
directors in the law firm of Shack & Siegel, P.C., general counsel to the
Company and the Parent, each purchased 20 shares of Class A Common Stock for a
total purchase price of $11,822. See "Principal Stockholders."
In connection with the Acquisition, the Parent also afforded the following
officers of the Company the opportunity to purchase shares of Class A Common
Stock: Michael Kaplan, a Vice President and Chief Financial Officer, Jeffrey
Galin, Vice President/Divisional Merchandise Manager, James Dodd, Vice
President-Store Operations, and Robert Tinbergen, Vice President-Warehouse and
Distribution. Pursuant to this program, (1) Michael Kaplan purchased 600 shares
of Class A Common Stock for a total purchase price of $70,813, (2) Jeffrey
Galin purchased 840 shares of Class A Common Stock for a total purchase price
of $99,138, (3) James Dodd purchased 150 shares of Class A Common Stock for a
total purchase price of $17,703, and (4) Robert Tinbergen purchased 150 shares
of Class A Common Stock for a total purchase price of $17,703. To fund the
purchase of stock, each of these officers borrowed from the Parent, on a full
recourse basis, an amount of money equal to the total purchase price of the
stock purchased, less the par value of the stock ($.001 per share) which was
paid in cash. The total principal amount of each officer's loan is due on the
earlier of (1) the fifth anniversary of the date of the loan and (2) 30 days
following the date on which the officer is no longer an officer of the Parent
or any subsidiary of the Parent. The outstanding principal amount of each loan
bears interest at the prime rate announced in New York City by Citibank, N.A.
from time to time, payable on a quarterly basis. Each of these loans is secured
by a pledge of the stock purchased with the proceeds of the loan.
Acquisition Closing Fees
In connection with the closing of the Acquisition, TGV Partners, of which
Lenard Tessler, a director of the Company and the Parent, is a principal,
received a closing fee in the amount of $1,250,000. The closing fee constituted
consideration for TGV Partners' financial advisory services in connection with
the Acquisition.
Private Placement Fee
The Company paid Pegasus a $1.0 million fee in consideration for financial
advisory services provided by Pegasus to the Company in connection with the
private placement of the units.
Stockholder Agreements; Management Fees
The Pegasus Affiliates are parties to a stockholders agreement with Jay and
Scott Galin, certain other management stockholders of the Parent (together with
Jay and Scott Galin, the "Management Stockholders") and the Parent (the
"Stockholders Agreement"). Pursuant to the Stockholders Agreement, each
Management Stockholder is prohibited from transferring shares of Class A Common
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Stock on or prior to August 28, 2002 without the consent of holders of a
majority of the outstanding shares of Class A Common Stock and Class B Common
Stock, except in limited circumstances. After August 28, 2002, all transfers of
shares of Class A Common Stock by Management Stockholders are subject to a
right of first refusal in favor of the Parent and the Pegasus Affiliates. In
addition, in the event the Pegasus Affiliates propose to sell at least 80% of
the common equity of the Parent held by them, the Management Stockholders may
be required by the Pegasus Affiliates to sell shares of Class A Common Stock in
the same sale to the purchaser of the shares held by the Pegasus Affiliates, on
the same terms as are applicable to such shares. In addition, in the event one
or more Pegasus Affiliates proposes to sell common equity which would
constitute at least 5% of the common equity of the Parent, Management
Stockholders are entitled to sell the same percentage of their shares of Class
A Common Stock in such sale, on the same terms as are applicable to the shares
of Common Stock sold by the Pegasus Affiliates.
In addition, pursuant to the Stockholders Agreement, Jay and Scott Galin made
certain representations and warranties to the Pegasus Affiliates relating to
the representations and warranties made by the Predecessor to the Company in
connection with the Acquisition and agreed to indemnify the Pegasus Affiliates
for damages in excess of $1,750,000 resulting from any breach of such
representations and warranties, provided the aggregate amount of damages
exceeds $3,500,000.
The Parent has granted the Pegasus Affiliates preemptive rights in connection
with equity issuances by the Parent, other than certain specified issuances.
The Pegasus Affiliates waived such preemptive rights with respect to the
warrants issued with the outstanding notes as units on May 17, 1999. The Parent
has also granted to the Pegasus Affiliates and the Management Stockholders
certain demand and piggyback registration rights. Holders of at least 33% of
the outstanding Common Stock held by the Pegasus Affiliates or the Management
Stockholders are entitled to demand registration of their shares following the
occurrence of a public offering of Common Stock after the consummation of which
at least 20% of the then outstanding shares of Common Stock are publicly held
and the Common Stock is listed or admitted for trading on a national securities
exchange or quoted on the Nasdaq Stock Market (a "Qualified Public Offering").
Holders of at least 33% of the outstanding Common Stock held by the Pegasus
Affiliates are also entitled to demand registration of their shares beginning
on August 28, 2002. Any demand registration must reasonably be expected to
yield aggregate gross proceeds of at least $20,000,000 to the stockholders
exercising such registration rights. The Pegasus Affiliates as a group are
entitled to two demand registrations, and the Management Stockholders as a
group are entitled to one demand registration. The Pegasus Affiliates and the
Management Stockholders are each entitled to piggyback registration rights in
connection with any registration statement filed by the Parent (with limited
exceptions).
In addition to their rights to elect directors, pursuant to the Stockholders
Agreement, the Pegasus Affiliates have been granted the right to appoint an
observer for meetings of the Parent's Board of Directors in certain
circumstances. See "Management--Directors, Executive Officers and Key Employees
of the Company."
Pursuant to the Stockholders Agreement, in the event the employment of any
Management Stockholder with the Company is terminated by the Company for cause
or by such Management Stockholder without good reason, each of the Parent and
the Pegasus Affiliates have the right to purchase the shares of Class A Common
Stock held by such Management Stockholder at a purchase price per share equal
to the lower of such Management Stockholder's initial purchase price per share
and the fair market value per share on the effective date of termination. Such
rights to purchase Jay Galin's shares terminate upon the earlier of (1) the
consummation of a Qualified Public Offering or (2) August 28, 2000. Such rights
to purchase Scott Galin's shares terminate upon the earlier of (1) the
consummation of a Qualified Public Offering or (2) August 28, 2003. Such rights
to purchase shares of any Management Stockholder other than Jay or Scott Galin
terminate upon the consummation of a Qualified Public Offering.
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The Pegasus Affiliates and the Parent are also parties to a stockholders
agreement with the Predecessor, pursuant to which the Predecessor and its
permitted assigns (the "Class C Holders") are required to first offer to sell
to the Parent and the Pegasus Affiliates, on specified terms, any shares of
Class C Common Stock which the Class C Holders desire to sell. In the event the
Parent and the Pegasus Affiliates do not elect to purchase such shares, the
Class C Holders may sell them to a third party on terms no more favorable to
such third party than the terms proposed to the Parent and the Pegasus
Affiliates. In the event the proposed third party purchaser is primarily in the
retail apparel business but is not primarily in the girls' and/or women's
retail apparel business (including shoes), the Class C Holders must again offer
to sell the shares of the Parent and the Pegasus Affiliates. In the event the
Parent and the Pegasus Affiliates do not elect to purchase such shares, the
Class C Holders may sell them to the proposed third party on terms no more
favorable to such third party than the proposed terms.
In the event the Pegasus Affiliates propose to sell at least 50% of the common
equity of the Parent held by them, the Class C Holders may be required by the
Pegasus Affiliates to sell shares of Class C Common Stock in the same sale to
the purchaser of the shares held by the Pegasus Affiliates, on the same terms
as are applicable to such shares. In addition, in the event one or more Pegasus
Affiliates proposes to sell common equity which would constitute at least 15%
of the common equity of the Parent, Class C Holders are entitled to sell the
same percentage of their shares of Class A Common Stock in such sale, on the
same terms as are applicable to the shares of Common Stock sold by the Pegasus
Affiliates.
The Class C Holders are also entitled to certain demand and piggyback
registration rights. Holders of at least 50% of the outstanding Class C Common
Stock are entitled to demand registration of their shares following the earlier
to occur of (1) a Qualified Public Offering and (2) August 28, 2003, subject to
certain limitations. The Class C Holders as a group are entitled to one demand
registration. The Class C Holders are also entitled to piggyback registration
rights in connection with any registration statement filed by the Parent (with
limited exceptions). In connection with the Parent's initial public offering,
the Class C Holders are entitled to include in such registration up to one
third of the registrable shares held by such holders on a priority basis ahead
of the other holders of the Parent's equity securities (subject to certain
limitations). In addition, the Parent may not, without the consent of a
majority of the Class C Holders, grant any demand or piggyback registration
rights which have priority over or are inconsistent with the registration
rights granted to the Class C Holders.
Employment and Severance Agreements and Other Compensation Arrangements
Jay Galin, the Chairman of the Board and the Chief Executive Officer of the
Company, and Scott Galin, the President, the Chief Operating Officer and a
director of the Company, are employed by the Company pursuant to employment
agreements expiring on August 28, 2000 and August 28, 2003, respectively. See
"Management--Employment Contracts and Severance Agreements."
Michael Kaplan, a Vice President and the Chief Financial Officer of the
Company, and Jeffrey Galin, Vice President/Divisional Merchandise Manager of
the Company, entered into severance agreements with the Company. See
"Management--Employment Contracts and Severance Agreements."
Jay Galin, the Chairman of the Board and the Chief Executive Officer of the
Company, and Scott Galin, the President, the Chief Operating Officer and a
director of the Company, are participants in the Bonus Plan, and pursuant
thereto may receive bonus awards ranging from 0% to 65% of their base salaries.
Other executive officers of the Company may be eligible to participate in the
Bonus Plan and receive bonus awards ranging from 0% to 40% of their base
salaries. See "Management--Bonus Plan."
On March 15, 1999, the Parent granted to each of Jay Galin and Scott Galin an
option to purchase 2,500 shares of its Class A Common Stock at an exercise
price of $300.00 per share pursuant to the
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Option Plan. The options are currently exercisable with respect to 25% of the
shares and will become exercisable with respect to an additional 25% of the
shares on each of the three succeeding anniversary dates of the date of grant.
The options expire on March 14, 2009. See "Management--Stock Option Plan."
Indemnification Agreements
Each of the directors of the Company is party to a separate indemnification
agreement with the Company. See "Management--Indemnification Agreements."
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DESCRIPTION OF REVOLVING CREDIT FACILITY
The Revolving Credit Facility provides the Company with a line of credit of up
to $20.0 million (including a sublimit of $10.0 million for letters of credit)
and matures in October 2001. The facility may be used for general operating,
working capital and other proper corporate purposes. The ability of the Company
to borrow and obtain letters of credit under the Revolving Credit Facility is
subject to compliance with a borrowing base (calculated as 80% or, during peak
borrowing periods, 85% of eligible inventory) and other customary conditions
precedent, including accuracy of representations and warranties, compliance
with covenants, and absence of defaults.
Interest on amounts advanced under the Revolving Credit Facility accrues at a
rate equal to 1.75% over the adjusted Eurodollar Rate or at the Prime Rate.
The Revolving Credit Facility contains a minimum tangible net worth (as defined
in the Revolving Credit Facility) covenant of $39.0 million and other customary
covenants, including limitations on change of ownership, transactions with
affiliates, dividends, additional indebtedness, creation of liens, asset sales,
acquisitions, conduct of business and capital expenditures. The Revolving
Credit Facility also contains customary events of default, including defaults
on the Company's other indebtedness (which includes the notes).
The Company's obligations under the Revolving Credit Facility are secured by a
lien on all or substantially all of the Company's assets.
If the Revolving Credit Facility is terminated prior to its stated maturity, a
termination fee may be payable. The fee payable for a termination on or prior
to October 1999 would be $150,000, on or prior to October 2000 would be
$100,000 and prior to October 2001 would be approximately $67,000.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Company entered into a registration rights agreement with the initial
purchasers of the units (consisting of the outstanding notes and certain
warrants to purchase the Parent's Class D common stock) in which the Company
agreed, under certain circumstances, to file a registration statement relating
to an offer to exchange the outstanding notes for exchange notes. The Company
also agreed to use its reasonable best efforts to cause such offer to be
consummated within 30 business days following the date on which the
registration statement is declared effective. The exchange notes will have
terms substantially identical to the outstanding notes except that the exchange
notes will not contain terms with respect to transfer restrictions,
registration rights and additional interest for failure to observe certain
obligations in the registration rights agreement. The outstanding notes were
issued on May 17, 1999.
Pursuant to the registration rights agreement, under the circumstances set
forth below the Company also will use its reasonable best efforts to cause the
Securities and Exchange Commission (the "Commission") to declare effective a
shelf registration statement with respect to the resale of the outstanding
notes and keep the statement effective for at least two years after the
issuance of the outstanding notes or until all of the outstanding notes have
been sold. These circumstances include:
. if applicable law does not permit the Company to effect the exchange
offer as contemplated by the registration rights agreement;
. if any holder of outstanding notes notifies the Company within 20
business days after the deadline for consummating the exchange offer
that such holder is prohibited by law or Commission policy from
participating in the exchange offer;
. if any holder of outstanding notes notifies the Company within 20
business days after the deadline for consummating the exchange offer
that such holder may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus, and this
Prospectus is not appropriate or available for such resales by such
holder; or
. if any holder of outstanding notes notifies the Company within 20
business days after the deadline for consummating the exchange offer
that such holder is a broker-dealer and holds outstanding notes acquired
directly from the Company or any of its affiliates (as defined in Rule
144 of the Securities Act of 1933, as amended (the "Securities Act")).
If the Company fails to comply with certain obligations under the registration
rights agreement, the Company will be required to pay liquidated damages to
holders of the outstanding notes. Please read the section captioned
"Registration Rights Agreement" for more details regarding the registration
rights agreement.
Each holder of outstanding notes that wishes to exchange such outstanding notes
for transferable exchange notes in the exchange offer will be required to make
the following representations:
. any exchange notes will be acquired in the ordinary course of such
holder's business;
. such holder is not engaged in, does not intend to engage in, and has no
arrangement with any person to participate in, a distribution of the
exchange notes; and
. such holder is not an "affiliate" (as defined in Rule 144 of the
Securities Act) of the Company or, if it is an affiliate of the Company,
that it will comply with applicable registration and prospectus delivery
requirements of the Securities Act.
Resale of Exchange Notes
Based on interpretations of the Commission staff set forth in no-action letters
issued to unrelated third parties, the Company believes that exchange notes
issued under the exchange offer in exchange for outstanding notes may be
offered for resale, resold and otherwise transferred by any exchange note
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holder without compliance with the registration and prospectus delivery
provisions of the Securities Act, if:
. such holder is not an "affiliate" of the Company within the meaning of
Rule 144 under the Securities Act;
. such exchange notes are acquired in the ordinary course of the holder's
business; and
. the holder is not engaged in, does not intend to engage in, and has no
arrangement with any person to participate in, the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes, and any
holder who is an "affiliate" of the Company within the meaning of Rule 144
under the Securities Act:
. cannot rely on the position of the staff of the Commission enunciated in
"Morgan Stanley and Co., Inc.," "Exxon Capital Holdings Corporation" or
similar interpretive letters; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction
and such secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-
K.
This Prospectus may be used for an offer to resell, resale or other retransfer
of exchange notes only as specifically set forth in this Prospectus. With
regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus and
in the letter of transmittal (a copy of which is attached as an exhibit to the
registration statement of which this Prospectus is a part) the Company will
accept for exchange any outstanding notes properly tendered and not withdrawn
prior to the expiration date. The Company will issue $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding
notes surrendered under the exchange offer. Outstanding notes may be tendered
only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to the
form and terms of the outstanding notes except the exchange notes will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any liquidated damages upon failure of the
Company to fulfill its obligations under the registration rights agreement to
file, and cause to be effective, a registration statement. The exchange notes
will evidence the same debt as the outstanding notes. The exchange notes will
be issued under and entitled to the benefits of the same indenture that
authorized the issuance of the outstanding notes. Consequently, both series of
notes will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of Notes"
below.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
Solely for administrative reasons, the Company has fixed the close of business
on , 1999 as the record date for the exchange offer for the purpose of
determining the persons to whom this Prospectus and the letter of transmittal
will be mailed initially. There will be, however, no fixed record date for
determining registered holders of the outstanding notes entitled to participate
in the exchange offer.
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As of the date of this Prospectus, $107.0 million aggregate principal amount of
the outstanding notes is outstanding. This Prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes.
The Company intends to conduct the exchange offer in accordance with the
provisions of the registration rights agreement, the applicable requirements of
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations of the Commission. Outstanding
notes that are not tendered for exchange in the exchange offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the indenture relating to the outstanding
notes.
The Company will be deemed to have accepted for exchange properly tendered
outstanding notes when it has given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from the Company and
delivering the exchange notes to such holders. Subject to the terms of the
registration rights agreement, the Company expressly reserves the right to
amend or terminate the exchange offer, and not to accept for exchange any
outstanding notes not previously accepted for exchange, upon the occurrence of
any of the conditions specified below under the caption "--Certain Conditions
to the Exchange Offer."
Holders who tender outstanding notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the exchange
offer. It is important that you read the section labeled "--Fees and Expenses"
below for more details regarding fees and expenses incurred in the exchange
offer.
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time on ,
1999, unless the Company, in its sole discretion, extends it, but in no event
will the exchange offer expire later than 30 business days after the
registration statement becomes effective.
In order to extend the exchange offer, the Company will notify the exchange
agent orally or in writing of any extension. The Company will notify the
registered holders of outstanding notes of the extension no later than 9:00
a.m., New York City time, on the business day after the previously scheduled
expiration date.
The Company reserves the right, in its sole discretion:
. to delay accepting for exchange any outstanding notes;
. to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
. subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If the Company amends the exchange
offer in a manner that it determines to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform the holders of outstanding notes of such amendment.
Without limiting the manner in which it may choose to make public announcements
of any delay in acceptance, extension, termination or amendment of the exchange
offer, the Company shall have no
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obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to a financial news
service.
Certain Conditions to the Exchange Offer
Despite any other term of the exchange offer, the Company will not be required
to accept for exchange, or exchange any exchange notes for, any outstanding
notes, and the Company may terminate the exchange offer as provided in this
Prospectus before accepting any outstanding notes for exchange if in the
Company's reasonable judgment:
. the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Commission; or
. any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the exchange offer.
In addition, the Company will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to the Company:
. the representations described under the captions "--Purpose and Effect
of the Exchange Offer" and "--Procedures for Tendering"; and
. such other representations as may be reasonably necessary under
applicable Commission rules, regulations or interpretations to make
available to the Company an appropriate form for registration of the
exchange notes under the Securities Act.
The Company expressly reserves the right, at any time or at various times, to
extend the period of time during which the exchange offer is open, but in no
event shall the exchange offer be open for less than 20 business days nor more
than 30 business days. Consequently, the Company may delay acceptance of any
outstanding notes by giving oral or written notice of such extension to their
holders. During any such extensions, all outstanding notes previously tendered
will remain subject to the exchange offer, and the Company may accept them for
exchange. The Company will return any outstanding notes that it does not accept
for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
The Company expressly reserves the right to amend or terminate the exchange
offer, and to reject for exchange any outstanding notes not previously accepted
for exchange, upon the occurrence of any of the conditions of the exchange
offer specified above. The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the
outstanding notes as promptly as practicable. In the case of any extension,
such notice will be issued no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
These conditions are solely for the benefit of the Company and the Company may
assert them regardless of the circumstances that may give rise to them or waive
them in whole or in part at any or at various times in the Company's sole
discretion. If the Company fails at any time to exercise any of the foregoing
rights, this failure will not constitute a waiver of such right. Each such
right will be deemed an ongoing right that the Company may assert at any time
or at various times.
In addition, the Company will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any such
outstanding notes, if at such time the registration
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statement contains a material misstatement or any stop order is issued with
respect to the registration statement of which this Prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act of
1939.
Procedures for Tendering
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
. comply with The Depository Trust Company's ("DTC") Automated Tender
Offer Program procedures described below.
In addition, either:
. the exchange agent must receive outstanding notes along with the letter
of transmittal; or
. the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC according to the procedure for book-
entry transfer described below or a properly transmitted agent's
message; or
. the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth in this Prospectus and in the
letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, the Company recommends that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
the Company. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them. Delivery will be deemed made only when actually received or confirmed by
the Exchange Agent.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of
transmittal and delivering its outstanding notes, either:
. make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or
. obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not be
completed prior to the expiration date.
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Signatures on a letter of transmittal or a notice of withdrawal described below
must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the outstanding notes tendered pursuant
thereto are tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed on the outstanding notes, such
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the outstanding notes and an eligible institution must
guarantee the signature on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing. Unless waived by the Company,
they should also submit evidence satisfactory to the Company of their authority
to deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution that
is a participant in DTC's system may use DTC's Automated Tender Offer Program
to tender. Participants in the program may, instead of physically completing
and signing the letter of transmittal and delivering it to the exchange agent,
transmit their acceptance of the exchange offer electronically. They may do so
by causing DTC to transfer the outstanding notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the
book-entry confirmation, to the effect that:
. DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
. such participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
. the agreement may be enforced against such participant.
The Company will determine in its sole discretion all questions as to the
validity, form, eligibility (including time of receipt), acceptance and
withdrawal of tendered outstanding notes. The Company's determination will be
final and binding. The Company reserves the absolute right to reject any
outstanding notes not properly tendered or any outstanding notes the acceptance
of which would, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular outstanding notes. The Company's
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of outstanding notes must be cured within such time as the Company
shall determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither the
Company, the exchange agent nor any other person will incur any liability for
failure to give such notification. Tenders of outstanding notes will not be
deemed made until such defects or irregularities have been cured or waived. Any
outstanding notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not
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been cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, the Company will issue exchange notes for outstanding notes that
the Company has accepted for exchange under the exchange offer only after the
exchange agent timely receives:
. outstanding notes or a timely book-entry confirmation of such
outstanding notes into the exchange agent's account at DTC; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of outstanding
notes will represent to the Company that, among other things:
. any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
. the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
. if the holder is not a broker-dealer, it is not engaged in and does not
intend to engage in the distribution of the exchange notes;
. if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as
a result of market-making activities or other trading activities, it
will deliver a prospectus, as required by law, in connection with any
resale of such exchange notes (see "Plan of Distribution"); and
. the holder is not an "affiliate," as defined in Rule 144 of the
Securities Act, of the Company or, if the holder is an affiliate, it
will comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect to
the outstanding notes at DTC for purposes of the exchange offer promptly after
the date of this Prospectus; and any financial institution participating in
DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer such outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their
outstanding notes into the exchange agent's account at DTC or all other
documents required by the letter of transmittal to the exchange agent on or
prior to the expiration date must tender their outstanding notes according to
the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
Holders wishing to tender their outstanding notes but whose outstanding notes
are not immediately available or who cannot deliver their outstanding notes,
the letter of transmittal or any other required documents to the exchange agent
or comply with the applicable procedures under DTC's Automated Tender Offer
Program prior to the expiration date may tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed
notice of guaranteed delivery (by facsimile
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transmission, mail or hand delivery) or a properly transmitted agent's
message and notice of guaranteed delivery:
. setting forth the name and address of the holder, the registered
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered;
. stating that the tender is being made thereby; and
. guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the outstanding notes or a book-
entry confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
. the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered
outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three (3) New York Stock Exchange trading days after
the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this Prospectus, holders of outstanding notes
may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
. the exchange agent must receive a written notice (which may be by
facsimile transmission or letter) of withdrawal at one of the addresses
set forth below under the caption "--Exchange Agent"; or
. holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
. specify the name of the person who tendered the outstanding notes to be
withdrawn;
. identify the outstanding notes to be withdrawn (including the principal
amount of such outstanding notes); and
. where certificates for outstanding notes have been transmitted, specify
the name in which such outstanding notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
. the serial numbers of the particular certificates to be withdrawn; and
. a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawn outstanding
notes and otherwise comply with the procedures of such facility. The Company
will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices, and its determination shall be
final and binding on all parties. The Company will deem any outstanding notes
so withdrawn not to have been validity tendered for
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exchange for purposes of the exchange offer. Any outstanding notes that have
been tendered for exchange but that are not exchanged for any reason will be
returned to their holder without cost to the holder (or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above, such outstanding
notes will be credited to an account maintained with DTC for outstanding notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn outstanding notes may be retendered by
following one of the procedures described under the caption "--Procedures for
Tendering" above at any time on or prior to the expiration date.
Exchange Agent
U.S. Bank Trust National Association has been appointed as exchange agent for
the exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
For Delivery by Registered or For Overnight Delivery Only or By
Certified Mail: Hand:
U.S. Bank Trust National Association U.S. Bank Trust National Association
P.O. Box 64485 Fourth Floor--Bond Drop Window
St. Paul, Minnesota 55164-9549 180 East 5th Street
Attn: Specialized Finance St. Paul, Minnesota 55101
Attn: Specialized Finance
By Facsimile Transmission (for eligible institutions only):
U.S. Bank Trust National Association
(651) 244-1537
Attn: Specialized Finance
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Fees and Expenses
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, the Company may make additional
solicitations by telegraph, telephone or in person by its officers and regular
employees and those of its affiliates.
The Company has not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. The Company will, however, pay the exchange
agent reasonable and customary fees for its services and reimburse it for its
related reasonable out-of-pocket expenses.
The Company will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$ . They include:
. Commission registration fees;
. fees and expenses of the exchange agent and trustee;
. accounting and legal fees and printing costs; and
. related fees and expenses.
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Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes (whether imposed on the registered holder
or any other person) if:
. certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
. tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
Consequences of Failure to Exchange
Holders of outstanding notes who do not exchange their outstanding notes for
exchange notes under the exchange offer will remain subject to the restrictions
on transfer of such outstanding notes:
. as set forth in the legend printed on the outstanding notes as a
consequence of the issuance of the outstanding notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws;
and
. otherwise set forth in the Offering Memorandum distributed in connection
with the private offering of the units consisting of the outstanding
notes and certain warrants to purchase shares of the Parent's Class D
common stock.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, the Company does not
intend to register resales of the outstanding notes under the Securities Act.
Based on interpretations of the Commission staff, exchange notes issued
pursuant to the exchange offer may be offered for resale, resold or otherwise
transferred by their holders (other than any such holder that is the Company's
"affiliate" within the meaning of Rule 144 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that the holders acquired the exchange notes in the
ordinary course of the holders' business and the holders have no arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired in the exchange offer. Any holder who tenders in the exchange offer
for the purpose of participating in a distribution of the exchange notes:
. cannot rely on the applicable interpretations of the Commission; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
Accounting Treatment
The Company will record the exchange notes in its accounting records at the
same carrying value as the outstanding notes, which is the aggregate principal
amount net of the original issue discount, as reflected in the Company's
accounting records on the date of exchange. Accordingly, the Company will not
recognize any gain or loss for accounting purposes in connection with the
exchange offer. The expenses of the exchange offer will be amortized over the
term of the exchange notes.
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Other
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
The Company may in the future seek to acquire untendered outstanding notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any
outstanding notes that are not tendered in the exchange offer or to file a
registration statement to permit resales of any untendered outstanding notes.
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DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to G+G Retail, Inc. and not to any of its subsidiaries.
The Company issued the outstanding notes and will issue the exchange notes
under an Indenture (the "Indenture") between itself and U.S. Bank Trust
National Association, as trustee (the "Trustee"), a copy of which has been
filed as an exhibit to the registration statement of which this Prospectus is a
part. The terms of the notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture and the registration rights agreement, a summary of which
follows this "Description of the Notes" and a copy of which has been filed as
an exhibit to the registration statement of which this Prospectus is a part,
because they, and not this description, define your rights as holders of the
notes. Certain defined terms used in this description but not defined below
under "--Certain Definitions" have the meanings assigned to them in the
Indenture.
Brief Description of the Notes and the Guarantees
The Notes
The notes:
. are general unsecured obligations of the Company;
. are pari passu in right of payment with all existing and future senior
Indebtedness of the Company;
. are senior in right of payment to all existing and future subordinated
Indebtedness of the Company; and
. will be unconditionally guaranteed by the Guarantors.
The Guarantees
The notes will be guaranteed by each domestic Restricted Subsidiary of the
Company and each foreign Restricted Subsidiary that guarantees any other
Indebtedness of the Company or a Guarantor.
Each Guarantee of the notes:
. will be a general unsecured obligation of the Guarantor;
. will be pari passu in right of payment with all existing and future
senior Indebtedness of the Guarantor; and
. will be senior in right of payment to all existing and future
subordinated Indebtedness of the Guarantor.
As of the date of this Prospectus, the Company has only one subsidiary, G & G
Retail of Puerto Rico, Inc., which is organized under the laws of Puerto Rico,
and accordingly which does not guarantee the outstanding notes and will not
guarantee the exchange notes at the time the exchange offer is consummated.
In the event of a bankruptcy, liquidation or reorganization of any of our
Unrestricted Subsidiaries that are not Guarantors, such Unrestricted
Subsidiaries will pay the holders of their debts and their trade creditors
before they will be able to distribute any of their assets to us.
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As of the date of the Indenture, all of our subsidiaries were Restricted
Subsidiaries. However, under the circumstances described below under the
subheading "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the Indenture. Our Unrestricted
Subsidiaries will not guarantee the notes.
Principal, Maturity and Interest
The Indenture provides for the issuance by the Company of notes with a maximum
aggregate principal amount of $107.0 million. The Company issued the
outstanding notes, and will issue the exchange notes, in denominations of
$1,000 and integral multiples of $1,000. The notes will mature on May 15, 2006.
Interest on the notes will accrue at the rate of 11% per annum and will be
payable semi-annually in arrears on May 15 and November 15, commencing on
November 15, 1999. The Company will make each interest payment to the Holders
of record on the immediately preceding May 1 and November 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the Company
will pay all principal, interest and premium and Liquidated Damages, if any, on
that Holder's notes in accordance with those instructions. All other payments
on notes will be made at the office or agency of the Paying Agent and Registrar
within the City and State of New York, unless the Company elects to make
interest payments by check mailed to the Holders at their addresses set forth
in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee currently acts as Paying Agent and Registrar. The Company may
change the Paying Agent or Registrar without prior notice to the Holders, and
the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any note selected for
redemption. Also, the Company is not required to transfer or exchange any note
for a period of 15 days before a selection of notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
Subsidiary Guarantees
The Guarantors will jointly and severally guarantee the Company's obligations
under the notes. The obligations of each Guarantor under its Subsidiary
Guarantee will be limited as necessary to prevent that Subsidiary Guarantee
from constituting a fraudulent conveyance under applicable law. See "Risk
Factors--Fraudulent Conveyance Matters."
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A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition
or the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the Indenture, its
Subsidiary Guarantee and the Registration Rights Agreement pursuant to
a supplemental indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the Indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) a Subsidiary of the Company, if the
Guarantor applies the Net Proceeds of that sale or other disposition in
accordance with the "Asset Sale" provisions of the Indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Subsidiary of the Company, if the Company applies the Net
Proceeds of that sale in accordance with the "Asset Sale" provisions of the
Indenture; or
(3) if the Company properly designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary.
See "--Repurchase at the Option of Holders--Asset Sales."
Optional Redemption
At any time prior to May 15, 2002 the Company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes issued under the
Indenture at a redemption price of 111% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that:
(1) at least 65% of the aggregate principal amount of notes issued under
the Indenture remains outstanding immediately after the occurrence of such
redemption (excluding notes held by the Company and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of
such Public Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable at
the Company's option prior to May 15, 2003.
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On or after May 15, 2003, the Company may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003........................................................... 105.50%
2004........................................................... 102.75%
2005 and thereafter............................................ 100.00%
</TABLE>
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's notes pursuant to a Change of
Control Offer on the terms set forth in the Indenture. In the Change of Control
Offer, the Company will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the date of purchase.
Within ten days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase notes on the Change of Control
Payment Date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed, pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the Indenture by virtue
of such conflict.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
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The Company will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require the Company to repurchase such notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
The agreements governing the Company's other Indebtedness contain prohibitions
of certain events, including events that would constitute a Change of Control.
In addition, the exercise by the Holders of notes of their right to require the
Company to repurchase the notes upon a Change of Control could cause a default
under these other agreements, even if the Change of Control itself does not,
due to the financial effect of such repurchases on the Company. The Company's
ability to pay cash to the Holders of notes upon a repurchase may be limited by
the Company's then existing financial resources. See "Risk Factors--Financing
Change of Control Offer."
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) at least 85% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Subsidiary into
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cash (to the extent of the cash received in that conversion) within 90
days following the closing of such Asset Sale.
Within 180 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply any such Net Proceeds:
(1) to repay any Indebtedness under the Credit Facilities to the extent
that such Indebtedness is secured by a Lien on the assets and/or Equity
Interests so issued or sold or otherwise disposed of in the Asset Sale;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders of notes and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount
of notes and such other pari passu Indebtedness that may be purchased out of
the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase, and will be payable in cash. If any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of notes and such other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis based on the principal amount
of notes and such other pari passu Indebtedness tendered. Upon completion of
each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
Indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the Indenture by virtue of such conflict.
The agreements governing the Company's other Indebtedness contain prohibitions
of certain events, including events that would constitute an Asset Sale. In
addition, the exercise by the Holders of notes of their right to require the
Company to repurchase the notes upon an Asset Sale could cause a default under
these other agreements, even if the Asset Sale itself does not, due to the
financial effect of such repurchases on the Company. The Company's ability to
pay cash to the Holders of notes upon a repurchase may be limited by the
Company's then existing financial resources.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the Trustee will
select notes for redemption as follows:
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(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the Holder thereof upon
cancellation of the original note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or to the Company or a Restricted
Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the notes or the Subsidiary Guarantees, except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding
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Restricted Payments permitted by clauses (2), (3) and (4) of the next
succeeding paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests (other than
Disqualified Stock) of the Company or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment, plus
(d) in the event that any Unrestricted Subsidiary is designated as a
Restricted Subsidiary in accordance with the provisions of the
Indenture, the lesser of (i) the aggregate fair market value of all
outstanding Investments owned by the Company and its Restricted
Subsidiaries in such Subsidiary at the time of such designation or (ii)
the aggregate amount of Restricted Investments made in such
Unrestricted Subsidiary since the date of the Indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of the Company or any Guarantor or of any
Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3)(b) of the
preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the Company
to the holders of its common Equity Interests on a pro rata basis;
(5) payments to the Parent to enable the Parent to repurchase, redeem or
otherwise acquire or redeem for value any Equity Interests of the Parent
held by any current or former member of the Company's (or any of its
Restricted Subsidiaries') management or any of its current or former
directors; provided that the aggregate price paid for all such repurchased,
redeemed or acquired Equity Interests shall not exceed $500,000 in any
twelve-month period (excluding for purposes of calculating such amounts
during any period loans incurred to finance the purchase of such Equity
Interests that are repaid);
(6) payments to the Parent to enable the Parent to (i) pay franchise taxes
and other fees and expenses necessary to maintain its corporate existence,
(ii) pay reasonable fees to its directors and
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(iii) perform accounting, legal, corporate reporting and other
administrative functions in the ordinary course of business, provided that
such payments do not exceed $500,000 in the aggregate; and
(7) payments to the Parent to enable the Parent to fund payments under any
plan implemented in the ordinary course of business to compensate
management of the Company or any of its Restricted Subsidiaries based on
the value of the Parent's common stock.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt),
and the Company will not issue any Disqualified Stock and will not permit any
of its Subsidiaries to issue any shares of Preferred Stock; provided, however,
that the Company may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.5 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or Disqualified Stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness under Credit Facilities in an aggregate principal
amount at any one time outstanding under this clause (1) (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) not to exceed the lesser of (x) $30.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied by the Company
or any of its Restricted Subsidiaries to repay Indebtedness under a Credit
Facility and effect a corresponding commitment reduction thereunder
pursuant to the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales" and (y) the amount of the Borrowing
Base as of the date of such incurrence;
(2) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the notes and the related Subsidiary Guarantees to be issued
on the date of the Indenture and the Exchange Notes and the related
Subsidiary Guarantees to be issued pursuant to the Registration Rights
Agreement;
(4) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate principal amount,
including all Permitted
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Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed $5.0
million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations or purchase money
obligations, in each case, incurred for the purpose of financing all or any
part of the purchase price of point of sale equipment used in the business
of the Company or such Restricted Subsidiary, in an aggregate principal
amount, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (5), not to exceed $5.0 million;
(6) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred under the
first paragraph of this covenant or clauses (2), (3), (4), (5), (6) or (13)
of this paragraph;
(7) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries or a Guarantor; provided, however,
that:
(a) if the Company or any Guarantor is the obligor on such Indebtedness
and the obligor is not a Guarantor or the Company, such Indebtedness
must be expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the notes, in the case of the Company,
or the Subsidiary Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary thereof or a Guarantor
and (ii) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary thereof or a Guarantor; shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (7);
(8) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
(i) interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of this Indenture to be outstanding or (ii)
currency values with respect to transactions entered into by the Company or
a Restricted Subsidiary in the ordinary course of business;
(9) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company to the extent such
Indebtedness was permitted to be incurred by another provision of this
covenant;
(10) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued;
(11) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness consisting of performance, bid or advance payment bonds,
surety bonds, custom bonds, utility bonds and similar obligations arising
in the ordinary course of business;
(12) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred
or assumed in connection with the disposition of any business, asset or
Subsidiary of the Company, provided that the maximum assumable Indebtedness
shall at
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no time exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; and
(13) the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (13), not to exceed $5.0
million.
The Company will not incur any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated in right of
payment to the notes on substantially identical terms; provided, however, that
no Indebtedness of the Company shall be deemed to be contractually subordinated
in right of payment to any other Indebtedness of the Company solely by virtue
of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (13) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company will
be permitted to classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of Indebtedness,
in any manner that complies with this covenant. Indebtedness under Credit
Facilities outstanding on the date on which notes are first issued and
authenticated under the Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (1) of the definition of
Permitted Debt.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
of any kind on any asset now owned or hereafter acquired, except Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness (including the Credit Agreement) as in effect on
the date of the Indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
are no more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in such Existing
Indebtedness (including the Credit Agreement), as in effect on the date of
the Indenture;
(2) the Indenture, the notes and the Subsidiary Guarantees;
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(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred;
(5) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose
restrictions on the property so acquired of the nature described in clause
(3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not the Company is the surviving corporation);
or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the notes, the Indenture and the
Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made:
(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction; and
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(b) will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance,
lease or other disposition of assets between or among the Company and any of
its Wholly Owned Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary;
(2) any consulting, advisory or management agreement entered into by the
Company or any of its Restricted Subsidiaries; provided that the aggregate
compensation paid to affiliates of the Company, its Restricted Subsidiaries
or Related Parties under all such agreements (excluding the Jay Galin
Consulting Agreement) does not exceed $500,000 in any twelve-month period;
(3) transactions between or among the Company and/or its Restricted
Subsidiaries;
(4) agreements in effect on the date of the Indenture and any modification
thereto or any transaction contemplated thereby (including pursuant to any
modification thereto) in any replacement agreement therefor so long as such
modification or replacement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the date
of the Indenture;
(5) the Jay Galin Consulting Agreement;
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(6) payments to the Parent to enable the Parent to pay, and payments by the
Company or any of its Restricted Subsidiaries of, fees and compensation
paid to and indemnity provided on behalf of, officers, directors, employees
or consultants of the Parent, the Company or any Restricted Subsidiary
thereof for their service to the Company or its Restricted Subsidiaries;
(7) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of the Company; and
(8) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments."
Additional Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries acquires or creates
another domestic Restricted Subsidiary after the date of the Indenture, then
that newly acquired or created Restricted Subsidiary must become a Guarantor
and execute a supplemental indenture and deliver an Opinion of Counsel to the
Trustee within ten Business Days of the date on which it was acquired or
created. If any Subsidiary that is not a Guarantor at any time guarantees
Indebtedness of the Company or a Guarantor, the Company will cause such
Subsidiary to contemporaneously execute and deliver a supplemental indenture
providing for the guarantee of the payment of the notes by such Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by the Company
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will either
reduce the amount available for Restricted Payments under the first paragraph
of the covenant described above under the caption "--Restricted Payments" or
reduce the amount available for future Investments under one or more clauses of
the definition of Permitted Investments, as the Company shall determine. That
designation will only be permitted if such Investment would be permitted at
that time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default. Any Subsidiary so designated as a Restricted
Subsidiary must become a Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel to the Trustee within ten Business Days of the
date on which it was so designated.
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company or
any Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) the Company or that Restricted Subsidiary, as applicable, could have
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction under the Fixed Charge Coverage
Ratio test in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee, of the property that is the subject of that sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales."
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Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Wholly Owned Restricted Subsidiary of the Company to any Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company),
unless:
(1) (x) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary or (y)
if such transfer, conveyance, sale, lease or other disposition is of less
than all of the Equity Interests in such Wholly Owned Restricted
Subsidiary, such transfer, conveyance, sale, lease or other disposition is
made in compliance with the covenant described above under the caption "--
Restricted Payments;" and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
In addition, the Company will not permit any Wholly Owned Restricted Subsidiary
of the Company to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Restricted Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
notes unless such consideration is offered to be paid to all Holders of the
notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Company will furnish to the Holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer, whether or not
required by the Commission, the Company will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request. In addition,
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the Company and the Subsidiary Guarantors have agreed that, for so long as any
notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if any, on
the notes;
(3) failure by the Company or any of its Restricted Subsidiaries to comply
with the provisions described under the captions "--Repurchase at the
Option of Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales," "--Certain Covenants--Restricted Payments," "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" or "--Certain Covenants--Merger, Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Significant Subsidiaries for 60
days after notice from the Trustee or Holders of at least 25% of the notes
then outstanding to comply with any of the other agreements in the
Indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Significant
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Significant Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium,
if any, on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $5.0 million (net of amounts
covered by insurance policies issued by insurers rated at least "A" by A.M.
Best Company that have not denied or disclaimed coverage and with respect
to which an enforcement proceeding has not been commenced), which judgments
are not paid, discharged or stayed within 60 days;
(7) except as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the Company
or any of its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary thereof or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default occurs and is
continuing,
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the Trustee or the Holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest or Liquidated Damages) if it determines that withholding notice is in
their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs prior to May
15, 2003, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the notes prior to May 15, 2003, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or
any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the notes, the Indenture, the Subsidiary
Guarantees, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages,
if any, on such notes when such payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's and the Guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
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In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and premium and
Liquidated Damages, if any, on the outstanding notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Company
must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an Opinion of Counsel to
the effect that, assuming no intervening bankruptcy of the Company or any
Guarantor between the date of deposit and the 91st day following the
deposit and assuming that no Holder is an "insider" of the Company under
applicable bankruptcy law, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
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(8) the Company must deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraphs, the Indenture or the
notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the Indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, if any, on the notes (except a
rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders of notes to receive payments of
principal of, or interest or premium or Liquidated Damages, if any, on the
notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture, except in accordance with the terms of the
Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of notes, the
Company, the Guarantors and the Trustee may amend or supplement the Indenture
or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to Holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of notes or that does not adversely affect the legal rights
under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
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Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to
all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the Trustee for
cancellation; or
(b) all notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as
will be sufficient without consideration of any reinvestment of
interest, to pay and discharge the entire indebtedness on the notes not
delivered to the Trustee for cancellation for principal, premium and
Liquidated Damages, if any, and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or any Guarantor
is a party or by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all sums
payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under
the Indenture to apply the deposited money toward the payment of the notes
at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an Opinion
of Counsel to the Trustee stating that all conditions precedent to satisfaction
and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
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Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Repurchase
at the Option of Holders--Change of Control" and/or the provisions
described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance of Equity Interests in any of the Company's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among the Company and its Wholly Owned
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to the Company or to another Wholly Owned Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments;" and
(7) the sale and leaseback of any assets within 90 days of the acquisition
of such assets.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
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been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to 85% (or 90% for the
calendar months of July, August, October and November) of the book value of all
inventory owned by the Company as of the end of the most recent fiscal quarter
preceding such date, calculated in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars (including such dollars as are held as overnight
bank deposits and demand deposits with banks);
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than one year from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each
case, with any lender party to the Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of $500.0 million and
a Thomson Bank Watch Rating of "B" or better or rated "A3" or better by
Moody's Investors Service, Inc. or "A" or better by Standard & Poor's
Ratings Group;
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(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within 270 days after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of the Company and its Restricted Subsidiaries taken as a whole to
any "person" or "group" (as such terms are used in Section 13(d)(3) of the
Exchange Act) (other than the Principals and the Related Parties);
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than a
majority of the Voting Stock of the Company or the Parent, measured by
voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of the Company or the Parent are not Continuing Directors; or
(5) the first day on which the Parent ceases to own 100% of the outstanding
Equity Interests of the Company.
"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant
to Hedging Obligations), to the extent that any such expense was deducted
in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the
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extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles and any
ongoing non-cash effect from a change since the date of the Indenture in
the time period over which goodwill relating to the Acquisition may be
amortized shall be excluded; and
(5) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the specified Person or one of its
Subsidiaries.
"Consolidated Net Worth" means, with respect to any specified Person as of any
date, the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company or Holdings who:
(1) was a member of such Board of Directors on the date of the Indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of either (i) a majority of the Board of Directors who were
members of such Board either (x) on the date of the Indenture or (y) at the
time of such nomination or election or (ii) one or more Principals and
their Related Parties; provided that (x) such Principals, together with
their Related Parties, Beneficially Own at least 35% of the outstanding
Voting Stock of the Company and (y) no other Person or group (other than
the Principals and the Related Parties) Beneficially Owns more Voting Stock
of Holdings than such Principals and their Related Parties.
"Credit Agreement" means that certain Loan and Security Agreement, dated as of
October 30, 1998, by and between the Company and Congress Financial
Corporation, including any related notes,
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guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables), bankers' acceptances or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant
to such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries
(other than Indebtedness under the Credit Agreement) in existence on the date
of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person for any period, the
sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times
(b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined
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federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities Act,
but without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements, interest
rate collar agreements, foreign exchange contracts and currency swap
agreements; and
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(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates and/or currency values.
"Indebtedness" means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of the sort described in clause (1)
through (6) above of any other Person. Notwithstanding the foregoing, the term
"Indebtedness" shall not include Non-Recourse Debt or indebtedness that
constitutes "Indebtedness" merely by virtue of a pledge of Equity Interests of
an Unrestricted Subsidiary securing the same.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees but excluding receivables arising in the
ordinary course of business), advances or capital contributions (excluding
commission, travel and other advances to officers, employees, directors and
independent contractors of the Company and its Restricted Subsidiaries made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Equity Interests
of any direct or indirect Subsidiary of the Company such that, after giving
effect to any such sale or disposition, either (x) such Person is no longer a
Restricted Subsidiary of the Company or (y) if such Subsidiary was a Wholly
Owned Subsidiary immediately preceding such sale or disposition, such Person is
no longer a Wholly Owned Subsidiary, then in each case, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Certain Covenants--
Restricted Payments." The acquisition by the Company or any Restricted
Subsidiary of the Company of a Person that holds an Investment in a third
Person shall be deemed to be an Investment by the Company or such Restricted
Subsidiary in such third Person in an amount equal to the fair market value of
the Investment held by the acquired Person in such third Person in an amount
determined as
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provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Jay Galin Consulting Agreement" means the consulting agreement between Jay
Galin and the Company in the form attached to Jay Galin's employment agreement
with the Company in effect on the date of the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain, together with any related provision for taxes on such gain,
realized in connection with: (a) any Asset Sale; or (b) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries; and
(2) any extraordinary gain, together with any related provision for taxes
on such extraordinary gain.
"Net Proceeds" means the aggregate cash proceeds received by the Company or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case, after taking into account any available tax credits or deductions
and any tax sharing arrangements, and any reserve for indemnities,
reimbursements or adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Business" means the business conducted by the Company and its
Restricted Subsidiaries on the date of the closing of this offering and other
businesses reasonably related thereto.
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"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of
the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) the incurrence by the Company or any of its Restricted Subsidiaries of
performance, bid or advance payment bonds, surety bonds, custom bonds,
utility bonds and similar obligations arising in the ordinary course of
business;
(8) endorsements of instruments for collection or deposit in the ordinary
course of business;
(9) loans and advances to employees and officers not to exceed $500,000
outstanding in the aggregate at any time incurred in the ordinary course of
business;
(10) loans to employees, directors and officers in connection with the
purchase by such Persons of Equity Interests of the Parent so long as the
cash proceeds of such purchase received by the Parent are contemporaneously
remitted by the Parent to the Company as a capital contribution;
(11) investments in account debtors received in connection with the
bankruptcy or reorganization, or in settlement of delinquent obligations,
of customers;
(12) investments in existence on the date of the Indenture; and
(13) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (13) that are at the time
outstanding not to exceed $5.0 million.
"Permitted Liens" means:
(1) Liens on assets of the Company and any Guarantor securing Indebtedness
and other Obligations under Credit Facilities that were permitted by the
terms of the Indenture to be incurred;
(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Subsidiary of
the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition;
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(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clauses (4) and (5) of the second paragraph of the covenant
entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the Indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor;
(9) zoning restrictions, easements, licenses, covenants and other similar
restrictions and encumbrances affecting the use of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company and its Restricted Subsidiaries;
(10) judgment liens not giving rise to an Event of Default;
(11) Liens, rights of setoff and credit balances with respect to deposit
accounts and other Cash Equivalents;
(12) deposits with the owner or lessor of premises leased and operated in
the ordinary course of business;
(13) nonconsensual liens that do not individually or in the aggregate
detract materially from the value or transferability of the assets of the
Company or any of its Restricted Subsidiaries, or impair materially the use
of any such assets in the operation of the respective businesses of the
Company and its Restricted Subsidiaries;
(14) Liens securing Hedging Obligations; and
(15) Liens incurred in the ordinary course of business of the Company or
any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date not
earlier than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to
the notes on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means (1) each of (x) Pegasus Partners, L.P., (y) Pegasus Related
Partners, L.P. and (z) Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P.
for so long as they are directly or indirectly controlled by or under common
control with either Pegasus Partners, L.P. or Pegasus Related Partners, L.P.
(together, the "Pegasus Funds") and (2) Jay Galin and Scott Galin (together,
the "Galins").
"Public Equity Offering" means an underwritten public offering of Capital Stock
(other than Disqualified Stock) of the Parent or the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act; provided that in the event of a Public Equity Offering by the
Parent, the Parent contributes to the capital of the Company net cash proceeds
of such Public Equity Offering in an amount sufficient to redeem the Notes
called for redemption in accordance with the terms thereof.
"Related Party" means:
(1) any controlling general partner or controlling stockholder, 80% (or
more) owned Subsidiary, or immediate family member (in the case of an
individual) of any Principal;
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding
clause (1); or
(3) any controlling general partner or controlling stockholder of any
Related Party described in clause (1) above or any controlling general
partner or controlling stockholder of any such Related Party described in
clause (1) above.
In addition, (1) each of the Galins shall be the Related Party of the other and
(2) each of the Pegasus Funds shall be a Related Party of the other.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
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or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if: (1)
such Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period; and (2) no Default or Event
of Default would be in existence following such designation. Any Subsidiary so
designated as a Restricted Subsidiary must become a Guarantor and execute a
supplemental indenture and deliver an Opinion of Counsel to the Trustee within
ten Business Days of the date on which it was so designated.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including
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payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date
and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a Restricted
Subsidiary of such Person, all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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REGISTRATION RIGHTS AGREEMENT
The Company and the initial purchasers of the units entered into an A/B
Exchange Registration Rights Agreement on May 17, 1999 in connection with the
private placement of the units. Pursuant to the registration rights agreement,
the Company agreed to:
(i) file with the Commission on or prior to 90 days after the date of
issuance of the outstanding notes a registration statement on the
appropriate form relating to a registered exchange offer for the
outstanding notes under the Securities Act; and
(ii) use its reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 150 days after the issuance of the outstanding notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, the Company will offer to the holders of Transfer
Restricted Securities (as defined below) who are not prohibited by any law or
policy of the Commission from participating in the exchange offer the
opportunity to exchange their Transfer Restricted Securities for an issue of a
second series of notes that are identical in all material respects to the
outstanding notes (except that the exchange notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. The Company will keep the exchange offer open for not less than
20 business days nor more than 30 business days (or longer, if required by
applicable law) after the date on which the registration statement becomes
effective.
If:
(i) because of any change in applicable law, the Company is not permitted
to effect the exchange offer,
(ii) any holder notifies the Company prior to the 20th day following
consummation of the exchange offer that any applicable law or Commission
policy does not permit any holder of outstanding notes to participate in
the exchange offer,
(iii) any holder notifies the Company prior to the 20th day following the
consummation of the exchange offer that it may not resell the exchange
notes acquired by it in the exchange offer to the public without delivering
a prospectus and this Prospectus is not appropriate or available for such
resales by such holder, or
(iv) any holder notifies the Company prior to the 20th day following the
consummation of the exchange offer that it is a broker-dealer and holds
outstanding notes acquired directly from the Company or any of the
Company's affiliates,
then the Company will file with the Commission a shelf registration statement
to cover resales of Transfer Restricted Securities by such holders who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement. For purposes of the foregoing, "Transfer
Restricted Securities" means:
(i) each outstanding note, until the earliest to occur of:
(a) the date on which such outstanding note is exchanged in the
exchange offer for an exchange note which is entitled to be resold to
the public by the holder thereof without complying with the prospectus
delivery requirements of the Securities Act,
(b) the date on which such outstanding note has been disposed of in
accordance with a shelf registration statement (and the purchasers
thereof have been issued exchange notes), or
(c) the date on which such outstanding note is distributed to the
public pursuant to Rule 144 under the Securities Act, and
(ii) each exchange note held by a broker-dealer until the date on which
such exchange note is disposed of by a broker-dealer as set forth under the
caption "Plan of Distribution."
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The Company will use its reasonable best efforts to have the exchange offer
registration statement or, if applicable, the shelf registration statement
declared effective by the Commission as promptly as practicable after the
filing thereof. Unless the exchange offer would not be permitted by a policy of
the Commission, the Company will commence the exchange offer and will use its
reasonable best efforts to consummate the exchange offer as promptly as
practicable, but in any event within 30 business days of the date the
registration statement is declared effective. If applicable, the Company will
use its reasonable best efforts to keep the shelf registration statement
effective for a period of at least two years after the date of issuance of the
outstanding notes or such shorter period when all outstanding notes covered by
the shelf registration statement have been sold pursuant thereto.
If:
(i) the applicable registration statement is not filed on or before the
date specified for such filing;
(ii) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");
(iii) the exchange offer is not consummated within 30 business days of the
Effectiveness Target Date with respect to the registration statement; or
(iv) the registration statement or the shelf registration statement that is
filed and declared effective thereafter ceases to be effective or fails to
be usable for its intended purpose (at any time that the Company is
obligated to maintain the effectiveness thereof) without being succeeded
immediately by a post-effective amendment to such registration statement
curing such failure and declared effective;
(each such event referred to in clauses (i) through (iv) above, a "Registration
Default"), the Company will be obligated to pay liquidated damages to each
holder of Transfer Restricted Securities during the period of one or more such
Registration Defaults. With respect to the first 90-day period immediately
following the occurrence of the first Registration Default, the amount of the
liquidated damages shall be equal to $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities held by such holder for each week or
portion thereof that the Registration Default continues. With respect to each
subsequent 90-day period, the amount of the liquidated damages shall increase
by an additional $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities until all Registration Defaults have been cured, up to a
maximum amount of liquidated damages of $.25 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. The liquidated damages payable with respect to the
Transfer Restricted Securities shall cease when all Registration Defaults have
been cured.
The registration rights agreement also provides that the Company:
(i) shall make available for a period of one year after the consummation of
the exchange offer (or such shorter period as will terminate when all
Transfer Restricted Securities have been sold) a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any such exchange notes;
(ii) shall pay all expenses incident to its performance under the
registration rights agreement and reimburse the holders of Transfer
Restricted Securities who are tendering for reasonable fees and
disbursements of not more than one counsel; and
(iii) and the holders of Transfer Restricted Securities each agree to
indemnify the other against certain liabilities, including liabilities
under the Securities Act.
Each holder of outstanding notes who wishes to exchange such outstanding notes
for exchange notes in the exchange offer will be required to make certain
representations, including representations that:
(i) any exchange notes to be received by it will be acquired in the
ordinary course of its business;
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(ii) it has no arrangement or understanding with any person to participate
in the distribution of the exchange notes; and
(iii) it is not an "affiliate" (as defined in Rule 144 under the Securities
Act) of the Company, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for notes that were acquired as a result
of market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes.
Holders of the notes will be required to make certain representations to the
Company (as described above) in order to participate in the exchange offer and
will be required to deliver information to be used in connection with the shelf
registration statement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells notes
pursuant to the shelf registration statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement which are
applicable to such a holder (including certain indemnification obligations).
Holders of the notes will also be required to suspend their use of this
Prospectus under certain circumstances.
For so long as the notes are outstanding, the Company will continue to make
available to holders of the notes and to prospective purchasers of the notes
the information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the registration rights agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the registration rights agreement. The
registration rights agreement has been filed as an exhibit to the registration
statement of which this Prospectus is a part.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will initially be represented by one or more permanent
global notes in definitive, fully registered book-entry form, without interest
coupons (the "Global Notes") that will be deposited with, or on behalf of, DTC
and registered in the name of Cede & Co., as nominee of DTC, on behalf of the
acquirors of exchange notes represented thereby for credit to the respective
accounts of the acquirors (or to such other accounts as they may direct) at
DTC, or Morgan Guaranty Trust Company of New York, Brussels Office, as operator
of the Euroclear System, or Cedel Bank, societe anonyme. See "The Exchange
Offer--Book Entry Transfer."
The Global Notes may be transferred, in whole and not in part, solely to
another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the Global Notes may not be exchanged for notes in physical,
certificated form ("Certificated Notes") except in the limited circumstances
described below under "--Certificated Notes."
All interests in the Global Notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and Cedel
set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We take
no responsibility for these operations or procedures, and investors are urged
to contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is:
(i) a limited purpose trust company organized under the laws of the State
of New York,
(ii) a "banking organization" within the meaning of the New York Banking
Law,
(iii) a member of the Federal Reserve System,
(iv) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(v) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's Participants include securities
brokers and dealers, banks and trust companies, clearing corporations and
certain other organizations. Indirect access to DTC's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Investors who are not Participants may beneficially own securities held by or
on behalf of DTC only through Participants or Indirect Participants.
We expect that pursuant to procedures established by DTC ownership of the notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of
Participants) and the records of Participants and the Indirect Participants
(with respect to the interests of persons other than Participants).
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The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event that the Company requests any action of holders
of notes, or a holder that is an owner of a beneficial interest in a Global
Note desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participants would authorize holders owning through such Participants to
take such action or would otherwise act upon the instruction of such holders.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of notes
by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payment thereon and for any and all other purposes whatsoever. Accordingly,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to owners of beneficial interests in
a Global Note (including principal, premium, if any, liquidated damages, if
any, and interest). Payments by the Participants and the Indirect Participants
to the owners of beneficial interests in a Global Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
DTC management is aware that some computer applications, systems, and the like
for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems". DTC has informed its Participants and other members of the financial
community that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC ("DTC Services"), continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
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However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well
as third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. DTC has informed the industry that it is contacting (and will continue
to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being Year 2000
compliant; and
(ii) determine the extent of their efforts for Year 2000 remediation (and,
as appropriate, testing) of their services.
In addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
Transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes,
cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may
be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Notes in DTC, and making or receiving payment
in accordance with normal procedures for same-day funds settlement applicable
to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. Cash received in Euroclear or Cedel as a result of
sales of interests in a Global Security by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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Certificated Notes
If:
(i) the Company notifies the Trustee in writing that DTC notified the
Company that DTC is no longer willing or able to continue to act as a
depositary or DTC ceases to be registered as a clearing agency under
the Exchange Act and, in either case, a successor depositary is not
appointed within 120 days of such notice from DTC,
(ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Certificated Notes under the
Indenture, or
(iii) DTC, at its option, determines that Global Notes should be exchanged
for Certificated Notes following an Event of Default with respect to the
notes,
then, upon surrender by DTC of the Global Notes, Certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the Global Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures).
Neither the Company nor the Trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material United States federal income
tax consequences associated with the exchange of the outstanding notes for the
exchange notes in the exchange offer and the ownership and disposition of the
exchange notes. This summary applies to you only if you are a holder of an
exchange note who acquired an outstanding note at the initial offering from an
initial purchaser for the original offering price and are now acquiring the
exchange note in the exchange offer. This discussion is based on provisions of
the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury
regulations, and administrative and judicial interpretations of the Code and
the regulations, all as in effect as of the date of this Prospectus and all of
which are subject to change, possibly with retroactive effect. This discussion
does not address the tax consequences to subsequent purchasers of the exchange
notes and applies to you only if you hold the exchange notes as capital assets.
Your treatment as a holder of the notes may vary depending upon your situation.
For example, if you are an insurance company, tax-exempt organization,
financial institution, broker-dealer, subject to the alternative minimum tax
provisions of the Code, holding notes as part of a hedge, straddle or other
risk reduction or constructive sale transaction, or a nonresident alien or
foreign corporation subject to net-basis United States federal income tax on
income or gain derived from a note because such income or gain is effectively
connected with the conduct of a United States trade or business, you may be
subject to special rules not discussed below.
Your should consult your tax advisor regarding the particular tax consequences
to you of the exchange of the outstanding notes for the exchange notes in the
exchange offer and the ownership and disposition of the exchange notes, as well
as any tax consequences that may arise under the laws of any relevant foreign,
state, local or other taxing jurisdiction.
Exchange Offer
The exchange of an outstanding note for an exchange note in the exchange offer
will not constitute a significant modification of the outstanding note for
United States federal income tax purposes. Therefore, the exchange note
received will be treated as a continuation of the outstanding note in your
hands. As a result, there will be no United States federal income tax
consequences to you upon the exchange of an outstanding note for an exchange
note in the exchange offer and you will have the same adjusted tax basis and
holding period in the exchange note as you had in the outstanding note
immediately before the exchange.
Other Tax Considerations
United States Holders
If you are a "United States Holder," as defined below, this section applies to
you. Otherwise, the next section, "Non-United States Holders," applies to you.
Definition of United States Holder. You are a "United States Holder" if you
hold the notes, and you are:
. a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the Code;
. a corporation or partnership created or organized in the United States
or under the laws of the United States or of any political subdivision
of the United States;
. an estate, the income of which is subject to United States federal
income tax regardless of its source; or
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. a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons
can control all substantial decisions of the trust, or if the trust was
in existence on August 20, 1996 and has elected to continue to be
treated as a United States person.
Taxation of Stated Interest. Subject to the discussion below regarding OID (as
defined below), you must generally pay federal income tax on the interest on
the notes:
. when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
. when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
Taxation of Original Issue Discount. The outstanding notes were issued with
original issue discount ("OID") for federal income tax purposes and thus the
exchange notes will also have OID for federal income tax purposes. As a result,
you will be required to include OID in gross income for federal income tax
purposes, as it accrues in advance of the receipt of cash payments on the notes
(regardless of whether you are a cash or accrual basis taxpayer).
The amount of OID with respect to each note will be the excess of its "stated
redemption price at maturity" over its "issue price." The "issue price" of a
note is equal to the first price at which a substantial amount of the units
(consisting of the outstanding notes and certain warrants to purchase the
Parent's Class D common stock) was sold to the public, reduced by the portion
of the purchase price of the units allocable to the warrants. The company
allocated the purchase price of a unit between a warrant and an outstanding
note based on their relative fair market values. Such allocation is binding
upon you, as a United States Holder, unless you disclose on a statement
attached to your income tax return that you are using a different allocation.
The "stated redemption price at maturity" of each note will include all cash
payments required to be made thereunder until and at maturity other than the
stated interest.
The total OID for the period from original issuance of the notes until their
maturity will accrue based on a constant yield to maturity and will be
allocated to each "accrual period" therein. An "accrual period" in the case of
the notes is each semi-annual period following the date on which they are
issued. The OID allocated to an accrual period will be further apportioned to
each day within the accrual period on a pro rata basis. A holder of a debt
instrument issued with OID (including a holder who is a cash basis taxpayer) is
required to include an amount of OID in income in each taxable year equal to
the sum of the "daily portions" of OID for each day during the taxable year on
which the debt instrument is held by such holder.
Sale or Other Taxable Disposition of the Notes. You must recognize taxable gain
or loss on the sale, exchange, redemption, retirement or other taxable
disposition of a note. The amount of your gain or loss equals the difference
between the amount you receive for the note (in cash or other property, valued
at fair market value), minus the amount attributable to accrued interest on the
note, minus your adjusted tax basis in the note. Your initial tax basis in a
note equals the portion of the issue price of the unit allocated to the note
and will be increased by OID previously included (or currently includible) in
your gross income to the date of any disposition and decreased by any payments,
other than payments of stated interest on the notes.
Your gain or loss will generally be a long-term capital gain or loss if you
have held the note for more than one year. Otherwise, it will be a short-term
capital gain or loss. Payments attributable to accrued interest which you have
not yet included in income will be taxed as ordinary interest income.
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Backup Withholding
You may be subject to a 31% backup withholding tax when you receive interest
payments on a note, or proceeds upon the sale or other disposition of a note.
Certain holders (including, among others, corporations and certain tax-exempt
organizations) are generally not subject to backup withholding. In addition,
the 31% backup withholding tax will not apply to you if you provide your
taxpayer identification number ("TIN") in the prescribed manner unless:
. the IRS notifies us or our agent that the TIN you provided is incorrect;
. you fail to report interest and dividend payments that you receive on
your tax return and the IRS notifies us or our agent that withholding is
required; or
. you fail to certify under penalties of perjury that you are not subject
to backup withholding.
If the 31% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide certain information to the IRS.
Non-United States Holders
Definition of Non-United States Holder. A "Non-United States Holder" is any
person other than a United States Holder. Please note that if you are subject
to United States federal income tax on a net basis on income or gain with
respect to a note because such income or gain is effectively connected with the
conduct of a United States trade or business, this disclosure does not cover
the United States federal tax rules that apply to you.
Portfolio Interest Exemption. You will generally not have to pay United States
federal income tax on interest paid on the notes because of the "portfolio
interest exemption" if either:
. you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed IRS Form W-8 (or a suitable
substitute form) signed under penalties of perjury; or
. a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business,
holds the note on your behalf, certifies to us or our agent under
penalties of perjury that it has received IRS Form W-8 (or a suitable
substitute) from you or from another qualifying financial institution
intermediary, and provides a copy to us or our agent.
You will not, however, qualify for the portfolio interest exemption described
above if:
. you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
. you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code; or
. you are a bank receiving interest described in Section 881(c)(3)(A) of
the Code (i.e., interest on an extension of credit made pursuant to a
loan agreement entered into in the ordinary course of your trade or
business).
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not claim,
or do not qualify for, the benefit of the portfolio interest exemption, you may
be subject to a 30% withholding tax on interest payments made on the notes.
However, you may be able to claim the benefit of a reduced withholding tax rate
under an applicable income tax treaty. The required information for claiming
treaty benefits is generally submitted, under current regulations, on Form
1001. Successor forms will require additional information, as discussed below
under the heading "--New Withholding Regulations."
123
<PAGE>
Reporting. We may report annually to the IRS and to you the amount of interest
paid to, and the tax withheld, if any, with respect to you.
Sale or Other Disposition of the Notes. You will generally not be subject to
United States federal income tax or withholding tax on gain recognized on a
sale, exchange, redemption, retirement, or other disposition of a note. You
may, however, be subject to tax on such gain if:
. you are an individual who was present in the United States for 183 days
or more in the taxable year of the disposition, in which case you may
have to pay a United States federal income tax of 30% (or a reduced
treaty rate) on such gain; or
. you are an individual who is a former citizen or resident of the United
States, your loss of citizenship or residency occurred within the last
ten years (and, if you are a former resident, on or after February 6,
1995), and it had as one of its principal purposes the avoidance of
United States tax, in which case you may be taxed on the net gain
derived from the sale under the graduated United States federal income
tax rates that are applicable to United States citizens and resident
aliens, and you may be subject to withholding under certain
circumstances.
United States Federal Estate Taxes. If you qualify for the portfolio interest
exemption under the rules described above when you die, the notes will not be
included in your estate for United States federal estate tax purposes.
Backup Withholding and Information Reporting. If you receive payments of
interest or principal directly from us or through the United States office of a
custodian, nominee, agent or broker, there is a possibility that you will be
subject to both backup withholding at a rate of 31% and information reporting.
With respect to interest payments made on a note, however, backup withholding
and information reporting will not apply if you certify, generally on a Form W-
8 or substitute form, that you are not a United States person in the manner
described above under the heading "--Portfolio Interest Exemption," provided
that the payor does not have actual knowledge that the payee is a U.S. person.
Moreover, with respect to proceeds received on the sale, exchange, redemption,
or other disposition of a note backup withholding or information reporting
generally will not apply if you properly provide, generally on Form W-8 or a
substitute form, a statement that you are an "exempt foreign person" for
purposes of the broker reporting rules, and other required information. If you
are not subject to United States federal income or withholding tax on the sale
or other disposition of a note, as described above under the heading "--Sale or
Other Disposition of the Notes," you will generally qualify as an "exempt
foreign person" for purposes of the broker reporting rules.
If payments of principal or interest are made to you outside the United States
by or through the foreign office of your foreign custodian, nominee or other
agent, or if you receive the proceeds of the sale of a note through a foreign
office of a "broker," as defined in the pertinent United States Treasury
Regulations, you will generally not be subject to backup withholding or
information reporting. Under New Withholding Regulations (as defined below),
however, which will be effective for payments made after December 31, 2000, you
will be subject to backup withholding and information reporting if the foreign
custodian, nominee, agent or broker has actual knowledge or reason to know that
the payee is a United States person. You will also be subject to information
reporting under the New Regulations, but not backup withholding, if the payment
is made by a foreign office of a custodian, nominee, agent or broker that is a
United States person or a controlled foreign corporation for United States
federal income tax purposes, or that derives 50% or more of its gross income
from the conduct of a United States trade or business for a specified three-
year period, unless the broker has in its records documentary evidence that you
are a Non-United States Holder and certain other conditions are met.
124
<PAGE>
Any amounts withheld under the backup withholding rules may be refunded or
credited against the Non-United States Holder's United States federal income
tax liability, provided that the required information is furnished to the IRS.
New Withholding Regulations. New regulations relating to withholding tax or
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 2000. The New
Withholding Regulations modify and, in general, unify the way in which you
establish your status as a non-United States "beneficial owner" eligible for
withholding exemptions including the portfolio interest exemption, a reduced
treaty rate or an exemption from backup withholding. For example, the new
regulations will require new forms, which you generally will have to provide
earlier than you would have had to provide replacements for expiring existing
forms.
The New Withholding Regulations clarify withholding agents' reliance standards.
They also require additional certifications for claiming treaty benefits. The
New Withholding Regulations also provide somewhat different procedures for
foreign intermediaries and flow-through entities (such as foreign partnerships)
to claim the benefit of applicable exemptions on behalf of non-United States
beneficial owners for which or for whom they receive payments. The New
Withholding Regulations also amend the foreign broker office definition as it
applies to partnerships.
When you exchange your outstanding notes for exchange notes, you will be
required to submit certification to the Company that complies with current
Treasury Regulations in order to obtain an available exemption from or
reduction in withholding tax. The New Withholding Regulations provide that
certifications satisfying the requirements of the New Withholding Regulations
will be deemed to satisfy the requirement of the Treasury Regulations now in
effect. In any case, you will generally be required to provide certifications
that comply with the provisions of the New Withholding Regulations, where
required, not later than the earlier of (i) the date after December 31, 1999,
on which your certification is no longer accurate or has expired, and (ii)
December 31, 2000, if you remain as a holder of the notes on such date, unless
you receive payments on the notes through a qualified intermediary (as defined
in the New Withholding Regulations) that has provided a proper certification on
your behalf. If you are a Non-United States Holder claiming benefit under an
income tax treaty (and not relying on the portfolio interest exemption with
respect to interest payments on the notes), you should be aware that you may be
required to obtain a taxpayer identification number and to certify your
eligibility under the applicable treaty's limitations on benefits article in
order to comply with the New Withholding Regulations' certification
requirements.
The New Withholding Regulations are complex and this summary does not
completely describe them. Please consult your tax advisor to determine how the
New Withholding Regulations will affect your particular circumstances.
125
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that received exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This Prospectus, as it may
be amended or supplemented, may be used by a broker-dealer in connection with
resales of exchange notes received in exchange for outstanding notes only where
such outstanding notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale for a period of one year from the date on
which the exchange offer is consummated, or such shorter period as will
terminate when all outstanding notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for exchange notes and such exchange notes have been resold
by such broker-dealers.
The Company will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of exchange notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver any by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the exchange offer,
including reasonable fees of not more than one counsel retained by the holders
of outstanding notes but excluding commissions or concessions of any brokers or
dealers and the fees of any other advisors or experts retained by the holders
of outstanding notes, except as expressly set forth in the registration rights
agreement, and will indemnify the holders of outstanding notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
126
<PAGE>
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for the
Company by Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, New York.
EXPERTS
The combined financial statements of G & G Shops, Inc. at January 31, 1998 and
for the seven months ended August 28, 1998 and each of the two years in the
period ended January 31, 1998 appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing. The consolidated financial statements of G+G Retail,
Inc. at January 30, 1999 and for the five months ended January 30, 1999,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the exchange notes being offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. You
should refer to the Registration Statement for further information. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified by the provision in such exhibit to which reference is hereby made.
This Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices in New York (Seven World Trade Center, 13th Floor, New York, New York
10048), and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon such person's written or oral request, a copy of any and all
of the documents incorporated by reference in this Prospectus (not including
the exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the Company at 520 Eighth Avenue, New York, New York 10018,
telephone number (212)279-4961, attention: Chief Financial Officer.
In addition, the Company has agreed that, whether or not required by the rules
and regulations of the Commission, so long as any notes are outstanding, the
Company will furnish to the holders of notes (1) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K, if the Company was required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its subsidiary and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (2) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company was required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
G+G RETAIL, INC.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheet as of January 30, 1999........................ F-3
Consolidated Statement of Income for the Five Months Ended January 30,
1999.................................................................... F-4
Consolidated Statement of Stockholder's Equity for the Five Months Ended
January 30, 1999........................................................ F-5
Consolidated Statement of Cash Flows for the Five Months Ended January
30, 1999................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
G+G RETAIL, INC.
Consolidated Balance Sheets as of May 1, 1999 and January 30, 1999....... F-15
Consolidated Statement of Operations of G+G Retail, Inc. for the Three
Months Ended May 1, 1999 and Combined Statement of Operations of G & G
Shops, Inc. for the Three Months Ended May 2, 1998...................... F-16
Consolidated Statement of Cash Flows of G+G Retail, Inc. for the Three
Months Ended May 1, 1999 and Combined Statement of Cash Flows of G & G
Shops, Inc. for the Three Months Ended May 2, 1998...................... F-17
Notes to Unaudited Consolidated Financial Statements..................... F-18
G & G SHOPS, INC.
Report of Independent Auditors........................................... F-20
Combined Balance Sheet as of January 31, 1998............................ F-21
Combined Statements of Income for the Seven Months Ended August 28, 1998
and for each of the Two Years in the Period Ended January 31, 1998...... F-22
Combined Statements of Shareholder's Deficit for the Seven Months Ended
August 28, 1998 and for each of the Two Years in the Period Ended
January 31, 1998........................................................ F-23
Combined Statements of Cash Flows for the Seven Months Ended August 28,
1998 and for each of the Two Years in the Period Ended January 31,
1998.................................................................... F-24
Notes to Combined Financial Statements................................... F-25
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
G+G Retail, Inc.
We have audited the accompanying consolidated balance sheet of G+G Retail, Inc.
and its subsidiary (collectively, the "Company") as of January 30, 1999 and the
related consolidated statements of income, stockholder's equity and cash flows
for the five months ended January 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at January 30, 1999 and the consolidated results of its operations and
its cash flows for the five months ended January 30, 1999, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
April 14, 1999
F-2
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
January 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and short-term investments..................................... $ 13,129
Accounts receivable................................................. 718
Merchandise inventories............................................. 12,578
Prepaid expenses.................................................... 794
Deferred tax assets................................................. 645
--------
Total current assets................................................. 27,864
Property and equipment, net.......................................... 22,560
Intangible assets, net............................................... 116,625
Deferred tax assets.................................................. 410
Other assets......................................................... 205
--------
Total assets......................................................... $167,664
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................... $ 13,338
Accrued expenses.................................................... 11,155
Income taxes payable................................................ 1,330
--------
Total current liabilities............................................ 25,823
Long-term debt....................................................... 90,000
--------
Total liabilities.................................................... 115,823
Commitments and contingencies
Stockholder's equity:
Class B common stock, par value $.01 per share, 1,000 shares
authorized, 10 shares issued and outstanding....................... --
Additional paid-in capital.......................................... 49,828
Retained earnings................................................... 2,013
--------
Total stockholder's equity........................................... 51,841
--------
Total liabilities and stockholder's equity........................... $167,664
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
Five months ended January 30, 1999
<TABLE>
<S> <C>
Net sales............................................................. $131,567
Cost of sales (including occupancy costs)............................. 79,267
--------
Gross margin.......................................................... 52,300
Operating expenses:
Selling, general, administrative and buying......................... 36,170
Depreciation and amortization....................................... 5,141
--------
Operating income...................................................... 10,989
Interest expense...................................................... 7,520
Interest income....................................................... 125
--------
Income before provision for income taxes.............................. 3,594
Provision for income taxes............................................ 1,581
--------
Net income............................................................ $ 2,013
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(In Thousands)
Five months ended January 30, 1999
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholder's
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance--August 28, 1998............... $ -- $ -- $ -- $ --
Capital contribution, net.............. 49,828 49,828
Net income............................. 2,013 2,013
------ ------- ------ -------
Balance--January 30, 1999.............. $ -- $49,828 $2,013 $51,841
====== ======= ====== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Five months ended January 30, 1999
<TABLE>
<S> <C>
Operating activities
Net income.......................................................... $ 2,013
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 6,245
Write-off of deferred financing costs............................. 390
Deferred income taxes............................................. (340)
Changes in assets and liabilities:
Accounts receivable............................................. (349)
Merchandise inventories......................................... 6,124
Prepaid expenses................................................ (784)
Other assets.................................................... (98)
Income taxes payable............................................ 1,330
Accounts payable and accrued expenses........................... (2,588)
--------
Net cash provided by operating activities........................... 11,943
Investing activities
Capital expenditures, net........................................... (2,779)
Acquisition of business, net of cash acquired....................... (132,000)
Payment of acquisition costs........................................ (2,879)
--------
Net cash used in investing activities............................... (137,658)
Financing activities
Proceeds from notes payable......................................... 5,000
Proceeds from long-term debt........................................ 90,000
Proceeds from initial capital contribution, net..................... 49,828
Repayment of notes payable.......................................... (5,000)
Payment of debt issuance costs...................................... (2,759)
--------
Net cash provided by financing activities........................... 137,069
--------
Net increase in cash and short-term investments..................... 11,354
Cash and short-term investments, beginning of period................ 1,775
--------
Cash and short-term investments, end of period...................... $ 13,129
========
Supplemental cash flow disclosures
Cash paid during the five months ended January 30, 1999:
Interest.......................................................... $ 5,381
========
Income taxes...................................................... $ 570
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999
1. Organization and Business
G+G Retail, Inc. ("G+G" or the "Company") was incorporated on June 26, 1998. On
August 28, 1998, G&G Retail Holdings, Inc. ("Holdings" or the "Parent") made a
capital contribution to the Company in the amount of $50.5 million.
Concurrently with such contribution to capital, the Company made a payment on
behalf of the Parent in the amount of $700,000. Simultaneous with the initial
capital contribution, the Company acquired (the "Acquisition") substantially
all of the assets and certain liabilities of G & G Shops, Inc. ("G & G Shops"
or the "Predecessor") and certain other subsidiaries of Petrie Retail, Inc.
("Petrie") from Petrie. The Acquisition was accounted for as a purchase;
accordingly, the accompanying consolidated balance sheet reflects the
preliminary allocation of the purchase price to tangible and intangible assets
acquired and liabilities assumed (Note 3). Holdings has no operations other
than owning all of the capital stock of the Company and is dependent on the
cash flows from the Company to meet its obligations, including with respect to
the mandatory redeemable preferred stock due 2008.
Prior to August 28, 1998, G+G's business was conducted by G & G Shops, a
wholly-owned subsidiary of Petrie, and certain other subsidiaries of Petrie. As
part of the Acquisition, 15,000 shares of Class C, non-voting, common stock of
Holdings were issued to the Predecessor. These shares, which represent 15% of
Holdings common stock on a fully-diluted basis, were transferred to the
liquidating trustee who oversees the bankruptcy proceedings for Petrie and its
subsidiaries in connection with the confirmation of Petrie's plan of
reorganization.
On October 12, 1995, Petrie filed petitions under Chapter 11 of the Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"), on behalf of itself and its
subsidiaries, including G & G Shops (collectively, the "Debtors"), seeking
relief to reorganize under Chapter 11. The Debtors managed their affairs and
operated their business under Chapter 11 as debtors-in-possession until the
Acquisition and Plan of Reorganization (on December 18, 1998 the Bankruptcy
Court issued an order confirming the Debtors' plan of reorganization).
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the consolidated operations of
G+G and its wholly-owned subsidiary. All significant intercompany transactions
and balances have been eliminated in consolidation.
Nature of Business
The Company owns and operates a chain of young women's specialty apparel stores
in the United States, Puerto Rico and the U.S. Virgin Islands.
Short-Term Investments
Short-term investments consist of time deposits, U.S. treasury money market
funds, and commercial paper of less than ninety days maturity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
related to certain accounts, such as inventory, accounts receivable, income
taxes and various other reserves, that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
F-7
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Risk
The Company operates a distribution center that depends on employees under a
collective bargaining agreement with a union. Historically, the Company has not
experienced labor disruptions as a result of disputes with its union workers.
The Company has significant merchandise purchases from vendors who utilize
factors. Approximately 36% of the Company's merchandise purchases are from
three vendors. In addition, approximately 16% of the stores are leased from a
single landlord.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January 31. The fiscal
period ended January 30, 1999 began on August 29, 1998 and consisted of twenty-
two weeks.
Inventories
Merchandise inventories, which consist of finished goods, are valued at the
lower of cost as determined by the retail inventory method (average cost basis)
or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment are computed principally by the straight-line method
based on the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold costs and
improvements Term of lease or 10 years, whichever is less, straight-line
Store fixtures and
equipment 1 to 10 years, straight-line
</TABLE>
Deferred Financing Costs
The Company capitalizes debt issuance costs. Such costs are amortized over the
lives of the related debt.
Intangible Assets
Excess of cost over net assets acquired (i.e., goodwill) is being amortized on
the straight-line method over thirty years. The Company assesses the
recoverability of goodwill at each balance sheet date by determining whether
the amortization of the balance of goodwill over its remaining useful life can
be recovered through projected undiscounted future operating cash flows.
Long-Lived Assets
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
reviews the recoverability of intangibles and other long-lived assets whenever
events and circumstances indicate that the carrying amount may not be
recoverable. The carrying amount of long-lived assets is reduced by the
difference between the carrying amount and estimated fair value.
Rental Expense
Defined rental escalations are averaged over the term of the related lease in
order to provide level recognition of rental expense.
F-8
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for by the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the current enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Preopening Costs
Store opening costs are charged to operations as incurred.
Advertising and Promotion
All costs associated with advertising and promotion are expensed in the year
incurred. Advertising and promotion expense was $928,000 in the fiscal period.
Segments Reporting
In 1998, the Company adopted Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14,
Financial Reporting for Segments of a Business Enterprise. The adoption of SFAS
131 did not affect the results of the Company's operation or financial
position.
The Company operates a chain of 422 young women's specialty apparel stores in
the United States, Puerto Rico and the U.S. Virgin Islands. Primarily all of
the 422 stores are mall based and the customers served are young women
principally between the ages of thirteen and nineteen years old. All of the
Company's merchandise is distributed to its stores from the same distribution
center.
The Company conducts business in one operating segment. The Company determined
its operating segment based on individual stores that the chief operating
decision maker reviews for purposes of assessing performance and making
operational decisions. These individual operations have been aggregated into
one segment because the Company believes it helps the users to understand the
Company's performance. The combined operations have similar economic
characteristics and each operation has similar products, services, customers
and distribution network.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
3. The Acquisition
On August 28, 1998, senior management of the Predecessor, in conjunction with
an investor group, acquired from Petrie substantially all of the assets and
certain of the liabilities of G & G Shops and certain other subsidiaries of
Petrie. The Company accounted for the Acquisition as a purchase.
F-9
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accordingly, the acquired assets and assumed liabilities have been recorded at
their estimated fair values at the date of acquisition as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired:
Current assets, excluding cash................................... $ 19,323
Property, plant and equipment.................................... 23,280
Purchase price in excess of tangible net assets acquired......... 113,754
Less liabilities assumed:
Accounts payable and accrued expenses............................ (24,357)
--------
Net cash paid...................................................... $132,000
========
</TABLE>
The unaudited pro forma results, which assume that the consummation of the
Acquisition and the planned $107 million debt offering (Note 6) had occurred on
February 1, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
-----------------
1999 1998
-------- --------
<S> <C> <C>
Net sales.................................................. $294,390 $286,938
Net income................................................. 1,689 4,454
</TABLE>
The pro forma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented nor are they intended to be indicative of
results that may occur in the future.
4. Property and Equipment
Property and equipment consist of the following at January 30, 1999 (in
thousands):
<TABLE>
<S> <C>
Leasehold costs, improvements and store fixtures and equipment..... $26,059
Less accumulated depreciation and amortization..................... (3,499)
-------
$22,560
=======
</TABLE>
5. Intangible Assets
Intangible assets consist of the following at January 30, 1999 (in thousands):
<TABLE>
<S> <C>
Goodwill........................................................... $116,633
Deferred financing................................................. 2,759
Less accumulated amortization...................................... (2,767)
--------
$116,625
========
</TABLE>
Amortization of deferred financing costs, which is included in interest expense
in the consolidated statement of income, totaled approximately $1.5 million for
the five months ended January 30, 1999.
6. Long-Term Debt
On August 28, 1998, in connection with the Acquisition, the Company entered
into a Loan Agreement (the "Loan Agreement") which, subject to the terms and
conditions thereof, provided the Company with $90 million of financing (the
"Loan").
F-10
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Outstanding borrowings under the Loan Agreement bear interest per annum at
LIBOR (5.6% at January 30, 1999), plus 600 basis points, and are guaranteed by
Holdings.
The Loan Agreement contains customary covenants including limitations on change
of ownership, transactions with affiliates, dividends, additional indebtedness,
creation of liens, asset sales, acquisitions and capital expenditures. The
formation of G & G Retail of Puerto Rico, Inc., the Company's Puerto Rican
service subsidiary, caused technical defaults under the Loan Agreement. The
Company has obtained waivers with respect to such technical defaults.
Interest, which is payable monthly, totaled approximately $4.4 million in
fiscal 1999. An additional fee equal to 1% of the aggregate unpaid principal
amount of the Loan is payable on a quarterly basis which totaled approximately
$1.5 million in fiscal 1999. The carrying amount of the Loan approximates fair
value at January 30, 1999.
Under certain circumstances, pursuant to the Loan Agreement, the Loan may
convert into a rollover note ("Rollover") on August 28, 1999 (the "Exchange
Date"). If the Loan is not repaid before the Exchange Date, the Company must
extend the financing for an additional six years under the Rollover. The
Rollover would be payable in full at the end of the six year term. Management
intends to repay the Loan with proceeds from a planned debt offering prior to
the Exchange Date and write off the related deferred financing costs.
Notes Payable
On August 28, 1998, the Company entered into a Loan and Security Agreement (the
"Facility") which provided for the extension of credit up to $10 million, plus
50% of the aggregate cost or market of inventory, not to exceed $5 million of
additional borrowings, as defined therein. Interest on the Facility accrued at
a per annum rate at LIBOR, plus 500 basis points which approximated the
weighted average rate on the outstanding borrowings for the period.
On October 30, 1998, the Company entered into a new Loan and Security Agreement
(the "New Facility") which replaced the Facility. The New Facility, which
expires in October 2001, provides, subject to the terms and conditions thereof,
for the extension of credit subject to eligible inventory (as defined therein)
not to exceed $20 million, of which $10 million can be used for letters of
credit. There were no borrowings under the New Facility outstanding at January
30, 1999.
Interest on amounts advanced under the New Facility accrues at a rate equal to
specified margins over the adjusted Eurodollar Rate or at the Prime Rate (7.75%
at January 30, 1999). Outstanding letters of credit under the New Facility
totalled approximately $640,000 at January 30, 1999.
The New Facility contains a minimum tangible net worth covenant and other
customary covenants including limitations on change of ownership, transactions
with affiliates, dividends, additional indebtedness, creation of liens, asset
sales, acquisitions, conduct of business and capital expenditures. The New
Facility also contains customary events of default including defaults on the
Company's other indebtedness (which includes the Loan). The formation of G & G
Retail of Puerto Rico, Inc., the Company's Puerto Rican service subsidiary,
caused technical defaults under the New Facility. The Company has obtained
waivers with respect to such technical defaults.
The Company's obligations under the New Facility are secured by a lien on all
or substantially all of the Company's assets.
If the New Facility is terminated prior to the stated maturity, a termination
fee is payable. The fee payable for termination on or prior to October 1999
would be $150,000, on or prior to October 2000 would be $100,000 and prior to
October 2001 would be approximately $67,000.
F-11
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the termination of the Facility, the Company wrote off
approximately $390,000 in deferred financing costs, which is included in
interest expense in the consolidated statement of operations.
7. Related Party Transactions
In connection with the closing of the Acquisition, an indirect investor in
Holdings earned a closing fee in the amount of $1,250,000 ($1,000,000 of this
fee was paid at closing and the remaining $250,000 was to be paid over a two-
year period, $160,000 of which is outstanding at January 30, 1999). The closing
fee constituted consideration for financial advisory services in connection
with the Acquisition. Additional Acquisition related fees totaling
approximately $2.1 million were paid to investment banking advisors who have an
indirect ownership interest in Holdings.
Two directors of the Company and Holdings, who are also officers of the Company
and Holdings and shareholders of Holdings, were entitled to receive a success
fee (the "Success Fee") aggregating approximately $3.3 million from G & G Shops
in connection with their assistance in the sale of G & G Shops' business. The
obligation to pay the Success Fee was assumed by the Company and paid prior to
January 30, 1999.
8. Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The following is a summary of the provision for income taxes for the five
months ended January 30, 1999 (in thousands):
<TABLE>
<S> <C>
Current income taxes:
Federal............................................................ $1,170
State and Puerto Rico.............................................. 751
Deferred income taxes:
Federal............................................................ (134)
State and Puerto Rico.............................................. (206)
------
Total provision for income taxes..................................... $1,581
======
</TABLE>
A reconciliation of the income tax provision to the amount of the provision
that would result from applying the federal statutory rate (34%) to income
before taxes is as follows:
<TABLE>
<CAPTION>
Five months
ended
January
30, 1999
-----------
<S> <C>
Provision for income taxes at federal statutory rate................ 34.0%
State income taxes, net of federal tax benefit...................... 4.6
Effect of higher Puerto Rico tax rates.............................. 4.7
Other............................................................... .6
----
Effective tax rate.................................................. 43.9%
====
</TABLE>
F-12
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's net deferred tax asset as of January 30, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
January
30, 1999
--------
<S> <C>
Current deferred tax asset:
Accrued expenses.................................................. $ 222
Inventory cost capitalization..................................... 423
------
$ 645
======
Long-term deferred tax asset:
Difference between book and tax basis of fixed assets............. $1,060
Intangible asset.................................................. (650)
------
$ 410
======
</TABLE>
9. Employee Benefit Plans
G+G maintains a profit sharing plan for all eligible employees that is funded
on a current basis through discretionary contributions. Profit sharing expense
was $250,000 for the five months ended January 30, 1999.
G+G also maintains a 401(k) plan covering certain of its employees. The Company
at its discretion can make contributions to the plan; however, no contributions
were made for the five months ended January 30, 1999.
G+G also maintains a defined contribution plan covering certain of its union
employees at its distribution center. Contribution expense was approximately
$40,000 for the five months ended January 30, 1999.
10. Commitments and Contingencies
The Company has employment agreements with certain key employees, providing for
minimum aggregate annual compensation of approximately $1.58 million per annum
with contract terms up to five years. Additionally, such employment agreements
provide for various incentive compensation payments as determined by the
Company's Board of Directors.
The Company is committed under operating leases for its stores and warehouse
facility, and equipment leases having initial terms of one year or more
expiring on various dates to 2008. Certain leases provide for additional
rentals based on a percentage of sales and for additional payments covering
real estate taxes, common area charges and other occupancy costs.
A summary of rental expense under all leases is as follows for the five months
ended January 30, 1999 (in thousands):
<TABLE>
<S> <C>
Fixed minimum........................................................ $ 9,058
Percentage rentals................................................... 1,020
Equipment rentals.................................................... 273
-------
$10,351
=======
</TABLE>
F-13
<PAGE>
G+G RETAIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minimum annual lease commitments (excluding percentage rents) under non-
cancelable operating leases for subsequent periods are as follows (in
thousands):
<TABLE>
<S> <C>
Fiscal year ending in:
2000................................................................. $18,504
2001................................................................. 13,574
2002................................................................. 11,259
2003................................................................. 8,626
2004................................................................. 5,433
Thereafter........................................................... 9,178
-------
$66,574
=======
</TABLE>
Litigation
The Company is a defendant in various lawsuits arising in the ordinary course
of its business. While the ultimate liability, if any, arising from these
claims cannot be predicted with certainty, the Company is of the opinion that
the resolution of the lawsuits will not likely have a material adverse effect
on the Company's consolidated financial statements.
11. Accrued Liabilities
Accrued liabilities consist of the following at January 30, 1999 (in
thousands):
<TABLE>
<S> <C>
Salaries and employee benefit costs................................. $ 4,338
Rent/occupancy costs................................................ 2,678
Corporate and store operating costs................................. 2,664
Other............................................................... 1,475
-------
$11,155
=======
</TABLE>
12. Subsequent Event (Unaudited)
On May 17, 1999, G+G and Holdings sold 107,000 units consisting of $107 million
face amount of 11% Senior Notes due May 15, 2006 and warrants of Holdings at an
exercise price of $0.01 per share to purchase 8,209 shares of nonvoting Class D
Common Stock in connection with the refinancing of the Company's then existing
indebtedness.
Any Class D Common Stock outstanding will be automatically converted into one
class of the Company's voting Common Stock upon the consummation of an initial
public offering which results in at least 20% of the Company's Common Stock
becoming publicly traded ("IPO"). The warrants will expire upon the earlier of
the consummation of an IPO (as defined) or ten years from the date of issuance.
F-14
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 1, 1999 January 30, 1999
----------- ----------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.................. $ 5,332 $ 13,129
Accounts receivable.............................. 452 718
Merchandise inventories.......................... 21,897 12,578
Prepaid expenses................................. 3,253 794
Deferred tax assets.............................. 645 645
-------- --------
Total current assets.............................. 31,579 27,864
Property and equipment, net....................... 23,590 22,560
Intangible assets, net............................ 115,489 116,625
Deferred tax assets............................... 785 410
Other assets...................................... 207 205
-------- --------
Total assets...................................... $171,650 $167,664
======== ========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable................................. $ 15,852 $ 13,338
Accrued expenses................................. 13,132 11,155
Income taxes payable............................. 1,222 1,330
-------- --------
Total current liabilities......................... 30,206 25,823
Long-term debt.................................... 90,000 90,000
-------- --------
Total liabilities................................. 120,206 115,823
Commitments and contingencies
Stockholder's equity:
Class B common stock, par value $.01 per share,
1,000 shares authorized, 10 shares issued and
outstanding..................................... -- --
Additional paid-in capital....................... 49,828 49,828
Retained earnings................................ 1,616 2,013
-------- --------
Total stockholder's equity........................ 51,444 51,841
-------- --------
Total liabilities and stockholder's equity........ $171,650 $167,664
======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Combined
G+G Retail, Inc. G & G Shops, Inc.
---------------- -----------------
Three months Three months
ended ended
May 1, 1999 May 2, 1998
---------------- -----------------
(In thousands)
<S> <C> <C>
Net sales.................................. $72,733 $66,398
Cost of sales (including occupancy costs).. 46,374 42,594
------- -------
Gross margin............................... 26,359 23,804
Operating expenses:
Selling, general, administrative and
buying.................................... 20,728 19,338
Depreciation and amortization............ 3,173 1,225
------- -------
Operating income........................... 2,458 3,241
Interest expense........................... 3,277 --
Interest income............................ 109 --
------- -------
(Loss) income before provision (benefit)
for income taxes.......................... (710) 3,241
(Benefit) provision for income taxes....... (313) 1,335
------- -------
Net (loss) income.......................... $ (397) $ 1,906
======= =======
</TABLE>
See accompanying notes.
F-16
<PAGE>
G+G RETAIL, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Combined
G+G Retail, Inc. G & G Shops, Inc.
---------------- -----------------
Three months Three months
ended ended
May 1, 1999 May 2, 1998
---------------- -----------------
(In thousands)
<S> <C> <C>
Operating activities
Net (loss) income.......................... $ (397) $ 1,906
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization............ 2,216 1,225
Amortization of intangible assets........ 957 --
Amortization of deferred financing
costs..................................... 536 --
Deferred taxes........................... (375) --
Changes in assets and liabilities:
Accounts receivable, net and other
assets.................................... (2,195) (2,022)
Merchandise inventories................ (9,319) (8,475)
Accounts payable and accrued expenses.. 4,491 7,903
Income taxes payable................... (108) (159)
------- -------
Net cash (used in) provided by operating
activities................................ (4,194) 378
Investing activities
Capital expenditures, net.................. (3,246) (1,558)
Transaction costs.......................... (357) --
------- -------
Net cash used in investing activities...... (3,603) (1,558)
Financing activities
Net distributions to parent................ -- 1,180
------- -------
Net cash provided by financing activities.. -- 1,180
------- -------
Net decrease in cash and short-term
investments............................... (7,797) --
Cash and short-term investments, beginning
of period................................. 13,129 --
------- -------
Cash and short-term investments, end of
period.................................... $ 5,332 $ --
======= =======
Supplemental cash flow disclosures
Cash paid for:
Interest................................. $ 3,299 $ --
======= =======
Income taxes............................. $ 191 $ --
======= =======
</TABLE>
See accompanying notes.
F-17
<PAGE>
G+G RETAIL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The accompanying consolidated financial statements include G+G Retail, Inc.
(the "Company") and its wholly-owned subsidiary. The Company was incorporated
on June 26, 1998. The combined statement of operations and statement of cash
flow for the three months ended May 2, 1998 are those of the Company's
predecessor, G & G Shops, Inc. and its subsidiaries and certain other
subsidiaries of its parent, Petrie Retail Inc. (collectively the
"Predecessor").
On August 28, 1998, G+G Retail Holdings, Inc. ("Holdings" or the "Parent") made
a capital contribution to the Company in the amount of $50.5 million.
Concurrently with such contribution to capital, the Company made a payment on
behalf of the Parent in the amount of $700,000. Simultaneous with the initial
capital contribution, the Company acquired (the "Acquisition") substantially
all of the assets and assumed certain liabilities of the Predecessor from
Petrie Retail, Inc. ("Petrie"). The Acquisition was accounted for as a
purchase; accordingly, the accompanying consolidated balance sheets reflect the
preliminary allocation of the purchase price to tangible and intangible assets
acquired and liabilities assumed.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring accruals) considered
necessary to present fairly its financial position as of May 1, 1999 and
January 30, 1999 and the results of its operations and cash flows for the
period ended May 1, 1999 and the results of the Predecessor's operations and
cash flows for the period ended May 2, 1998. These financial statements should
be read in conjunction with the consolidated financial statements of the
Company and the combined financial statements of the Predecessor and footnotes
thereto included elsewhere in this Prospectus. The interim operating results
are not necessarily indicative of the results that may be expected for an
entire year.
Note 2
On August 28, 1998, in connection with the Acquisition, the Company entered
into a Senior Bridge Note Agreement (the "Senior Bridge Note") which, subject
to the terms and conditions thereof, provided the Company with $90 million of
financing (the "Loan").
Outstanding borrowings under the Senior Bridge Note bear interest per annum at
one-month LIBOR plus 600 basis points (10.92% at May 1, 1999), and are
guaranteed by Holdings. Interest, which is payable monthly, totaled
approximately $2.7 million in the first quarter of fiscal 2000. An additional
fee equal to 1% of the aggregate unpaid principal amount of the Loan is payable
on a quarterly basis and totaled approximately $300,000 in the quarter ended
May 1, 1999. On May 17, 1999 the Company refinanced the Loan with the proceeds
from a $107 million private placement of units (see Note 5); thus, this 1% fee
was not accrued in the accompanying financial statements.
Note 3
The Company has a Loan and Security Agreement, which expires in October 2001,
and provides, subject to the terms and conditions thereof, for the extension of
credit subject to eligible inventory (as defined therein) not to exceed $20
million, of which $10 million can be used for letters of credit. There were no
borrowings under the Facility outstanding at May 1, 1999. Outstanding letters
of credit under the Facility totaled approximately $681,000 at May 1, 1999.
F-18
<PAGE>
G+G RETAIL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest on amounts advanced under the Facility accrues at a rate equal to
specified margins over the adjusted Eurodollar Rate or at the Prime Rate (7.75%
at May 1, 1999).
Note 4
Effective March 15, 1999, Holdings adopted its 1999 Stock Option Plan (the
"Option Plan") providing for the granting of options to purchase shares of its
Class A Common Stock to its employees and employees of its subsidiaries
including the Company. The Option Plan is administered by the Board of
Directors of Holdings which is authorized to grant incentive stock options
and/or non-qualified stock options to purchase up to 7,000 shares of Class A
Common Stock. As of May 1, 1999, Holdings had granted, under the Option Plan,
options to purchase 5,000 shares of its Class A Common Stock, above fair market
value, of which 1,250 are currently exercisable.
Note 5
On May 17, 1999 the Company and Holdings completed a private placement of
107,000 units consisting in the aggregate of $107 million face amount of 11%
Senior Notes due May 15, 2006 of the Company and warrants to purchase 8,209
shares of nonvoting Class D Common Stock of Holdings at an exercise price of
$.01 per share. There was an original issue discount of approximately $7.3
million related to the issuance of the units. The net proceeds were used to
refinance the Loan and pay fees related to the offering of the units, and the
balance of the net proceeds will be used for general corporate purposes.
The Senior Notes, net of discount, were recorded at approximately $99 million.
The pro forma results (a) for the first quarter of fiscal 2000, which assume
the consummation of the $107 million private placement of units had occurred on
January 31, 1999, and (b) for the first quarter of fiscal 1999, which assume
the consummation of the Acquisition and the $107 million private placement of
units had each occurred on February 1, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
First Quarter
----------------
2000 1999
------- -------
<S> <C> <C>
Net sales.................................................. $72,733 $66,398
Operating income........................................... 2,458 1,917
Net loss................................................... (415) (780)
</TABLE>
The pro forma results are not necessarily indicative of the results of
operations that would have occurred had the Acquisition and the units offering
taken place at the beginning of the periods presented nor are they intended to
be indicative of results that may occur in the future.
F-19
<PAGE>
Report of Independent Auditors
The Board of Directors
G & G Shops, Inc.
We have audited the accompanying combined balance sheet of G & G Shops, Inc.
and its subsidiaries (collectively, the "Company") as of January 31, 1998, and
the combined statements of income, shareholder's deficit, and cash flows for
the seven months ended August 28, 1998 and the two years in the period ended
January 31, 1998. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company at January 31, 1998, and the combined results of its operations and
its cash flows for the seven months ended August 28, 1998 and the two years in
the period ended January 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
April 14, 1999
F-20
<PAGE>
G & G SHOPS, INC.
COMBINED BALANCE SHEET
(In Thousands)
January 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable................................................. $ 542
Merchandise inventories............................................. 10,091
Prepaid expenses.................................................... 157
--------
Total current assets................................................. 10,790
Property and equipment, net.......................................... 17,170
Other assets......................................................... 197
--------
Total assets......................................................... $ 28,157
========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable (including bank overdrafts of $1.7 million)........ $ 9,172
Accrued expenses.................................................... 14,705
--------
Total current liabilities............................................ 23,877
Long-term liabilities:
Liabilities subject to compromise................................... 20,866
--------
Total liabilities.................................................... 44,743
Commitments and contingencies
Shareholder's deficit:
Paid-in capital..................................................... 5,637
Retained earnings................................................... 28,922
Net distributions to Parent......................................... (51,145)
--------
Total shareholder's deficit.......................................... (16,586)
--------
Total liabilities and shareholder's deficit.......................... $ 28,157
========
</TABLE>
See accompanying notes.
F-21
<PAGE>
G & G SHOPS, INC.
COMBINED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Seven
months Year ended
ended -----------------
August January February
28, 1998 31, 1998 1, 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales............................................ $162,823 $286,938 $266,362
Cost of sales (including occupancy costs)............ 106,056 177,765 166,636
-------- -------- --------
Gross margin......................................... 56,767 109,173 99,726
Operating expenses:
Selling, general, administrative and buying........ 48,231 77,437 73,374
Depreciation and amortization...................... 2,845 4,489 4,526
Royalty expense.................................... 1,012 1,834 1,749
Store closing expenses............................. 87 431 1,561
-------- -------- --------
Income before income taxes........................... 4,592 24,982 18,516
Income taxes......................................... 1,892 10,293 7,629
-------- -------- --------
Net income........................................... $ 2,700 $ 14,689 $ 10,887
======== ======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE>
G & G SHOPS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S DEFICIT
(In Thousands)
<TABLE>
<CAPTION>
Net Total
Paid-In Retained Distributions Shareholder's
Capital Earnings to Parent Deficit
------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Balance--February 3, 1996......... $5,637 $ 3,346 $(13,531) $ (4,548)
Net distributions............... (18,545) (18,545)
Net income...................... 10,887 10,887
------ ------- -------- --------
Balance--February 1, 1997......... 5,637 14,233 (32,076) (12,206)
Net distributions............... (19,069) (19,069)
Net income...................... 14,689 14,689
------ ------- -------- --------
Balance--January 31, 1998......... 5,637 28,922 (51,145) (16,586)
Net distributions............... (14,140) (14,140)
Net income...................... 2,700 2,700
------ ------- -------- --------
Balance--August 28, 1998.......... $5,637 $31,622 $(65,285) $(28,026)
====== ======= ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
G & G SHOPS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Seven
months Year ended
ended ------------------
August January February
28, 1998 31, 1998 1, 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income...................................... $ 2,700 $ 14,689 $ 10,887
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 2,845 4,489 4,526
Store closing expenses........................ -- 203 695
Loss on disposal of equipment................. 16 220 --
Changes in assets and liabilities:
Accounts receivable......................... 177 (460) 10
Merchandise inventories..................... (8,611) (388) 656
Prepaid expenses and other assets........... 144 91 94
Accounts payable and accrued expenses....... 18,363 6,444 1,848
Liabilities subject to compromise........... 159 300 1,327
-------- -------- --------
Net cash provided by operating activities....... 15,793 25,588 20,043
Investing activities
Capital expenditures, net....................... (3,400) (7,005) (1,952)
-------- -------- --------
Net cash used in investing activities........... (3,400) (7,005) (1,952)
Financing activities
Net distributions to Parent..................... (14,140) (19,069) (18,545)
-------- -------- --------
Net cash used in financing activities........... (14,140) (19,069) (18,545)
-------- -------- --------
Net decrease in cash............................ (1,747) (486) (454)
Cash, beginning of period....................... -- 486 940
-------- -------- --------
Cash (bank overdraft), end of period............ $ (1,747) $ -- $ 486
======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
August 28, 1998
1. Organization and Business
The accompanying combined financial statements include the accounts of G & G
Shops, Inc. ("G & G" or the "Company"), a subsidiary of Petrie Retail, Inc.
("Petrie Retail" or the "Parent") and certain store assets owned by Petrie
Retail.
On December 9, 1994, PS Stores Acquisition Corp. acquired (the "Acquisition")
all of the issued and outstanding shares of Petrie Retail from Petrie Stores
Corporation pursuant to the terms of a Stock Purchase Agreement (the
"Agreement"). In accordance with the Agreement, for accounting purposes the
transaction was accounted for as of November 26, 1994.
The Acquisition was accounted for as a purchase. The bargain purchase element
associated with the transaction was pushed down to the Company based on the
fair value of the Company's property and equipment at the date of acquisition
relative to the consolidated property and equipment. The estimated portion of
the purchase accounting liabilities deemed to be attributable to the Company
have been reflected in these combined financial statements.
On October 12, 1995 (the "Petition Date"), Petrie Retail filed petitions under
Chapter 11 ("Chapter 11") of the Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Southern District of New York, on behalf
of itself and its subsidiaries, including G & G (collectively, the "Debtors"),
seeking relief to reorganize under Chapter 11. The Debtors managed the affairs
and operated the business of G & G under Chapter 11 as debtors-in-possession
until August 28, 1998 when substantially all of the assets of G & G were
acquired. On August 28, 1998, substantially all of the Company's assets and
certain liabilities were sold to an investor group including the management of
G & G (the "Sale") (Note 11).
2. Summary of Significant Accounting Policies
Nature of Business
The Company owns and operates a chain of young women's specialty apparel stores
in the United States, Puerto Rico and the U.S. Virgin Islands.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January 31. The fiscal
period ended August 28, 1998 began on February 1, 1998 and consisted of thirty
weeks. Each of the fiscal years ended January 31, 1998 and February 1, 1997
consisted of fifty-two weeks.
Principles of Combination
The accompanying combined financial statements include the accounts of the
Company and certain store assets owned by subsidiaries of Petrie Retail but
operated as stores of the Company. All significant intercompany activity
between the various entities included in these financial statements has been
eliminated in combination.
F-25
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
related to certain accounts, such as inventory, accounts receivable, income
taxes and various other reserves, as well as liabilities subject to compromise,
that affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could materially differ from those
estimates.
Concentration of Risk
The Company operates a distribution center that depends on employees under a
collective bargaining agreement with a union. Historically, the Company has not
experienced labor disruptions as a result of disputes with its union workers.
The Company has significant merchandise purchases from vendors who utilize
factors. Approximately 36% of the Company's merchandise purchases are from
three vendors. In addition, approximately 16% of the stores are leased from a
single landlord.
Inventories
Merchandise inventories, which consist of finished goods, are valued at the
lower of cost as determined by the retail inventory method (average cost basis)
or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment are computed principally by the straight-line method
based on the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold costs and
improvements Term of lease or 10 years, whichever is less, straight-line
Store fixtures and
equipment 1 to 10 years, straight-line
</TABLE>
Preopening Costs
Store opening costs are charged to operations as incurred.
Accrued Expenses and Long-Term Liabilities
Included in accrued expenses and liabilities subject to compromise are certain
costs associated with the acquisition, as well as other acquisition related
liabilities. These amounts are classified as liabilities subject to compromise
in the combined balance sheet.
Income Taxes
Income taxes are accounted for by the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between financial reporting and tax basis of assets and liabilities and are
measured using the current enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
F-26
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Net Distributions to Parent
Net distributions to Parent consists of the intercompany activity between the
Company and the Parent principally resulting from the Company transferring
substantially all operating cash flow to the Parent, net of certain
expenditures made by the Parent on behalf of the Company. No interest has been
imputed on transactions with the Parent.
Long-Lived Assets
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
reviews its long-lived assets used in operations for events and circumstances
which might indicate that the assets are impaired and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No impairment losses on long-lived assets were
required for the period ended August 28, 1998 or for the fiscal years 1998 or
1997.
Advertising and Promotion
All costs associated with advertising and promotion are expensed in the year
incurred. Advertising and promotion expense was $794,000 for the seven months
ended August 28, 1998 and $1.1 million and $1.4 million in fiscal 1998 and
fiscal 1997, respectively.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year's presentation.
3. Property and Equipment
Property and equipment consist of the following at January 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Leasehold cost, improvements and store fixtures and equipment....... $30,899
Less accumulated depreciation....................................... 13,729
-------
$17,170
=======
</TABLE>
4. Income Taxes
PS Stores Acquisition Corp. and its subsidiaries, including the Company, file a
consolidated federal income tax return and, where applicable, combined state
and local income tax returns. As a result, the Company is jointly and severally
liable for all tax claims arising from the consolidated and combined returns to
which it is a party. However, after the Sale, Petrie Retail retained all of the
income tax liabilities. (Note 11).
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-27
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In accordance with a tax sharing agreement, the provision for income taxes
recorded by the Company represents the amount calculated on a separate return
basis. All taxes are paid by the Parent with the applicable expenses related to
the Company allocated through the intercompany account.
At August 28, 1998, January 31, 1998, and February 1, 1997 approximately $5
million of income tax reserves are classified as liabilities subject to
compromise.
The following is a summary of the components of the Company's income tax
provision (in thousands):
<TABLE>
<CAPTION>
Seven
months Year ended
ended ------------------
August January February
28, 1998 31, 1998 1, 1997
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Federal........................................ $1,342 $ 7,231 $5,395
State and Puerto Rico.......................... 822 4,574 3,681
Deferred income taxes:
Federal........................................ (212) (1,179) (1,128)
State and Puerto Rico.......................... (60) (333) (319)
------ ------- ------
Total provision for income taxes................. $1,892 $10,293 $7,629
====== ======= ======
</TABLE>
The deferred income tax provision is principally due to the differences in the
depreciation methods used for financial statement and tax purposes, and to
various accrual and reserve accounts.
The net current and deferred income tax assets have been included in the net
distributions to Parent account in the accompanying combined balance sheet.
A reconciliation of the income tax provision to the provision that would result
from applying the federal statutory rate (34%) to income before taxes is as
follows:
<TABLE>
<CAPTION>
Seven
months Year ended
ended -----------------
August January February
28, 1998 31, 1998 1, 1997
-------- -------- --------
<S> <C> <C> <C>
Provision for income taxes at federal statutory
rate.......................................... 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit....................................... 4.6 4.6 4.6
Other.......................................... .1 .1 .1
Effect of higher Puerto Rico tax rates......... 2.5 2.5 2.5
---- ---- ----
Effective tax rate............................. 41.2% 41.2% 41.2%
==== ==== ====
</TABLE>
5. Store Closing Expense
Store closing expense was as follows (in thousands):
<TABLE>
<CAPTION>
Seven
months Year ended
ended -----------------
August January February
28, 1998 31, 1998 1, 1997
-------- -------- --------
<S> <C> <C> <C>
Store closing expense............................ $87 $431 $1,561
=== ==== ======
</TABLE>
F-28
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The store closing expense for the seven months ended August 28, 1998
principally consists of losses on disposal of property and equipment and
inventory.
The fiscal 1998 store closing expense of approximately $431,000 consists of a
$228,000 provision for lease rejection claims and $203,000 of losses on
disposal of property and equipment and inventory. The lease rejection
obligations of $228,000 (amount included in liabilities subject to compromise)
were calculated taking into account provisions in the Bankruptcy Code.
The fiscal 1997 store closing expense of approximately $1.6 million consists of
an $866,000 provision for lease rejection claims and $695,000 of losses on
disposal of property and equipment and inventory. The lease rejection
obligations of $866,000 (amount included in liabilities subject to compromise)
were calculated taking into account provisions in the Bankruptcy Code.
6. Liabilities Subject to Compromise
Petrie Retail and its subsidiaries each filed a voluntary petition on October
12, 1995 with the United States Bankruptcy Court for relief under Chapter 11.
As a result, the Debtors' obligations with respect to its prepetition
liabilities were stayed with certain exceptions concerning the Debtors'
prepetition secured bank debt. In addition, the Debtors received authority to
pay certain prepetition liabilities for payroll, employee benefits and certain
other expenses. Certain prepetition obligations are collateralized by both real
and personal property of the Debtors; however, these obligations are recorded
as liabilities subject to compromise, as the ultimate adequacy of security for
any secured prepetition debt will be determined in the claim allowance or plan
confirmation process. Additional claims will arise by reason of current and
future terminations of various contractual obligations and as certain
contingent and/or disputed claims are asserted or settled. Those claims and
liabilities could materially exceed the amounts recorded.
In Chapter 11 cases, substantially all liabilities as of the Petition Date are
subject to compromise or other treatment under a plan or plans of
reorganization. For financial reporting purposes, these liabilities and
obligations whose disposition is dependent on the outcome of the Chapter 11
cases have been segregated and classified as liabilities subject to compromise
under reorganization proceedings in the combined balance sheet. Generally,
actions to enforce or otherwise effect repayment of all pre-Chapter 11
liabilities as well as all litigation pending as of the Petition Date against
the Debtors are stayed while the Debtors continue their business operations as
debtors-in-possession. Schedules have been filed by the Debtors with the
Bankruptcy Court setting forth the assets and liabilities of the Debtors as of
the Petition Date as reflected in the Debtors' accounting records. Differences
between amounts reflected in such schedules and claims filed by creditors will
be investigated and either amicably resolved or adjudicated. The ultimate
amount of and settlement terms for such liabilities are subject to the claims
allowance process and the terms of a plan or plans of reorganization and,
accordingly, are not presently determinable. Additional liabilities subject to
compromise may become fixed or liquidated subsequent to the Petition Date as a
result of claims filed by parties affected by the Debtors' rejection of
executory contracts, including leases, and from the Bankruptcy Court's
resolution of asserted claims, including contingent claims and other disputed
accounts. The date by which certain prepetition creditors of the Debtors were
required to file proof of their prepetition claims was December 29, 1997.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts, and other prepetition executory contracts or leases, subject to
Bankruptcy Court approval. The liabilities subject to compromise include a
provision
F-29
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
for the estimated amount that may be claimed by lessors and allowed by the
Bankruptcy Court in connection with rejected real estate leases. Executory
contracts assumed by the Company may create additional administrative expenses.
Accordingly, such liabilities may be subject to material changes (Note 11).
The Company's liabilities subject to compromise consist of the following at
January 31, 1998 (in thousands):
<TABLE>
<S> <C>
Long-term liabilities:
Accounts payable-trade............................................ $ 3,934
Accrued expenses and other........................................ 14,828
Lease rejection claims............................................ 2,104
-------
$20,866
=======
</TABLE>
7. Accrued Expenses
Accrued expenses consist of the following at January 31, 1998 (in thousands):
<TABLE>
<S> <C>
Royalty............................................................. $ 2,420
Taxes (other than income taxes)..................................... 1,299
Corporate and store operating costs................................. 2,652
Rent/occupancy costs................................................ 4,435
Salaries and employee benefit costs................................. 3,899
-------
$14,705
=======
</TABLE>
In connection with the Sale (Note 11), only certain current liabilities were
acquired and all liabilities subject to compromise were retained by Petrie
Retail.
8. Employee Benefit Plans
G & G maintains a profit sharing plan for all eligible employees that is funded
on a current basis by discretionary contributions. Profit sharing expense was
$348,000, $600,000 and $420,000, respectively, for the seven months ended
August 28, 1998 and the fiscal years ended January 31, 1998 and February 1,
1997.
The Company also maintains a 401(k) plan covering certain employees. The
Company does not match employee contributions to the plan.
Certain of the Company's employees are also covered by a union sponsored,
collectively bargained, multi-employer defined benefit pension plan (the
"Plan"). Effective January 31, 1995 the Company withdrew from the Plan. In
addition, other employers withdrew from the Plan. The combination of these
events resulted in the imposition of a mass withdrawal liability on the
Company. An estimate of the ultimate withdrawal liability for the Plan has been
recorded by the Company as a liability subject to compromise in the
accompanying combined balance sheet. In connection with the Sale, the estimated
ultimate withdrawal liability was retained by Petrie Retail.
F-30
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
9. Transactions with Related Parties
Included in the combined statements of income for the seven months ended August
28, 1998 and each of the fiscal years ended January 31, 1998 and February 1,
1997 are payroll, insurance and various other expenditures paid by the Parent
on behalf of the Company. Such intercompany payments made by the Parent on
behalf of the Company have been included in net distributions to the Parent in
the combined balance sheet.
The Company performs many of the functions of a stand-alone company; however,
Petrie Retail performed certain administrative, treasury, legal, management
information systems for payroll processing and general ledger support, and tax
services on behalf of the Company. The Company's financial statements reflect
an estimate of the costs for which there was no allocation by Petrie Retail.
The estimated costs reflected in the combined financial statements for these
additional services is $300,000 for the seven month period ended August 28,
1998 and $600,000 for each of fiscal 1998 and 1997. Management believes the
method used in determining these amounts is reasonable.
Two officers of the Company were entitled to receive a success fee aggregating
approximately $3.3 million from the Company in connection with their assistance
in the sale of the Company's business (Note 11). This fee has been included in
selling, general, administrative and buying expenses in the combined statement
of income for the seven months ended August 28, 1998.
10. Commitments and Contingencies
The Company and its subsidiaries are committed under operating leases for their
stores and warehouse facility, and equipment leases having initial terms of one
year or more expiring on various dates to 2008. Certain leases provide for
additional rentals based on a percentage of sales and for additional payments
covering real estate taxes, common area charges and other occupancy costs.
A summary of rental expense under all leases was as follows (in thousands):
<TABLE>
<CAPTION>
Seven Year ended
months ----------------
ended January
August 28, 31, February
1998 1998 1, 1997
---------- ------- --------
<S> <C> <C> <C>
Fixed minimum.................................... $11,214 $18,153 $18,435
Percentage rentals............................... 1,618 3,033 2,259
Equipment rentals................................ 314 562 513
------- ------- -------
$13,146 $21,748 $21,207
======= ======= =======
</TABLE>
Minimum annual lease commitments (excluding percentage rents) under
noncancelable operating leases for subsequent periods are as follows (in
thousands):
<TABLE>
<S> <C>
Fiscal year ending in:
2000................................................................ $17,468
2001................................................................ 12,893
2002................................................................ 10,468
2003................................................................ 8,033
2004................................................................ 4,851
Thereafter.......................................................... 7,580
-------
$61,293
=======
</TABLE>
F-31
<PAGE>
G & G SHOPS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
As disclosed in Note 6, the Debtors filed a voluntary petition on October 12,
1995 with the Bankruptcy Court for relief under Chapter 11. As debtors-in-
possession, the Debtors have the right, subject to Bankruptcy Court approval
and certain other limitations, to assume or reject executory contracts,
including unexpired leases. These amounts are included in lease rejection
claims (Note 6).
The Company is involved in litigation associated with the bankruptcy
proceedings and its reorganization efforts, as well as matters related to its
ordinary conduct of business. If such litigation resulted in unfavorable
outcomes to the Company, they could have a material impact on its combined
financial statements. Management believes it has meritorious defenses
associated with the litigation. In conjunction with the Sale, Petrie retained
all liabilities associated with this litigation.
11. Subsequent Event
On August 28, 1998, substantially all of the assets (the "Purchased Assets") of
the junior women's apparel retail business (the "Business") conducted under the
trade names "G+G" and "Rave" and certain liabilities were sold by Petrie Retail
to an investment group including the management of the Company (the
"Acquirer"). The acquisition was effectuated pursuant to an asset purchase
agreement dated as of July 6, 1998, as amended, between Petrie Retail and the
Acquirer, which was approved by the Bankruptcy Court on August 24, 1998. On
October 12, 1995, the Debtors filed petitions under Chapter 11 in the
Bankruptcy Court, seeking relief to reorganize under Chapter 11. On August 28,
1998, substantially all of the Company's assets and certain liabilities were
sold in the Sale.
The purchase price paid for the Purchased Assets was approximately $157
million, principally consisting of $132 million in cash, the assumption of
certain liabilities and the issuance of stock. The Purchased Assets included,
among other things: (a) all right, title and interest in over 400 store leases,
as well as leases for the Business' headquarters and distribution center, and
other contracts related to the Business, (b) inventories and other tangible
personal property related to the Business, (c) equipment and fixtures related
to the Business, (d) accounts receivable, notes receivable and other claims for
money or obligations due to Petrie Retail in connection with the Business, and
(e) intellectual property and goodwill associated with the Business.
Liabilities and contingencies not assumed by the Acquirer were retained by
Petrie Retail and are managed by the trustee who oversees the bankruptcy
proceedings for Petrie Retail and its subsidiaries. Such liabilities and
contingencies consist principally of liabilities subject to compromise (Note
6), pension liabilities (Note 8), tax liabilities (Note 4) and the assumption
of all pending and threatened litigation as of August 28, 1998.
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this Prospectus. You must not rely on
any unauthorized information or representations. This Prospectus is an offer to
issue only the exchange notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
Prospectus is correct only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Note Regarding Forward-Looking
Statements.......................... i
Summary of the Exchange Offer........ 5
Risk Factors......................... 14
The Acquisition...................... 23
Use of Proceeds...................... 24
Capitalization....................... 25
Unaudited Pro Forma Consolidated
Financial Statements................ 26
Selected Financial and
Operating Data...................... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business............................. 44
Management........................... 54
Principal Stockholders............... 62
Certain Relationships and
Related Transactions................ 64
Description of Revolving Credit
Facility............................ 69
The Exchange Offer................... 70
Description of the Notes............. 81
Registration Rights Agreement........ 114
Book-Entry; Delivery and Form........ 117
Certain Federal Income Tax
Considerations...................... 121
Plan of Distribution................. 126
Legal Matters........................ 127
Experts.............................. 127
Available Information................ 127
Index to Financial Statements........ F-1
</TABLE>
Until , (90 days after the date of this Prospectus), all dealers
effecting transactions in the exchange notes, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in addition
to the obligation of dealers to deliver a prospectus when selling exchange
notes received in exchange for outstanding notes held for their own account.
See "Plan of Distribution."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$107,000,000
[LOGO]
G+G Retail, Inc.
Offer to Exchange All Outstanding 11% Senior Notes due 2006 for 11% Senior
Notes due 2006 which have been Registered under the Securities Act of 1933
---------------------------------
PROSPECTUS
---------------------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of the Delaware General
Corporation Law (the "DGCL"), the Certificate of Incorporation of the Company
and the Indemnification Agreements dated August 28, 1998 between the Company
and each of its directors, as such provisions relate to the indemnification of
the directors and officers of the Company. This description is intended only as
a summary and is qualified in its entirety by reference to the applicable
provisions of the DGCL and the Certificate of Incorporation of the Company and
the Indemnification Agreements which are attached as exhibits to this
registration statement.
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity at another corporation or business organization,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, provided that such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to any criminal proceeding,
had no reasonable cause to believe that such person's conduct was unlawful. A
Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of his fiduciary duty as a director; provided, however, that such
clause shall not apply to any liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL (Liability of
Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or
Redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation provides for the elimination of
personal liability of a director for breach of fiduciary duty to the full
extent permitted by the DGCL. The Company's Certificate of Incorporation also
provides that the Company shall indemnify its directors and officers to the
full extent permitted by the DGCL.
The Company has entered into separate, identical indemnification agreements
with each of its directors. Pursuant to each indemnification agreement, the
Company agreed to hold harmless and indemnify, to the fullest extent provided
by Sections 145(a) and (b) of the DGCL, the director against all expenses,
judgments, fines and amounts paid in settlement reasonably incurred by the
director in connection with any threatened, pending or completed civil or
criminal action, suit or proceeding (including derivative actions) to which the
director is, was or becomes a party, or is threatened to be made a party, as a
result of being a director or former director of the Company. The obligation of
the Company to indemnify a director is subject to the conditions that the
director acted in good faith and in a manner he reasonably believed to be in
the best interest of and not opposed to the Company and, with respect to a
criminal proceeding, had no reason to believe such conduct was unlawful. In
addition, the obligation of the
II-1
<PAGE>
Company to indemnify a director is subject to certain limited exclusions set
forth in the indemnification agreement. Pursuant to each indemnification
agreement, a director also is entitled to receive from the Company an advance
for expenses incurred by such director in defending any action, suit or
proceeding, which advance is subject to repayment if a court ultimately
determines that the director was not entitled to be indemnified.
The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.01 Purchase Agreement, dated as of May 6, 1999, by and among U.S. Bancorp
Investments, Inc., CIBC World Markets Corp., G+G Retail, Inc. and G&G
Retail Holdings, Inc.
2.01 Asset Purchase Agreement, dated as of July 6, 1998, among G & G Shops,
Inc., the subsidiaries of G & G Shops, Inc. named therein, the
subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G
Retail, Inc.
2.02 Amendment No. 1 to the Asset Purchase Agreement, dated as of July 27,
1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc.
named therein, the subsidiaries of Petrie Retail, Inc. named therein,
PSL, Inc. and G+G Retail, Inc.
2.03 Amendment to the Asset Purchase Agreement, dated August 24, 1998,
among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named
therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL,
Inc. and G+G Retail, Inc.
3.01 Certificate of Incorporation of G+G Retail, Inc.
3.02 Amended and Restated By-Laws of G+G Retail, Inc.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail, Inc.,
as issuer, and U.S. Bank Trust National Association, as trustee.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17, 1999,
by and between G+G Retail, Inc. and U.S. Bancorp Libra.
5.01 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to the
legality of the securities being registered.
10.01 Agreement of Lease, dated November 28, 1988, between Hartz 83rd Street
Associates and
G & G Shops of Woodbridge, Inc.
10.02 Lease Addendum, dated April 10, 1990, between Hartz 83rd Street
Associates and G & G Shops of Woodbridge, Inc.
10.03 Second Lease Modification Agreement, dated February 24, 1994, between
Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc.
10.04 Notification Letter, dated November 20, 1995, re: assignment of
landlord's interest under the Agreement of Lease dated November 28,
1988 between Hartz 83rd Street Associates and
G & G Shops of Woodbridge, Inc., as amended.
10.05 Assignment and Assumption Agreement, dated as of August 28, 1998, by
and among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc.
named therein, the subsidiaries of Petrie Retail, Inc. named therein,
PSL, Inc. and G+G Retail, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.06 Employment Agreement, dated as of August 28, 1998, by and between G+G
Retail, Inc. and Jay Galin.
10.07 Employment Agreement, dated as of August 28, 1998, by and between G+G
Retail, Inc. and Scott Galin.
10.08 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Jay Galin.
10.09 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Scott Galin.
10.10 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Craig Cogut.
10.11 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Lenard Tessler.
10.12 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Donald D. Shack.
10.13 Letter Agreement, dated October 12, 1998, by and between G+G Retail,
Inc. and Michael Kaplan.
10.14 Letter Agreement, dated October 12, 1998, by and between G+G Retail,
Inc. and Jeffrey Galin.
10.15 Loan and Security Agreement, dated October 30, 1998, by and between
Congress Financial Corporation, G+G Retail, Inc. and the Additional
Parties thereto.
10.16 Amendment No. 1 to Employment Agreement, dated as of November 30,
1998, by and between G+G Retail, Inc. and Jay Galin.
10.17 Amendment No. 1 to Employment Agreement, dated as of November 30,
1998, by and between G+G Retail, Inc. and Scott Galin.
10.18 Bonus Plan for Senior Management Employees of G+G Retail, Inc.,
effective February 2, 1999.
10.19 NCR Corporation Master Agreement, effective as of February 9, 1999,
between NCR Corporation and G+G Retail, Inc.*
10.20 Discount Addendum, effective as of February 26, 1999, between NCR
Corporation and G+G Retail, Inc.*
10.21 G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as of
March 15, 1999.
10.22 Option Agreement, dated as of March 15, 1999, by and between G&G
Retail Holdings, Inc. and Jay Galin.
10.23 Option Agreement, dated as of March 15, 1999, by and between G&G
Retail Holdings, Inc. and Scott Galin.
10.24 Service Agreement, dated April 1, 1999, between G+G Retail, Inc. and G
& G Retail of Puerto Rico, Inc.
10.25 Master Lease Purchase Agreement, dated as of May 4, 1999, by and
between Chase Equipment Leasing, Inc. and G+G Retail, Inc.
10.26 Addendum to Master Lease Purchase Agreement, effective as of May 4,
1999, by and between Chase Equipment Leasing, Inc. and G+G Retail,
Inc.
10.27 Form of Exchange Agent Agreement between U.S. Bank Trust National
Association, as exchange agent, and G+G Retail, Inc.*
12.01 Statement regarding the computation of ratio of earnings to fixed
charges for G+G Retail, Inc.
21.01 Subsidiaries of G+G Retail, Inc.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (contained in
Exhibit 5.01).
24.01 Power of attorney (included on signature page to the Registration
Statement).
25.01 Statement of eligibility of trustee.
27.01 Financial data schedule.
27.02 Financial data schedule.
99.01 Form of Letter of Transmittal.
99.02 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules.
All schedules for which provision is made in Regulation S-X of the Securities
and Exchange Commission are not required under the related instructions or are
inapplicable or the required information is included in the financial
statements or notes thereto and, therefore, have been omitted.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Securities Act if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 22nd day of June, 1999.
G+G RETAIL, INC.
/s/ Scott Galin
By: _________________________________
Scott Galin
President and Chief Operating
Officer
KNOWN TO ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Jay Galin and/or Scott Galin and any of them his
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign any amendments to this Registration Statement (including
post-effective amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorney-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Jay Galin Chairman of the Board, Chief June 22, 1999
- --------------------------------- Executive Officer, and
Jay Galin Director (principal
executive officer)
/s/ Scott Galin President, Chief Operating June 22, 1999
- --------------------------------- Officer, and Director
Scott Galin
/s/ Michael Kaplan Vice President, Chief June 22, 1999
- --------------------------------- Financial Officer,
Michael Kaplan Treasurer, and Secretary
(principal financial
officer and principal
accounting officer)
/s/ Craig Cogut Director June 22, 1999
- ---------------------------------
Craig Cogut
/s/ Lenard Tessler Director June 22, 1999
- ---------------------------------
Lenard Tessler
/s/ Donald D. Shack Director June 22, 1999
- ---------------------------------
Donald D. Shack
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.01 Purchase Agreement, dated as of May 6, 1999, by and among U.S. Bancorp
Investments, Inc., CIBC World Markets Corp., G+G Retail, Inc. and G&G
Retail Holdings, Inc.
2.01 Asset Purchase Agreement, dated as of July 6, 1998, among G & G Shops,
Inc., the subsidiaries of G & G Shops, Inc. named therein, the
subsidiaries of Petrie Retail, Inc. named therein, PSL, Inc. and G+G
Retail, Inc.
2.02 Amendment No. 1 to the Asset Purchase Agreement, dated as of July 27,
1998, among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc.
named therein, the subsidiaries of Petrie Retail, Inc. named therein,
PSL, Inc. and G+G Retail, Inc.
2.03 Amendment to the Asset Purchase Agreement, dated August 24, 1998,
among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc. named
therein, the subsidiaries of Petrie Retail, Inc. named therein, PSL,
Inc. and G+G Retail, Inc.
3.01 Certificate of Incorporation of G+G Retail, Inc.
3.02 Amended and Restated By-Laws of G+G Retail, Inc.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail, Inc.,
as issuer, and U.S. Bank Trust National Association, as trustee.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17, 1999,
by and between G+G Retail, Inc. and U.S. Bancorp Libra.
5.01 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP as to the
legality of the securities being registered.
10.01 Agreement of Lease, dated November 28, 1988, between Hartz 83rd Street
Associates and
G & G Shops of Woodbridge, Inc.
10.02 Lease Addendum, dated April 10, 1990, between Hartz 83rd Street
Associates and G & G Shops of Woodbridge, Inc.
10.03 Second Lease Modification Agreement, dated February 24, 1994, between
Hartz 83rd Street Associates and G & G Shops of Woodbridge, Inc.
10.04 Notification Letter, dated November 20, 1995, re: assignment of
landlord's interest under the Agreement of Lease dated November 28,
1988 between Hartz 83rd Street Associates and
G & G Shops of Woodbridge, Inc., as amended.
10.05 Assignment and Assumption Agreement, dated as of August 28, 1998, by
and among G & G Shops, Inc., the subsidiaries of G & G Shops, Inc.
named therein, the subsidiaries of Petrie Retail, Inc. named therein,
PSL, Inc. and G+G Retail, Inc.
10.06 Employment Agreement, dated as of August 28, 1998, by and between G+G
Retail, Inc. and Jay Galin.
10.07 Employment Agreement, dated as of August 28, 1998, by and between G+G
Retail, Inc. and Scott Galin.
10.08 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Jay Galin.
10.09 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Scott Galin.
10.10 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Craig Cogut.
10.11 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Lenard Tessler.
10.12 Indemnification Agreement, dated August 28, 1998, between G+G Retail,
Inc. and Donald D. Shack.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.13 Letter Agreement, dated October 12, 1998, by and between G+G Retail,
Inc. and Michael Kaplan.
10.14 Letter Agreement, dated October 12, 1998, by and between G+G Retail,
Inc. and Jeffrey Galin.
10.15 Loan and Security Agreement, dated October 30, 1998, by and between
Congress Financial Corporation, G+G Retail, Inc. and the Additional
Parties thereto.
10.16 Amendment No. 1 to Employment Agreement, dated as of November 30,
1998, by and between G+G Retail, Inc. and Jay Galin.
10.17 Amendment No. 1 to Employment Agreement, dated as of November 30,
1998, by and between G+G Retail, Inc. and Scott Galin.
10.18 Bonus Plan for Senior Management Employees of G+G Retail, Inc.,
effective February 2, 1999.
10.19 NCR Corporation Master Agreement, effective as of February 9, 1999,
between NCR Corporation and G+G Retail, Inc.*
10.20 Discount Addendum, effective as of February 26, 1999, between NCR
Corporation and G+G Retail, Inc.*
10.21 G&G Retail Holdings, Inc. 1999 Stock Option Plan, effective as of
March 15, 1999.
10.22 Option Agreement, dated as of March 15, 1999, by and between G&G
Retail Holdings, Inc. and Jay Galin.
10.23 Option Agreement, dated as of March 15, 1999, by and between G&G
Retail Holdings, Inc. and Scott Galin.
10.24 Service Agreement, dated April 1, 1999, between G+G Retail, Inc. and G
& G Retail of Puerto Rico, Inc.
10.25 Master Lease Purchase Agreement, dated as of May 4, 1999, by and
between Chase Equipment Leasing, Inc. and G+G Retail, Inc.
10.26 Addendum to Master Lease Purchase Agreement, effective as of May 4,
1999, by and between Chase Equipment Leasing, Inc. and G+G Retail,
Inc.
10.27 Form of Exchange Agent Agreement between U.S. Bank Trust National
Association, as exchange agent, and G+G Retail, Inc.*
12.01 Statement regarding the computation of ratio of earnings to fixed
charges for G+G Retail, Inc.
21.01 Subsidiaries of G+G Retail, Inc.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (contained in
Exhibit 5.01).
24.01 Power of attorney (included on signature page to the Registration
Statement).
25.01 Statement of eligibility of trustee.
27.01 Financial data schedule.
27.02 Financial data schedule.
99.01 Form of Letter of Transmittal.
99.02 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* To be filed by amendment.
2
<PAGE>
EXHIBIT 1.01
- --------------------------------------------------------------------------------
G+G RETAIL, INC.
and
G&G RETAIL HOLDINGS, INC.
107,000 Units consisting of
11% Series A Senior Notes due 2006
of G+G Retail, Inc.
and
Warrants to purchase 8209 shares of Class D Common Stock
of G&G Retail Holdings, Inc.
representing 7.5% of the fully-diluted common stock
of G&G Retail Holdings, Inc.
Purchase Agreement
May 6, 1999
U.S. BANCORP INVESTMENTS, INC.
CIBC WORLD MARKETS CORP.
- --------------------------------------------------------------------------------
<PAGE>
107,000 Units consisting of
11% Series A Senior Notes due 2006
of
G+G Retail, Inc.
and
Warrants to purchase 8209 shares of Class D Common Stock
of
G&G Retail Holdings, Inc.
representing 7.5% of the fully-diluted common stock
of G&G Retail Holdings, Inc.
PURCHASE AGREEMENT
May 6, 1999
U.S. Bancorp Investments, Inc.
CIBC World Markets Corp.
c/o U.S. Bancorp Libra
156 West 56th Street, Suite 901
New York, New York 10019
Dear Sirs:
G+G Retail, Inc., a Delaware corporation (the "Company"), and G&G
Retail Holdings, Inc., a Delaware corporation ("Holdings" and, together with the
Company, the "Issuers") propose to issue and sell to U.S. Bancorp Investments,
Inc. and CIBC World Markets Corp. (each, an "Initial Purchaser" and,
collectively, the "Initial Purchasers") an aggregate of 107,000 Units, each Unit
consisting of $1,000 in principal amount of 11% Series A Senior Notes due 2006
of the Company (the "Series A Notes") and one Warrant (a "Warrant") to purchase
.07672 shares of Class D Common Stock of Holdings, par value $.001 per share
(such shares aggregating to 7.5% of the fully-diluted common stock of Holdings
as of the Closing Date, the "Warrant Shares" and, together with the Notes, the
"Units"), subject to the terms and conditions set forth herein. The Series A
Notes are to be issued pursuant to the provisions of an indenture (the
"Indenture"), to be dated as of the Closing Date (as defined below), between the
Company and U.S. Bank Trust National Association, as trustee (the "Trustee").
The Series A Notes and the Series B Notes (as defined below) issuable in
exchange therefor are collectively referred to herein as the "Notes." The
Warrants are to be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of the Closing Date, between Holdings and U.S. Bank
Trust National Association, as warrant agent (the "Warrant Agent"). The Units
are to be issued pursuant to a Unit Agreement (the "Unit Agreement"), to be
dated as of the Closing Date, among Holdings, the Company and U.S. Bank Trust
National Association, as unit agent (the "Unit Agent"). As used herein, the term
"Securities" shall mean, collectively, the Units, the
1
<PAGE>
Notes, the Warrants and the Warrant Shares. Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Indenture.
1. Offering Memorandum. The Securities will be offered and sold to
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company has prepared a preliminary offering memorandum, dated April 15, 1999
(the "Preliminary Offering Memorandum") relating to the Notes and the Issuers
have prepared a final offering memorandum, dated May 10, 1999 (the "Offering
Memorandum"), relating to the Units.
Upon original issuance thereof, and until such time as the same is
no longer required pursuant to the Act, the Securities (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT),
(B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT
OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2),
(3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR"), (2)
AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS
BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED
2
<PAGE>
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
[TRUSTEE][WARRANT AGENT] AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT.
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Issuers agree to issue
and sell to the Initial Purchasers, and each Initial Purchaser agrees, severally
and not jointly, to purchase from the Issuers, the number of Units set forth
opposite the name of such Initial Purchaser on Schedule A hereto at a purchase
price equal to $903.46 per Unit (the "Purchase Price").
3. Terms of Offering. The Initial Purchasers have advised the
Issuers that the Initial Purchasers will make offers (the "Exempt Resales") of
the Units purchased hereunder on the terms set forth in the Offering Memorandum,
as amended or supplemented, solely to (i) persons whom the Initial Purchasers
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBs"), and (ii) persons permitted to purchase the Units in
offshore transactions in reliance upon Regulation S under the Act (each, a
"Regulation S Purchaser") (such persons specified in clauses (i) and (ii) being
referred to herein as the "Eligible Purchasers"). The Initial Purchasers will
offer the Units to Eligible Purchasers initially at a price equal to $931.40 per
Unit. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A Notes
will have the registration rights set forth in the registration rights agreement
related thereto (the "Debt Registration Rights Agreement"), to be dated the
Closing Date, in substantially the form of Exhibit A hereto, for so long as such
Series A Notes constitute "Transfer Restricted Securities" (as defined in the
Debt Registration Rights Agreement). Holders (including subsequent transferees)
of the Warrants and Warrant Shares will have the registration rights described
in the Offering Memorandum which will be set forth in the registration rights
agreement (the "Equity Registration Rights Agreement" and, together with the
Debt Registration Rights Agreement, the "Registration Rights Agreements"), to be
dated the Closing Date, for so long as such Warrants and Warrant Shares
constitute Transfer Restricted Securities.
Pursuant to the Debt Registration Rights Agreement, the Company will
agree to file with the Securities and Exchange Commission (the "Commission")
under the circumstances set forth therein, (i) a registration statement under
the Act (the "Exchange Offer Registration Statement") relating to the Company's
11% Series B Senior Notes (the "Series B Notes"), to be
3
<PAGE>
offered in exchange for the Series A Notes (such offer to exchange being
referred to as the "Exchange Offer") and (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, the "Debt Registration
Statements") relating to the resale by certain holders of the Series A Notes and
to use its best efforts to cause such Debt Registration Statements to be
declared and remain effective and usable for the periods specified in the Debt
Registration Rights Agreement and to consummate the Exchange Offer.
Pursuant to the Equity Registration Rights Agreement, Holdings will
agree (i) to file with the Commission a registration statement under the Act for
the sale of the Warrant Shares upon a demand by the holders of a majority of the
Warrant Shares any time after six months following certain public offerings of
Holdings common stock and (ii) to include the Warrant Shares in any filing of a
registration statement pertaining to Holdings common stock upon and following a
qualified public offering of Holdings common stock (in each case, the
registration statements filed are referred to as the "Equity Registration
Statements" and, together with the Debt Registration Statements, the
"Registration Statements") as described in the Offering Memorandum.
This Agreement, the Indenture, the Notes, the Warrant Agreement, the
Warrants, the Unit Agreement, the Units and the Registration Rights Agreements
are hereinafter sometimes referred to collectively as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the
Units shall be made at the offices of Latham & Watkins, New York, New York or
such other location as may be mutually acceptable. Such delivery and payment
shall be made at 12:30 p.m. New York City time, on May 17, 1999 or at such other
time on the same date or such other date as shall be agreed upon by the Initial
Purchasers and the Issuers in writing. The time and date of such delivery and
the payment for the Units are herein called the "Closing Date."
5. Agreements of the Issuers. Each Issuer hereby agrees with the
Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Securities for offering or
sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 5(e) hereof, or the initiation of any proceeding by any state securities
commission or any other federal or state regulatory authority for such purpose
and (ii) of the happening of any event during the period referred to in Section
5(c) below that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires any
additions to or changes in the Preliminary Offering Memorandum or the Offering
Memorandum in order to make the statements therein not misleading. The Issuers
shall use their reasonable best efforts to prevent the issuance of any stop
4
<PAGE>
order or order suspending the qualification or exemption of any Securities under
any state securities or Blue Sky laws and, if at any time any state securities
commission or other federal or state regulatory authority shall issue an order
suspending the qualification or exemption of any Securities under any state
securities or Blue Sky laws, the Issuers shall use their reasonable best efforts
to obtain the withdrawal or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Issuers as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchasers may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchasers'
compliance with the representations and warranties and agreements set forth in
Section 7 hereof, the Issuers consent to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection with
Exempt Resales.
(c) During (1) the period commencing on the date hereof and
ending on the date the Offering Memorandum is first mailed in connection with
Exempt Resales by the Initial Purchasers and (2) such period thereafter as in
the opinion of counsel for the Initial Purchasers an Offering Memorandum is
required by law to be delivered in connection with Exempt Resales by the Initial
Purchasers, and in connection with market-making activities of the Initial
Purchasers for so long as any Securities are outstanding, (i) not to make any
amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable in
connection with such Exempt Resales or such market-making activities.
(d) If, during the periods referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Units pursuant to Exempt Resales
as contemplated hereby, to cooperate with the Initial Purchasers and counsel to
the Initial Purchasers in connection with the registration or qualification of
the Units for offer and sale to the Initial Purchasers and pursuant to Exempt
Resales under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may request and to continue such registration or
5
<PAGE>
qualification in effect so long as required for Exempt Resales and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; provided, however, that neither
Issuer shall be required in connection therewith to qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or to take
any action that would subject it to general consent to service of process or
taxation in any jurisdiction in which it is not now so subject.
(f) So long as the Securities are outstanding and the
Indenture or Warrant Agreement so requires, (i) to mail and make generally
available (in the time period required to file a Form 10-K with the Commission
if either Issuer was required to file such form) after the end of each fiscal
year to the record holders of the Notes or Warrants, a financial report of the
Issuers and their subsidiaries on a consolidated basis (and a similar financial
report of all unconsolidated subsidiaries, if any), all such financial reports
to include a consolidated balance sheet, a consolidated statement of operations,
a consolidated statement of cash flows and a consolidated statement of
stockholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
the Issuers' independent public accountants and (ii) to mail and make generally
available (in the time period required to file a Form 10-Q with the Commission
if either Issuer were required to file such form) after the end of each
quarterly period (except for the last quarterly period of each fiscal year) to
such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(g) So long as the Securities are outstanding, to furnish to
the Initial Purchasers as soon as available copies of all reports or other
communications furnished by either Issuer to its security holders or furnished
to or filed with the Commission or any national securities exchange on which any
class of securities of either Issuer is listed and such other publicly available
information concerning the Issuers and/or their subsidiaries as the Initial
Purchasers may reasonably request.
(h) So long as any of the Securities remain outstanding and
during any period in which an Issuer is not subject to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
available to any holder of Securities in connection with any sale thereof and
any prospective purchaser of such Securities from such holder, upon request, the
information ("Rule 144A Information") required by Rule 144A(d)(4) under the Act
concerning the Issuers or the Securities.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Issuers
under this Agreement, including: (i) the fees, disbursements and expenses of
counsel to the Issuers and accountants of the Issuers in connection with the
sale and delivery of the Securities to the Initial Purchasers and pursuant to
Exempt Resales, and all other fees and expenses in connection with the
preparation, printing,
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filing and distribution of the Preliminary Offering Memorandum, the Offering
Memorandum and all amendments and supplements to any of the foregoing (including
financial statements), including the mailing and delivering of copies thereof to
the Initial Purchasers and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Securities to the Initial Purchasers and pursuant to Exempt Resales, including
any transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement, the other Operative Documents and any other agreements
or documents in connection with the offering, purchase, sale or delivery of the
Securities, (iv) all expenses in connection with the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states and all costs of printing or producing any
preliminary and supplemental Blue Sky memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for the Initial
Purchasers in connection with such registration or qualification and memoranda
relating thereto), (v) the cost of printing certificates representing the
Securities, (vi) all expenses and listing fees in connection with the
application for quotation of the Securities in the National Association of
Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL
("PORTAL"), (vii) the fees and expenses of the Trustee, the Warrant Agent, the
Unit Agent and their counsel in connection with the Indenture, the Notes, the
Warrant Agreement, the Warrants, the Unit Agreement and the Unit, (viii) the
costs and charges of any transfer agent, registrar and/or depositary (including
DTC), (ix) any fees charged by rating agencies for the rating of the Notes, (x)
all costs and expenses associated with the performance of the Issuers of their
obligations under the Operative Documents, (xi) all reasonable and documented
out-of-pocket expenses (including reasonable legal fees and expenses) of U.S.
Bancorp Investments, Inc. incurred in connection with the sale and delivery of
the Securities; provided that the aggregate amount of such out-of-pocket
expenses incurred shall not exceed $250,000, as pursuant to an Engagement Letter
among Libra Investments, Inc., G+G Retail, Inc., and the other parties thereto,
dated as of July 15, 1998; provided, further, that such costs and expenses shall
only be payable (x) if (A) an agreement has been reached on or before the
Closing Date (in any event prior to the consummation of the offering) whereby
Cerberus G&G Retail L.L.C. ("Cerberus") waives or otherwise relinquishes its
anti-dilution adjustment rights as a result of the issuance of the Warrants and
the issuance of shares underlying the Warrants, or (B) the Initial Purchasers
cure or satisfy the effects of the anti-dilution adjustment rights with respect
to the Warrants whereby Pegasus Partners, L.P., Pegasus Related Partners, L.P.,
Pegasus G&G Retail, L.P. and Pegasus G&G Retail II, L.P. do not experience
ratable dilution of their common shares of Holdings, or (y) if the Company
otherwise agrees and (xii) and all other costs and expenses incident to the
performance of the obligations of the Issuers hereunder for which provision is
not otherwise made in this Section.
(j) To use its reasonable best efforts to effect the inclusion
of the Units, Warrants and Notes in PORTAL and to maintain the listing of the
Units, Warrants and Notes on PORTAL for so long as such securities are
outstanding.
(k) To use its reasonable best efforts to obtain the approval
of DTC for "book-entry" transfer of the Securities, and to comply with all of
its agreements set forth in the
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representation letters of the Issuers to DTC relating to the approval of the
Securities by DTC for "book-entry" transfer.
(l) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Units to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Units under the Act.
(m) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Securities.
(n) To use its reasonable best efforts to cause the Exchange
Offer to be made in the appropriate form to permit Series B Notes registered
pursuant to the Act to be offered in exchange for the Series A Notes, and to
comply with all applicable federal and state securities laws in connection with
the Exchange Offer.
(o) To comply with all of its agreements set forth in the
Registration Rights Agreements.
(p) To use its reasonable best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Units.
(q) To repay all outstanding indebtedness under the Senior
Bridge Notes (as defined in the Offering Memorandum) on or prior to the Closing
Date.
6. Representations, Warranties and Agreements of the Issuers. As of
the date hereof and as of the Closing Date, the Issuers, jointly and severally,
represent and warrant to, and agree with, the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, as of their
respective dates, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties contained
in this paragraph (a) shall not apply to statements in or omissions from the
Preliminary Offering Memorandum or the Offering Memorandum (or any supplement or
amendment thereto) based upon information relating to the Initial Purchasers
furnished to the Issuers in writing by the Initial Purchasers expressly for use
therein. To the knowledge of the Issuers, no stop order preventing the use of
the Preliminary Offering Memorandum or the Offering Memorandum, or any amendment
or supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, has been issued.
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(b) Each of the Issuers and their subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on the business, prospects,
financial condition or results of operations of the Issuers and their
subsidiaries, taken as a whole (a "Material Adverse Effect").
(c) All outstanding shares of capital stock of the Issuers
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights, except as described in the
Offering Memorandum.
(d) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Issuers. All of the outstanding shares
of capital stock of each of the Issuers' subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, and are owned by the
Issuers, directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of any
nature (each, a "Lien"), other than Liens disclosed in the Offering Memorandum.
(e) The Warrants, when issued on the Closing Date, will
provide for the right to purchase 7.499% of the fully-diluted common shares of
Holdings, subject to certain exceptions set forth in the Offering Memorandum;
(f) This Agreement has been duly authorized, executed and
delivered by the Issuers.
(g) The Indenture has been duly authorized by the Company and,
on the Closing Date, will have been duly executed and delivered by the Company.
When the Indenture has been duly executed and delivered by the Company and the
other parties thereto, the Indenture will be a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA" or "Trust Indenture Act"), and the
rules and regulations of the Commission applicable to an indenture which is
qualified thereunder.
(h) Each of the Issuers has duly and validly authorized the
issuance of the Securities to be issued by it as part of a Unit.
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(i) The Series A Notes have been duly authorized and, on the
Closing Date, will have been duly executed and delivered by the Company. When
the Series A Notes have been issued, executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement, the Series A
Notes will be entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with their terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. On the Closing
Date, the Series A Notes will conform as to legal matters in all material
respects to the description thereof contained in the Offering Memorandum.
(j) On the Closing Date, the Series B Notes will have been
duly authorized by the Company. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the benefits of the Indenture
and will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(k) The Warrants have been duly authorized by Holdings and, on
the Closing Date, will have been validly delivered by Holdings. When the
Warrants are issued, the Warrants will be valid and binding obligations of
Holdings, enforceable against Holdings in accordance with their terms, except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability. The Offering Memorandum
contains an accurate summary, in all material respects, of the terms of the
Warrants.
(l) The Offering Memorandum contains an accurate summary, in
all material respects, of the terms of the Units.
(m) The Warrant Shares have been duly and validly authorized
for issuance by Holdings, and when issued pursuant to the terms of the Warrants
and the Warrant Agreement will be fully paid and nonassessable and will not be
subject to any preemptive or similar rights. The Offering Memorandum contains an
accurate summary, in all material respects, of the terms of the Warrant Shares.
(n) The Debt Registration Rights Agreement has been duly
authorized by the Company and, on the Closing Date, will have been duly executed
and delivered by the Company. When the Debt Registration Rights Agreement has
been duly executed and delivered by the Company and the other parties thereto,
the Debt Registration Rights Agreement will be a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency,
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reorganization or similar laws affecting creditors' rights generally, (ii)
rights of acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability, (iii) rights to
indemnification and contribution thereunder may be limited by federal and state
securities laws and public policy considerations and (iv) enforcement of any
provision requiring the payment of liquidated damages may be limited by public
policy considerations. On the Closing Date, the Debt Registration Rights
Agreement will conform as to legal matters in all material respects to the
description thereof in the Offering Memorandum.
(o) The Equity Registration Rights Agreement has been duly and
validly authorized by Holdings and, when duly executed and delivered by
Holdings, will be a valid and binding agreement of Holdings, enforceable against
it in accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights, (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability and
(iii) to the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or public policy relating
thereto. The Offering Memorandum contains an accurate summary, in all material
respects, of the terms of the Equity Registration Rights Agreement.
(p) The Warrant Agreement has been duly and validly authorized
by Holdings and, when duly executed and delivered by Holdings, will be a valid
and binding agreement of Holdings, enforceable against it in accordance with its
terms, except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability and
(iii) to the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or public policy relating
thereto. The Offering Memorandum contains an accurate summary, in all material
respects, of the terms of the Warrant Agreement.
(q) The Unit Agreement has been duly and validly authorized by
the Issuers and, when duly executed and delivered by the Issuers, will be a
valid and binding agreement of the Issuers, enforceable against it in accordance
with its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability and
(iii) to the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or public policy relating
thereto. The Offering Memorandum contains an accurate summary, in all material
respects, of the terms of the Unit Agreement.
(r) Neither of the Issuers nor any of their subsidiaries is
(i) in violation of its respective charter or by-laws (other than immaterial
violations with respect to the establishment of, and election of directors to,
certain committees which shall be cured prior to the Closing Date) or (ii) in
default in the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Issuers and their subsidiaries, taken as a
whole, to which the
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Issuers or any of their subsidiaries is a party or by which the Issuers or any
of their subsidiaries or their respective property is bound, except in the case
of clause (ii), for such defaults that would not, singly or in the aggregate,
have a Material Adverse Effect .
(s) The execution, delivery and performance of this Agreement
and the other Operative Documents by the Issuers, compliance by the Issuers with
all provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not, (i) assuming the accuracy of the
Initial Purchasers' representations, warranties and agreements set forth in
Section 7 hereof, require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except such
as have been obtained and such as may be required under the securities or Blue
Sky laws of the various states and such as may be required under the Act or the
TIA in connection with the transactions contemplated by the Registration Rights
Agreements), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, (A) the charter or by-laws of the Issuers or
any of their subsidiaries or (B) any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Issuers and their
subsidiaries, taken as a whole, to which the Issuers or any of their
subsidiaries is a party or by which the Issuers or any of their subsidiaries or
their respective property is bound, except in the case of (B), for such
conflicts, breaches or defaults that would not, singly or in the aggregate, have
a Material Adverse Effect, (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Issuers, any of their subsidiaries
or their respective property, except for such violations or conflicts that would
not, singly or in the aggregate, have a Material Adverse Effect, (iv) result in
the imposition or creation of (or the obligation to create or impose) a Lien
under any material agreement or instrument to which the Issuers or any of their
subsidiaries is a party or by which the Issuers or any of their subsidiaries or
their respective property is bound, or (v) result in the termination, suspension
or revocation of any Authorization (as defined below) of the Issuers or any of
their subsidiaries or result in any other impairment of the rights of the holder
of any such Authorization, except for such terminations, suspensions or
revocations or other impairments that would not, singly or in the aggregate,
have a Material Adverse Effect.
(t) There are no legal or governmental proceedings pending or,
to the knowledge of the Issuers, threatened to which the Issuers or any of their
subsidiaries is or, to the knowledge of the Issuers, could be a party or to
which any of their respective property is or, to the knowledge of the Issuers,
could be subject, which could reasonably be expected to result, singly or in the
aggregate, in a Material Adverse Effect.
(u) Neither of the Issuers nor any of their subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules
and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
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(v) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect.
(w) Each of the Issuers and their subsidiaries has such
permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without limitation,
under any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or notice
could not reasonably be expected to, singly or in the aggregate, have a Material
Adverse Effect. Each such Authorization is valid and in full force and effect
and each of the Issuers and their subsidiaries is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; and
to the knowledge of the Issuers, no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Issuers or any of their subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction could not reasonably be expected to, singly or in the aggregate,
have a Material Adverse Effect.
(x) Ernst & Young LLP, which has certified the financial
statements included in the Preliminary Offering Memorandum and the Offering
Memorandum, are independent auditors with respect to the Issuers, as required by
the Act and the Exchange Act. The historical financial statements, together with
related schedules and notes, set forth in the Preliminary Offering Memorandum
and the Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
(y) The historical financial statements, together with related
notes set forth in the Offering Memorandum (and any amendment or supplement
thereto), present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of Holdings and its subsidiaries
and the Company and its subsidiaries, in each case, on the basis stated in the
Offering Memorandum at the respective dates or for the respective periods to
which they apply; such historical financial statements and related notes have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and, subject to the qualifications stated in the Preliminary Offering
Memorandum and the Offering Memorandum, the other historical financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment
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<PAGE>
or supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Issuers (to the extent applicable, in the case of statistical
information).
(z) The pro forma financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements of the Issuers
and their subsidiaries and give effect to assumptions used in the preparation
thereof on a reasonable basis and in good faith and present fairly in all
material respects the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum. Subject to the
qualifications stated in the Preliminary Offering Memorandum and the Offering
Memorandum, the other pro forma financial and statistical information and data
included in the Offering Memorandum are, in all material respects, accurately
presented and prepared on a basis consistent with the pro forma financial
statements.
(aa) Neither Issuer is and, after giving effect to the
offering and sale of the Securities and the application of the net proceeds
thereof as described in the Offering Memorandum, neither Issuer will be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(bb) There are no contracts, agreements or understandings
between either of the Issuers and any person granting such person the right to
require either of the Issuers to file a registration statement under the Act
with respect to any securities of the Issuers or to require the Issuers to
include such securities with the Securities registered pursuant to any
Registration Statement, except as disclosed by the Offering Memorandum.
(cc) Neither the Issuers nor any of their subsidiaries nor any
agent thereof acting on the behalf of them has taken, and none of them will
take, any action that might cause this Agreement or the issuance or sale of the
Securities to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R.
Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part
224) of the Board of Governors of the Federal Reserve System.
(dd) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed any executive officer of the Issuers that
it is considering imposing) any condition (financial or otherwise) on the
Issuers' retaining any rating assigned to the Issuers or any securities of the
Issuers or (ii) has indicated to any executive officer of the Issuers that it is
considering (a) the downgrading, suspension, or withdrawal of, or any review for
a possible change that does not indicate the direction of the possible change
in, any rating so assigned or (b) any change in the outlook for any rating of
the Issuers or any securities of the Issuers.
(ee) Since the respective dates as of which information is
given in the Offering Memorandum, other than as set forth in or contemplated by
the Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development which could
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reasonably be expected to result in a material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
either Issuer and its subsidiaries, taken as a whole, (ii) there has not been
any material adverse change or any development which could reasonably be
expected to result in a material adverse change in the capital stock or in the
long-term debt of the either Issuer or any of its subsidiaries and (iii) neither
Issuer nor any of their subsidiaries has incurred any material liability or
obligation, direct or contingent.
(ff) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(gg) When the Securities are issued and delivered by the
Issuers pursuant to this Agreement, the Securities will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of the Issuers
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system.
(hh) No form of general solicitation or general advertising
(as defined in Regulation D under the Act) was used by the Issuers or any of
their representatives (other than the Initial Purchasers, as to whom the Issuers
make no representation) in connection with the offer and sale of the Securities
contemplated hereby, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Securities have been issued and sold by the
Issuers within the six-month period immediately prior to the date hereof.
(ii) Assuming the accuracy of the Initial Purchasers'
representations, warranties and agreements set forth in Section 7 hereof, prior
to the effectiveness of any Registration Statement, the Indenture is not
required to be qualified under the TIA.
(jj) All indebtedness of the Company that will be repaid with
the proceeds of the issuance and sale of the Securities was incurred, and the
indebtedness represented by the Series A Notes is being incurred, for proper
purposes and in good faith, and the Company was not, at the time of the
incurrence of such indebtedness that will be repaid with the proceeds of the
issuance and sale of the Securities, and will not be on the Closing Date (after
giving effect to the application of the proceeds from the issuance of the
Securities), insolvent (as defined in Section 101(32) of Title 11 of the United
States Bankruptcy Code), and the Company had at the time of the incurrence of
such indebtedness that will be repaid with the proceeds of the issuance and sale
of the Securities, and will have on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Securities), sufficient
capital for carrying on its business and was, at the time of the incurrence of
such indebtedness that will be repaid with the proceeds of the issuance and sale
of the Securities, and will be on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Securities), able to pay
its debts as they mature.
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(kk) Neither the Issuers nor any of their affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom the Issuers make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S under the Act
("Regulation S") with respect to the Units.
(ll) Assuming the accuracy of the Initial Purchasers'
representations, warranties and agreements set forth in Section 7 hereof, the
Units offered and sold in reliance on Regulation S have been and will be offered
and sold only in offshore transactions.
(mm) The Issuers and their affiliates and all persons acting
on their behalf (other than the Initial Purchasers, as to whom the Issuers make
no representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering of the
Securities outside the United States and, in connection therewith, the Offering
Memorandum will contain the disclosure required by Rule 902(g)(2).
(nn) The Securities sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the distribution
compliance period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Security by non-U.S. persons or
U.S. persons who purchased such Securities in transactions that were exempt from
the registration requirements of the Act.
(oo) The sale of the Securities pursuant to Regulation S is
not part of a plan or scheme on the part of the Issuers to evade the
registration provisions of the Act.
(pp) No registration under the Act of the Securities is
required for the sale of the Securities to the Initial Purchasers as
contemplated hereby or for the Exempt Resales assuming the accuracy of the
Initial Purchasers' representations and warranties and agreements set forth in
Section 7 hereof.
(qq) Each certificate signed by any officer of the Issuers and
delivered to the Initial Purchasers or counsel for the Initial Purchasers on or
after the date hereof but prior to or on the Closing Date shall be deemed to be
a representation and warranty by the Issuers to the Initial Purchasers as to the
matters covered thereby.
(rr) The Issuers and their subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names ("intellectual property") currently
employed by them in connection with the business now operated by them, except
where the failure to own or possess or otherwise be able to acquire such
intellectual property could not reasonably be expected to, singly or in the
aggregate, have a Material Adverse Effect; and no executive officers of the
Issuers or any of their subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of such
intellectual
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property which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
The Issuers acknowledge that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Issuers and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the
Initial Purchasers, severally and not jointly, represents and warrants to the
Issuers, and agrees that:
(a) Such Initial Purchaser is either a QIB or an Institutional
Accredited Investor, in either case, with such knowledge and experience in
financial and business matters as is necessary in order to evaluate the merits
and risks of an investment in the Securities.
(b) Such Initial Purchaser (A) is not acquiring the Securities
with a view to any distribution thereof or with any present intention of
offering or selling any of the Securities in a transaction that would violate
the Act or the securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the Securities
only (x) to QIBs in reliance on the exemption from the registration requirements
of the Act provided by Rule 144A, (y) in offshore transactions in reliance upon
Regulation S under the Act and (z) in compliance with the laws of any
jurisdiction outside of the United States in which it offers or sells the
Securities.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Securities pursuant
hereto, including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Securities
only from, and will offer to sell the Securities only to, Eligible Purchasers.
Each Initial Purchaser further agrees that it will offer to sell the Securities
only to, and will solicit offers to buy the Securities only from, (A) Eligible
Purchasers that the Initial Purchaser reasonably believes are QIBs and (B)
Regulation S Purchasers, in each case, that agree that (x) the Securities
purchased by them may be resold, pledged or otherwise transferred only (I) to
the Issuers or any of their subsidiaries, (II) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A under the Act,
(III) in an offshore transaction (as defined in Rule 902 under the Act) meeting
the requirements of Rule 903 or 904 of the Act, (IV) in a transaction meeting
the requirements of Rule 144 under the Act, (V) to an Institutional Accredited
Investor that, prior to such transfer, furnishes the Trustee a
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<PAGE>
signed letter containing certain representations and agreements relating to the
restrictions on transfer of such Security (the form of which is substantially
the same as Exhibit D to the Indenture) and, an opinion of counsel acceptable to
the Issuers that such transfer is in compliance with the Act, (VI) in accordance
with another exemption from the registration requirements of the Act (and based
upon an opinion of counsel acceptable to the Issuers) or (VII) pursuant to an
effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (y) they will deliver to each person to whom such
Securities or an interest therein is transferred a notice substantially to the
effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person
acting on its or their behalf have not engaged and will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Securities.
(f) Assuming the accuracy of the Issuers' representations,
warranties and agreements set forth in Section 6 hereof, the Securities offered
and sold by such Initial Purchaser pursuant hereto in reliance on Regulation S
have been and will be offered and sold only in offshore transactions.
(g) The sale of the Securities offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme on the part of the Initial Purchasers to evade the registration
provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Securities in the United States or to, or
for the benefit or account of, a U.S. Person (other than a distributor), in each
case, as defined in Rule 902 under the Act (i) as part of its distribution at
any time and (ii) otherwise until the end of the distribution compliance period
in connection with the commencement of the offering of the Securities pursuant
hereto and the Closing Date, other than in accordance with Regulation S of the
Act or another exemption from the registration requirements of the Act. Such
Initial Purchaser agrees that, during such distribution compliance period, it
will not cause any advertisement with respect to the Securities (including any
"tombstone" advertisement) to be published in any newspaper or periodical or
posted in any public place and will not issue any circular relating to the
Securities, except such advertisements as are permitted by and include the
statements required by Regulation S.
(i) Such Initial Purchaser and its affiliates and any person
acting on its or their behalf have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Securities outside the United States.
(j) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Securities by it to any distributor (as defined in
Regulation S), dealer or person receiving a selling concession, fee or other
remuneration during the distribution compliance period referred to in Rule
903(b)(3) under the Act, it will send to such distributor, dealer or person
receiving a selling concession, fee or other remuneration a confirmation or
notice to substantially the following effect:
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<PAGE>
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of a distribution at any time
or (ii) otherwise until the end of the distribution compliance period
in connection with the commencement of the Offering and the Closing
Date, except in either case in accordance with Regulation S under the
Securities Act (or Rule 144A or to Institutional Accredited Investors
in transactions that are exempt from the registration requirements of
the Securities Act), and in connection with any subsequent sale by you
of the Securities covered hereby in reliance on Regulation S during the
period referred to above to any distributor, dealer or person receiving
a selling concession, fee or other remuneration, you must deliver a
notice to substantially the foregoing effect. Terms used above have the
meanings assigned to them in Regulation S."
(k) Such Initial Purchaser agrees that the Securities offered
and sold in reliance on Regulation S will be represented upon issuance by a
global security that may not be exchanged for definitive securities until the
expiration of the distribution compliance period referred to in Rule 903(b)(3)
of the Act and only upon certification of beneficial ownership of such
Securities by non-U.S. persons or U.S. persons who purchased such Securities in
transactions that were exempt from the registration requirements of the Act.
Such Initial Purchaser acknowledges that the Issuers and, for
purposes of the opinions to be delivered to each Initial Purchaser pursuant to
Section 9 hereof, counsel to the Issuers and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and such
Initial Purchaser hereby consents to such reliance.
8. Indemnification.
(a) Each of the Issuers, jointly and severally, agree to
indemnify and hold harmless the Initial Purchasers, their directors, officers,
employees and agents and each person, if any, who controls each of the Initial
Purchasers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any reasonable legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by the Issuers to any holder or prospective
purchaser of Securities pursuant to Section 5(h) or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to the Initial Purchasers furnished in writing to the
Issuers by such Initial Purchaser; provided, however, that the foregoing
indemnity agreement
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with respect to any Preliminary Offering Memorandum shall not inure to the
benefit of any Initial Purchaser who failed to deliver an Offering Memorandum,
as then amended or supplemented (so long as the Offering Memorandum and any
amendment or supplement thereto was provided by the Issuers to the several
Initial Purchasers in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date), to the person asserting any
losses, claims, damages, liabilities or judgments caused by any untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if each untrue statement of a material fact
contained in, and each omission or alleged omission of a material fact from,
such Preliminary Offering Memorandum was corrected in the Offering Memorandum
and a court of competent jurisdiction shall have finally determined that such
Initial Purchaser would not have incurred such losses, claims, damages,
liabilities and expenses had the Offering Memorandum been delivered or sent, as
so amended or supplemented.
(b) The Initial Purchasers severally agree to indemnify and
hold harmless the Issuers and their directors, officers, employees and agents
and each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Issuers, to the same extent as the
foregoing indemnity from the Issuers to the Initial Purchasers but only with
reference to information relating to the Initial Purchasers furnished in writing
to the Issuers by an Initial Purchaser expressly for use in the Preliminary
Offering Memorandum or the Offering Memorandum, and without reference to the
proviso contained therein.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party shall be entitled to participate therein and,
to the extent that it shall wish, to assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred. Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action, or employ counsel reasonably satisfactory to the
indemnified party, within a reasonable amount of time after notice of the
institution of such action by the indemnified party or (iii) the named parties
to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case as described in clause (i), (ii) or (iii) of the preceding
sentence, the indemnifying party shall not, in connection with any one action or
separate but
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substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such single firm shall be designated in writing
by U.S. Bancorp Investments, Inc., in the case of the parties indemnified
pursuant to Section 8(a), and by the Issuers, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with the indemnifying party's written consent or (ii) effected without
its written consent only if the settlement is entered into more than 75 days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request and not contested its indemnification
obligations in good faith. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to, or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers, on the one hand, and the Initial Purchasers on the other hand from the
offering of the Units or (ii) if the allocation provided by clause 8(d)(i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(d)(i) above but
also the relative fault of the Issuers, on the one hand, and the Initial
Purchasers, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Issuers, on the one hand and the Initial Purchasers, on the
other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Units (after underwriting discounts and
commissions, but before deducting expenses) received by the Issuers, and the
total discounts and commissions received by the Initial Purchasers, bear to the
total price to investors of the Units. The relative fault of the Issuers, on the
one hand, and the Initial Purchasers, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers, on the one hand, or the Initial
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Purchasers, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Issuers and the Initial Purchasers agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation even if the Initial Purchasers were treated as one entity
for such purpose or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action, that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total discounts and commissions received by such Initial
Purchasers exceeds the amount of any damages which the Initial Purchasers have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 8(d) are several in proportion to the respective number of Units
purchased by each of the Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase the Units under this Agreement are subject to
the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Issuers
contained in this Agreement shall be true and correct in all material respects
on the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Issuers or any securities of the Issuers (including, without
limitation, the placing of any of the foregoing ratings on credit watch with
negative or developing implications or under review with an uncertain direction)
by any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Act, (ii) there shall not have
occurred any change, nor shall any notice have been given of any potential or
intended change, in the outlook for any rating of the Issuers or any securities
of the Issuers by
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any such rating organization and (iii) no such rating organization shall have
given notice that it has assigned (or is considering assigning) a lower rating
to the Notes than that on which the Notes were marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Issuers
and their subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital stock or
in the long-term debt of the Issuers or any of their subsidiaries and (iii)
neither the Issuers nor any of their subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any such
case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in the good faith
judgment of the Initial Purchasers, is material and adverse and, in the good
faith judgment of the Initial Purchasers, makes it impracticable to market the
Units on the terms and in the manner contemplated in the Offering Memorandum.
(d) The Initial Purchasers shall have received on the Closing
Date a certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of each of the Issuers, confirming the matters set forth in
Sections 6(ee), 9(a) and 9(b) and stating that each of the Issuers has complied
with all the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied on or prior to the Closing Date.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion (satisfactory to the Initial Purchasers and counsel for the
Initial Purchasers), dated the Closing Date, of Kaye, Scholer, Fierman, Hays &
Handler, LLP, counsel for the Issuers, to the effect that:
(i) each Issuer has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the
Offering Memorandum and to own, lease and operate its
properties;
(ii) each Issuer is duly qualified and is in good
standing as a foreign corporation authorized to do business in
each jurisdiction listed on a schedule to the opinion;
(iii) all the outstanding shares of capital stock of
each Issuer have been duly authorized and validly issued and
are fully paid, non-assessable and, except as otherwise
described in the Offering Memorandum, under the each Issuer's
certificate of incorporation, the Delaware General Corporate
Law, and the Material Agreements referred to below, not
subject to any preemptive or similar rights;
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(iv) the Series A Notes have been duly authorized and,
when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this
Agreement, will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and similar laws affecting the enforcement of
creditors' rights in general and to general principles of
equity (regardless whether considered in a proceeding at law
or in equity) (collectively, the "Exceptions");
(v) the Warrants have been duly authorized by
Holdings and, on the Closing Date, when countersigned by the
Warrant Agent and issued and delivered in accordance with the
terms of this Agreement and the Warrant Agreement, the
Warrants will be the valid and binding obligations of
Holdings, enforceable against Holdings in accordance with
their terms, subject to the Exceptions;
(vi) the Units have been duly authorized by the
Issuers and, on the Closing Date, when countersigned by the
Unit Agent and issued and delivered in accordance with the
terms of this Agreement and the Unit Agreement, the Units will
be the valid and binding obligations of the Issuers,
enforceable against the Issuers in accordance with their
terms, subject to the Exceptions;
(vii) the Warrant Shares have been duly and validly
authorized for issuance by Holdings, and when issued and
delivered upon payment of the exercise price pursuant to the
terms of the Warrants and the Warrant Agreement will be fully
paid and nonassessable and, except as otherwise described in
the Offering Memorandum, under Holding's certificate of
incorporation, the Delaware General Corporate Law, and the
Material Agreements referred to below, will not be subject to
any preemptive or similar statutory rights;
(viii) the Indenture has been duly authorized, executed
and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, subject to the Exceptions;
(ix) this Agreement has been duly authorized, executed
and delivered by the Issuers;
(x) The Debt Registration Rights Agreement has been
duly authorized, executed and delivered by the Company and is
a valid and
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binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to the
Exceptions and except as (x) rights to indemnification and
contribution thereunder may be limited by federal and state
securities laws and public policy considerations and (y)
enforcement of any provision requiring the payment of
liquidated damages may be limited by public policy
considerations;
(xi) the Warrant Agreement has been duly and validly
authorized, executed and delivered by Holdings and is a valid
and binding agreement of Holdings, enforceable against
Holdings in accordance with its terms, subject to the
Exceptions;
(xii) the Equity Registration Rights Agreement has been
duly authorized, executed and delivered by Holdings and is a
valid and binding agreement of Holdings, enforceable against
Holdings in accordance with its terms, subject to the
Exceptions and except as rights to indemnification and
contribution thereunder may be limited by federal and state
securities laws and public policy considerations;
(xiii) the Unit Agreement has been duly and validly
authorized, executed and delivered by the Issuers and is a
valid and binding agreement of the Issuers, enforceable
against the Issuers in accordance with its terms, subject to
the Exceptions;
(xiv) the Series B Senior Notes have been duly
authorized;
(xv) the statements under the captions "Description of
Notes," "Description of Warrants," and "Description of Units"
in the Offering Memorandum, insofar as such statements
constitute a summary of the terms of the Series A Notes, the
Warrants and the Units fairly present in all material respects
the terms of the Series A Notes, the Warrants and the Units;
(xvi) the statements under the caption "Certain Federal
Income Tax Considerations" to the extent they describe
statutes, rules or regulations or legal conclusions with
respect to their application, have been reviewed by us and are
correct in all material respects;
(xvii) the execution, delivery and performance of this
Agreement and the other Operative Documents by the Issuers,
the compliance by the Issuers with all provisions hereof and
thereof and the consummation of the transactions contemplated
hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any
court or governmental body or agency (except such as have been
obtained and such as may be required under the securities or
Blue Sky
25
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laws of the various states and, with respect to the Exchange
Offer and the transactions contemplated by the Registration
Rights Agreements, under the Act and the TIA), (ii) violate or
constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Issuers or any of
the agreements set forth in officer's certificates of the
Issuers accompanying the opinion (the "Material Agreements"),
(iii) to such counsel`s knowledge, violate or conflict with
any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having
jurisdiction over the Issuers or their property, or (iv)
result in the imposition or creation of (or the obligation to
create or impose) a Lien under the Material Agreements.
(xviii) neither Issuer is and, after giving effect to
the offering and sale of the Securities and the application of
the net proceeds thereof as described in the Offering
Memorandum, will be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xix) to such counsel's knowledge based solely on a
review of the minute books of the Issuers, the Material
Agreements and officer's certificates of the Issuers
accompanying the opinion, there are no contracts, agreements
or understandings between the Issuers and any person granting
such person the right to require the Issuers to file a
registration statement under the Act with respect to any
securities of the Issuers or to require the Issuers to include
such securities with the Securities registered pursuant to any
Registration Statement, except as disclosed in the Offering
Memorandum;
(xx) the Indenture complies as to form in all material
respects with the requirements of the TIA, and the rules and
regulations of the Commission applicable to an indenture which
is qualified thereunder. It is not necessary in connection
with the offer, sale and delivery of the Securities to the
Initial Purchasers in the manner contemplated by this
Agreement or in connection with the Exempt Resales to qualify
the Indenture under the TIA assuming (i) each person to whom
the Initial Purchasers initially offer or sell the Securities
in accordance with Section 3 of this Agreement and the
Offering Memorandum is a QIB or a Regulation S Purchaser, (ii)
the accuracy of, and compliance with, the Initial Purchaser's
representations, warranties and agreements contained in
Section 7 of this Agreement, (iii) the accuracy of the
representations and warranties of the Issuers set forth in
Sections 6(gg), (hh), (kk), (ll), (mm), (nn) and (oo) of this
Agreement.
(xxi) no registration under the Act of the Securities is
required for the sale of the Securities to the Initial
Purchasers as contemplated by
26
<PAGE>
this Agreement or for the Exempt Resales assuming (i) each
person to whom the Initial Purchasers initially offer or sell
the Securities in accordance with Section 3 of this Agreement
and the Offering Memorandum is a QIB or a Regulation S
Purchaser, (ii) the accuracy of, and compliance with, the
Initial Purchaser's representations, warranties and agreements
contained in Section 7 of this Agreement, (iii) the accuracy
of the representations and warranties of the Issuers set forth
in Sections 6(gg), (hh), (kk), (ll), (mm), (nn) and (oo) of
this Agreement.
Such counsel shall also state that, to its knowledge based solely on
the statements set forth in officer's certificates of the Issuers accompanying
its opinion and a review of such firm's own litigation docket and other than as
set forth in the Offering Memorandum, there is no action or proceeding,
governmental or otherwise, pending to which the Issuers or G & G Retail of
Puerto Rico, Inc. ("G&G Puerto Rico") is a party or to which the properties or
assets of the Issuers or G&G Puerto Rico are subject, that if determined
adversely to the Issuers or G&G Puerto Rico, would have a Material Adverse
Effect.
Such counsel shall also state that, while it does not opine upon and
does not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Offering Memorandum (other than as set forth in
such counsel's opinions in paragraphs (xv) and (xvi) above) and such counsel has
not made any independent check or verification thereof, it has participated in
conferences with officers and other representatives of the Issuers and with the
Initial Purchasers and their representatives in connection with the preparation
of the Offering Memorandum, and based upon these conferences and such counsel's
review of the documents referenced above (such counsel's determination of
materiality being based in part upon the opinions, representations and
statements of the officers and other representatives of the Issuers), no facts
have come to such counsel's attention which lead it to believe that the Offering
Memorandum as of its date or as of the Closing Date contained or contains any
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (it
being understood that such counsel expresses no opinion or belief on the
financial data, statements and related notes, the financial statement schedules
and other financial, accounting and statistical data and the teen market data
included in the Offering Memorandum or omitted therefrom).
The opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP described
in Section 9(e) above shall be rendered to the Initial Purchasers at the request
of the Issuers and shall so state therein.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the
Initial Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers.
(g) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date,
27
<PAGE>
as the case may be, in form and substance satisfactory to the Initial Purchasers
from Ernst & Young LLP, independent auditors, containing the information and
statements of the type ordinarily included in accountants' "comfort letters" to
the Initial Purchasers with respect to the financial statements and certain
financial information contained in the Offering Memorandum.
(h) The Units shall have been approved by the NASD for trading
and duly listed in PORTAL.
(i) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company and the Trustee.
(j) The Company shall have executed the Debt Registration
Rights Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company.
(i) Holdings shall have executed the Warrant Agreement and the
Warrant Registration Rights Agreement and the Initial Purchaser shall have
received counterparts, conformed as executed thereof.
(k) Holdings shall have executed the Equity Registration
Rights Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by Holdings.
(l) The Company shall have issued notice of prepayment to the
Administrative Agent of the Senior Bridge Notes, at least 5 business days prior
to the Closing Date.
(m) The Initial Purchasers shall not have notified the Company
on or before 4:50 p.m. New York time on May 10, 1999 that the Initial
Purchasers, the Company and SunAmerica Investments, Inc. have not agreed to the
terms of the Warrant Agreement and the Equity Registration Rights Agreement and
SunAmerica Investments, Inc. does not remain committed to purchase its full $16
million of Units;
(n) The Initial Purchasers shall not have notified the Company
on or before 3:00 p.m. New York time on May 10, 1999 that any person designated
as a purchaser of a Unit pursuant to Exempt Resales has not received the
Offering Memorandum; and
(o) The Issuers shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Issuers, as the case may
be, at or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
28
<PAGE>
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchasers by written notice to the Issuers if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Securities on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Issuers on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in the opinion of the Initial
Purchasers materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations of
the Issuers and their subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the opinion of the Initial
Purchasers has a material adverse effect on the financial markets in the United
States.
If on the Closing Date any one or more of the Initial Purchasers
shall fail or refuse to purchase the Units which it or they have agreed to
purchase hereunder on such date and the aggregate number of the Units which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase is not more than one-tenth of the aggregate
number of the Units to be purchased on such date by all Initial Purchasers, each
non-defaulting Initial Purchaser shall be obligated severally, in the proportion
which the number of the Units set forth opposite its name in Schedule A bears to
the aggregate number of the Units which all the non-defaulting Initial
Purchasers, as the case may be, have agreed to purchase, or in such other
proportion as the Initial Purchasers may specify, to purchase the Units which
such defaulting Initial Purchaser or Initial Purchasers, as the case may be,
agreed but failed or refused to purchase on such date; provided that in no event
shall the aggregate number of the Units which any Initial Purchaser has agreed
to purchase pursuant to Section 2 hereof be increased pursuant to this Section
10 by an amount in excess of one-ninth of such amount of such Units without the
written consent of such Initial Purchaser. If on the Closing Date any Initial
Purchaser or Initial Purchasers shall fail or refuse to purchase the Units and
the aggregate number of Units with respect to which such default occurs is more
than one-tenth of the aggregate number of Units to be purchased by all Initial
Purchasers and arrangements satisfactory to the Initial Purchasers and the
Issuers for purchase of such the Units are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser and the Issuers. In any such case which does
not result in termination of this Agreement, either the Initial Purchasers or
the Issuers shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Offering Memorandum or any other documents or arrangements may be
29
<PAGE>
effected. Any action taken under this paragraph shall not relieve any defaulting
Initial Purchaser from liability in respect of any default of any such Initial
Purchaser under this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be in writing and addressed as follows: (i) if to the Issuers,
to G+G Retail, Inc., 520 Eighth Avenue, New York, NY 10018 Attention: Chief
Financial Officer and (ii) if to the Initial Purchasers, U.S. Bancorp Libra, a
division of U.S. Bancorp Investments, Inc., 11766 Wilshire Blvd, Suite 870, Los
Angeles, California 90025 Attention: General Counsel, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Issuers and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Units, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of the Initial Purchasers, the officers or
directors of the Initial Purchasers, any person controlling the Initial
Purchasers, the Issuers, the officers or directors of the Issuers, or any person
controlling the Issuers, (ii) acceptance of the Units and payment for them
hereunder and (iii) termination of this Agreement.
If for any reason the Units are not delivered by or on behalf of the
Issuers as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10 or a breach or default by the Initial
Purchasers under this Agreement), the Issuers agree to reimburse the Initial
Purchasers for all out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Issuers shall be liable for all expenses which they have
agreed to pay pursuant to Section 5(i) hereof. The Issuers also agree to
reimburse the Initial Purchasers and their officers, directors and each person,
if any, who controls such Initial Purchasers within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the reasonable fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this Agreement
(including without limitation their rights under Section 8).
The Initial Purchasers agree to reimburse the Issuers and their
officers, directors and each person, if any, who controls the Issuers within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act for any and
all fees and expenses (including without limitation the reasonable fees and
expenses of counsel) incurred by them in connection with enforcing their rights
under this Agreement (including without limitation their rights under Section
8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Issuers, the Initial
Purchasers, the Initial Purchasers' directors and officers, any controlling
persons referred to herein, the directors and officers of the Issuers and each
of their successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Securities from the Initial Purchasers merely because of
such purchase.
30
<PAGE>
This Agreement shall be governed and construed in accordance with
the laws of the State of New York without regard to the conflicts of laws
provisions thereof.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Issuers and the Initial Purchasers.
Very truly yours,
G+G RETAIL, INC.
By: /s/ Scott Galin
----------------------------
Name: Scott Galin
Title: President and Chief
Operating Officer
G&G RETAIL HOLDINGS, INC.
By: /s/ Michael Kaplan
----------------------------
Name: Michael Kaplan
Title: Vice President and
Chief Financial Officer
U.S. BANCORP INVESTMENTS, INC.
CIBC WORLD MARKETS CORP.
By: /s/ Jean Smith
----------------------------
Name: Jean Smith
Title: Managing Director
32
<PAGE>
SCHEDULE A
Number
Initial Purchasers of Units
------------------ --------
U.S. Bancorp Investments, Inc............. 64,200
CIBC World Markets Corp................... 42,800
-------
Total 107,000
33
<PAGE>
SCHEDULE B
Subsidiaries
G+G Retail, Inc.
G & G Retail of Puerto Rico, Inc.
34
<PAGE>
EXHIBIT A
[FORM OF DEBT REGISTRATION RIGHTS AGREEMENT]
35
<PAGE>
EXHIBIT 2.01
ASSET PURCHASE AGREEMENT
AMONG
G & G SHOPS, INC.,
THE SUBSIDIARIES OF G & G SHOPS, INC. NAMED HEREIN,
THE SUBSIDIARIES OF PETRIE RETAIL, INC. NAMED HEREIN,
PSL, INC.
AND
G+G RETAIL, INC.
Dated as of July 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
ARTICLE I. DEFINITIONS .............................................. 1
Section 1.1. Definitions ...................................... 1
ARTICLE II. SALE AND PURCHASE OF PURCHASED ASSETS AND ASSUMPTION
OF ASSUMED LIABILITIES .................................. 10
Section 2.1. Purchase and Sale of Purchased Assets ......... 10
Section 2.2. Assumption of Liabilities ..................... 10
Section 2.3. Purchase Price ................................ 11
Section 2.4. Liability Escrow Account; Reimbursements ...... 11
Section 2.5. [INTENTIONALLY OMITTED] ....................... 11
Section 2.6. Allocation of Purchase Price .................. 11
Section 2.7. Sale at Closing Date .......................... 12
Section 2.8. [INTENTIONALLY OMITTED] ....................... 12
Section 2.9. Discharge of Liens ............................ 12
Section 2.10. Casualty and Condemnation ..................... 12
Section 2.11. Bond Cancellation ............................. 12
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS .......... 13
Section 3.1. Authority of Sellers .......................... 13
Section 3.2. No Conflict or Violation ...................... 13
Section 3.3. Consents and Approvals ........................ 14
Section 3.4. Compliance with Law ........................... 14
Section 3.5. [INTENTIONALLY OMITTED] ....................... 14
Section 3.6. Sufficiency and Title to the Purchased Assets . 14
Section 3.7. [INTENTIONALLY OMITTED] ....................... 15
Section 3.8. Assigned Contracts ............................ 15
Section 3.9. Intellectual Property ......................... 15
Section 3.10. Labor Relations ............................... 15
Section 3.11. Employee Benefits ............................. 16
Section 3.12. [INTENTIONALLY OMITTED] ....................... 17
Section 3.13. Litigation .................................... 17
Section 3.14. [INTENTIONALLY OMITTED]........................
Section 3.15. Tax Matters ................................... 18
Section 3.16. Interim Operations ............................ 18
Section 3.17. Brokers ....................................... 18
Section 3.18. Disclaimer of Additional Representations
and Warranties; Schedules ................... 18
Section 3.19. Limitation .................................... 19
Section 3.20. Survival ...................................... 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER ............. 19
Section 4.1. Authority of Purchaser ........................ 19
Section 4.2. No Conflict or Violation ...................... 20
Section 4.3. Consents and Approvals ........................ 20
Section 4.4. Availability of Funds ......................... 20
Section 4.5. Litigation .................................... 20
Section 4.6. Brokers ....................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.7. Adequate Assurances Regarding Executory Contracts .... 21
Section 4.8. Hart-Scott-Rodino .................................... 21
ARTICLE V. CERTAIN COVENANTS OF THE SELLERS ................................ 21
Section 5.1. Conduct of Business Before the Closing Date .......... 21
Section 5.2. Consents and Approvals ............................... 23
Section 5.3. Information and Access ............................... 23
Section 5.4. Further Assurances ................................... 24
Section 5.5. Reasonable Efforts ................................... 24
Section 5.6. Assignment of Contracts .............................. 24
Section 5.7. Cure of Defaults ..................................... 24
Section 5.8. [INTENTIONALLY OMITTED] .............................. 24
Section 5.9. Accounts Receivable .................................. 24
Section 5.10. Name Change Filings .................................. 24
Section 5.11. Rejection of Contracts ............................... 25
Section 5.12. Transition Arrangements .............................. 25
ARTICLE VI. CERTAIN COVENANTS OF PURCHASER ................................. 25
Section 6.1. [INTENTIONALLY OMITTED] .............................. 25
Section 6.2. Reasonable Efforts ................................... 25
Section 6.3. Consents and Approvals ............................... 25
Section 6.4. Adequate Assurances Regarding Executory
Contracts .......................................... 25
Section 6.5. Performance Under Assigned Contracts ................. 26
Section 6.6. Further Assurances ................................... 26
ARTICLE VII. CONDITIONS TO THE SELLERS' OBLIGATIONS ........................ 26
Section 7.1. Representations and Warranties ....................... 26
Section 7.2. Compliance with Agreement ............................ 26
Section 7.3. Financing ............................................ 26
Section 7.4. Consents ............................................. 27
Section 7.5. Corporate Documents .................................. 27
Section 7.6. Entry of the Order ................................... 27
Section 7.7. Galin Releases ....................................... 27
ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS ........................ 27
Section 8.1. Representations and Warranties ....................... 27
Section 8.2. Compliance with Agreement ............................ 28
Section 8.3. Agreements with Galins ............................... 28
Section 8.4. Consents ............................................. 28
Section 8.5. Corporate Documents .................................. 28
Section 8.6. Entry of the Order ................................... 28
Section 8.7. Entry of the Bidding Protections Order ............... 28
Section 8.8. Financing ............................................ 28
Section 8.9. Material Adverse Effect .............................. 29
Section 8.10. Revolving Credit and Guaranty Agreement .............. 29
Section 8.11. Release of the Galins ................................ 29
ARTICLE IX. THE CLOSING; TERMINATION ....................................... 29
Section 9.1. The Closing .......................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 9.2. Bidding Protections .................................. 29
Section 9.3. Termination .......................................... 32
Section 9.4. Effects of Termination ............................... 33
ARTICLE X. TAXES ........................................................... 34
Section 10.1. Taxes Related to Purchase of Assets .................. 34
Section 10.2. Cooperation on Tax Matters ........................... 34
ARTICLE XI. EMPLOYEES AND EMPLOYEE BENEFIT PLANS ........................... 35
Section 11.1. Employment ........................................... 35
Section 11.2. Collective Bargaining Agreements ..................... 36
Section 11.3. Employee Welfare Benefit Plans ....................... 36
Section 11.4. COBRA ................................................ 37
Section 11.5. G & G Profit Sharing Plan ............................ 38
Section 11.6. 401(k) Savings Plan .................................. 38
Section 11.7. Puerto Rico Savings Plan ............................. 39
Section 11.8. Vacation and Sick Leave .............................. 40
Section 11.9. Severance Benefits ................................... 41
ARTICLE XII. INDEMNIFICATION ............................................... 41
Section 12.1. Indemnification by the Purchaser ..................... 41
Section 12.2. Indemnification by the Sellers ....................... 42
Section 12.3. Notice of Claim; Right to Participate In
and Defend Third Party Claim........................ 43
Section 12.4. Right to Indemnification Not Affected by
Knowledge .......................................... 44
ARTICLE XIII. MISCELLANEOUS PROVISIONS ..................................... 44
Section 13.1. Representations and Warranties ....................... 44
Section 13.2. Notices .............................................. 45
Section 13.3. Amendments ........................................... 46
Section 13.4. Assignment ........................................... 46
Section 13.5. Announcements ........................................ 46
Section 13.6. Expenses ............................................. 47
Section 13.7. Entire Agreement ..................................... 47
Section 13.8. Descriptive Headings ................................. 47
Section 13.9. Counterparts ......................................... 47
Section 13.10. Governing Law; Jurisdiction .......................... 47
Section 13.11. Construction ......................................... 47
Section 13.12. Substantive Consolidation ............................ 49
Section 13.13. Severability ......................................... 49
</TABLE>
iii
<PAGE>
SCHEDULE
NUMBER SCHEDULE NAME
1.1 G&G Subsidiaries
1.2 PRI Subsidiaries
1.3 Leases
1.3(a) Petrie Seller Leases
1.4 Other Contracts
1.6 Seller Balance Sheet and Adjusted Balance Sheet
2.6 Allocation of Purchase Price
2.11 Bonds
3.3 Consents and Approvals
3.4 Compliance with Law
3.5 Financial Statements
3.8 Assigned Contracts
3.9 Intellectual Property
3.10 Collective Bargaining Agreements
3.11(a) Employee Benefit Plans
3.11(c) Exceptions to Section 401 Qualification
3.11(d) Exceptions to Compliance
3.11(e) Other Compensation Obligations
3.11(h) Plan Claims
3.13 Litigation
3.14 Hazardous Materials
3.16 Interim Operations
11.9 Change in Control Plan Employees
EXHIBIT EXHIBIT NAME
A Assignment and Assumption Agreement
B Bill of Sale and Assumption Agreement
C Order
D Bidding Protections Order
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of July 6, 1998 among G & G Shops, Inc., a Delaware corporation ("G&G")
and a debtor and debtor-in-possession in a case pending under chapter 11 of the
Bankruptcy Code, each of the Subsidiaries of G&G specified on Schedule 1.1 (each
a "G&G Seller" and collectively the "G&G Sellers"), each of which is a debtor
and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy
Code, each of the Subsidiaries of Petrie Retail, Inc., a Delaware corporation
("PRI"), specified on Schedule 1.2 (each a "Petrie Seller" and collectively the
"Petrie Sellers"), each of which is a debtor and debtor-in-possession in a case
pending under chapter 11 of the Bankruptcy Code, PSL, Inc., a Delaware
corporation and a debtor and debtor-in-possession in a case pending under
chapter 11 of the Bankruptcy Code ("PSL" and, together with the Petrie Sellers,
the "Other Sellers") (G&G, together with the G&G Sellers and the Other Sellers,
each a "Seller" and collectively the "Sellers"), and G+G Retail, Inc., a
Delaware corporation ("Purchaser").
PRELIMINARY STATEMENT
WHEREAS, the Sellers are engaged primarily in the retail sale of
junior women's apparel under the trade names "G&G" and "Rave" (the "Business");
WHEREAS, on October 12, 1995, the Sellers filed voluntary petitions
with the Bankruptcy Court initiating cases under chapter 11 of the Bankruptcy
Code and have continued in the possession of their assets and in the management
of their businesses pursuant to sections 1107 and 1108 of the Bankruptcy Code;
WHEREAS, Purchaser desires to purchase from the Sellers, and the
Sellers desire to sell to Purchaser, substantially all of the assets of the
Business, and Purchaser will assume certain liabilities, all on the terms and
subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. Unless otherwise defined herein, the terms
defined in the introductory paragraph and the Recitals to this Agreement shall
have the respective meanings specified therein, and the following terms shall
have the meanings specified below:
<PAGE>
"Adjusted Balance Sheet" means the adjusted balance sheet of G&G as of the
Balance Sheet Date, as set forth under Column 3 of Schedule 1.6.
"Affiliate" means "affiliate" as defined in Rule 405 promulgated under the
Securities Act of 1933, as amended.
"Agreement" has the meaning set forth in the preamble and shall include
all Schedules and Exhibits hereto.
"Ancillary Agreements" means, collectively, the Assignment and Assumption
Agreement and the Bill of Sale and Assumption Agreement.
"Apportionment Date" has the meaning set forth in Section 2.9.
"Assignment and Assumption Agreement" means the Assignment and Assumption
Agreement to be executed at Closing by Purchaser and the Sellers in
substantially the form attached hereto as Exhibit A.
"Assigned Contracts" means the Leases and the Other Contracts.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Balance Sheet Date" means April 4, 1998.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as heretofore
and hereafter amended, and codified as 11 U.S.C. Section 101, et seq.
"Bankruptcy Court" means the United States Bankruptcy Court for the
Southern District of New York, or any other court, having jurisdiction over the
Cases from time to time.
"Bill of Sale and Assumption Agreement" means the Bill of Sale and
Assumption Agreement to be executed at Closing by Purchasers and the Sellers in
substantially the form attached hereto as Exhibit B.
"Business" has the meaning set forth in the Recitals hereto.
"Business Day" means a day, other than a Saturday or a Sunday, on which
the New York Stock Exchange is open for business in The City of New York.
"Business Employees" means employees of the Sellers who, on the applicable
date, perform services primarily for the Business.
2
<PAGE>
"Cases" means the Chapter 11 cases of each of the Sellers pending in the
Bankruptcy Court and being jointly administered for procedural purposes as In re
Petrie Retail, Inc., et al., Case No. 95 B 44528 (AJG).
"Closing" has the meaning set forth in Section 9.1.
"Closing Date" has the meaning set forth in Section 9.1.
"Code" means the Internal Revenue Code of 1986, as heretofore or hereafter
amended.
"Damages" means losses, amounts paid in settlement, Taxes, claims,
damages, Liabilities, obligations, judgments, settlements and reasonable
out-of-pocket costs (including costs of investigation or enforcement) and
reasonable expenses and attorneys' fees; provided, however, that Damages shall
not include (i) any incidental or consequential damages or (ii) any special or
punitive damages.
"DIP Lenders" means The Chase Manhattan Bank and the other financial
institutions from time to time party to the Revolving Credit and Guaranty
Agreement.
"Equipment and Fixtures" means, to the extent used in the Business, (i)
building operating systems and equipment, other systems and equipment
(including, all point of sale, ticketing, sensormatic, phone and security
systems and equipment), furniture, furnishings, fixtures, trade fixtures and
improvements and selling and other supplies, including items leased by the
Sellers (but only to the extent assignable), and (ii) to the extent assignable,
any rights of the Sellers to the warranties, licenses and other similar rights
with respect thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) any cash or cash equivalents of the Sellers
(including for this purpose all (i) collected funds received in bank accounts of
the Sellers and (ii) amounts in the process of collection charged on credit
cards, through 11:59 p.m., Eastern Daylight Time, on the Closing Date) other
than cash held in the Stores in an aggregate amount not to exceed $136,300, plus
$200 per new store opened from the date of this Agreement through the Closing
Date, (b) all properties and assets of the Petrie Sellers other than the Leases
set forth on Schedule 1.3(a), (c) all properties and assets of PSL other than
the service marks and trademarks set forth on Schedule 3.9, (d) any capital
stock or equity interest held by any Seller in any other Seller or any other
Person, (e) corporate seals,
3
<PAGE>
minute books, charter documents, corporate stock record books, original tax and
financial records and such other books and records as pertain to the
organization, existence or share capitalization of any of the Sellers, (f) any
rights of the Sellers or any of their Affiliates to any Tax refund or Tax
benefits or credits (including loss-carryforwards and credits) incurred or
accrued, (g) any assets of any Plan maintained by any Seller or any of its
Affiliates, unless such Plan is required to be assumed pursuant to Article XI or
to the extent that any assets relating to any Plan are transferred to any plan
maintained by Purchaser pursuant to Article XI, (h) any property, casualty,
workers' compensation or other insurance policy or related insurance services
contract relating to any Seller or any of its Affiliates or any of such Seller's
property and any rights of any Seller or any of its Affiliates under such
insurance policy or contract, other than rights under such insurance policies or
contracts with respect to any Assumed Liability or any casualty affecting any of
the Purchased Assets if and to the extent purchased, (i) any rights of the
Sellers under this Agreement or under any other agreement between any Seller and
Purchaser, (j) any assets, or other rights of any Seller which do not relate to
the Business, (k) intercompany claims of Sellers, (l) any business of Sellers
and/or their respective Affiliates other than the Business, (m) any asset of any
Seller that would constitute Purchased Assets (if owned by such Seller on the
Closing Date) that is conveyed or otherwise disposed of during the period from
the date hereof until the Closing Date (1) in the ordinary course of the
Business and not in violation of the terms of this Agreement or (2) as otherwise
expressly permitted by the terms of this Agreement, (n) the Non-Assignable
Leases, (o) any books, records and information related solely to any of the
Excluded Assets or Excluded Liabilities; provided, however, that the Sellers
shall deliver to the Purchaser and the Purchaser shall be entitled to retain
copies of such books, records and information to the extent they relate to the
Purchased Assets or Assumed Liabilities or are otherwise required in the
operation or administration of the Business and (p) without limiting any of the
foregoing, any of the following, to the extent that they relate solely to any
Excluded Assets or Excluded Liabilities: claims, refunds, causes of action,
rights of recovery, rights of setoff and rights of recoupment of the Sellers as
of the Closing Date.
"Excluded Liabilities" has the meaning set forth in Section 2.2.
"Executory Contracts" means all Assigned Contracts entered into by or
assigned to a Seller before October 12, 1995 and which are executory or
unexpired as of the Closing Date.
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"GAAP" means United States generally accepted accounting principles, as in
effect from time to time.
"G&G Superior Proposal" has the meaning set forth in Section 9.2.
"Governmental Agency" means (a) any international, foreign, federal,
state, county, local or municipal governmental or administrative agency or
political subdivision thereof, (b) any governmental authority, board, bureau,
commission, department or instrumentality, (c) any court or administrative
tribunal, (d) any non-governmental agency, tribunal or entity that is vested by
a governmental agency with applicable jurisdiction or (e) any arbitration
tribunal or other non-governmental authority with applicable jurisdiction.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Incentive Agreement" means the Incentive Agreement approved by order of
the Bankruptcy Court by and among Jay and Scott Galin, PRI and G&G.
"Intellectual Property" means trademarks, service marks, brand names,
logos, trade names, trade dress, label designs, copyrights, customer lists, art
work, patents, developments, research data, test procedures, marketing plans,
processes, confidential information, inventions (whether or not patentable),
discoveries, business methods, trade secrets, registrations, goodwill and rights
in computer software, technology and know-how related to the Business; and all
rights granted or retained in licenses under any of the foregoing respecting the
Business; and all other intellectual and intangible property rights related to
the Business (including applications for, and extensions and reissuances of, any
of the foregoing and the rights therein) and all claims for past infringements.
"IRS" means the Internal Revenue Service of the United States Department
of the Treasury.
"Knowledge" as applied to any party shall mean the actual knowledge of
such party.
"Leased Property" means all of the Sellers' right, title and interest, as
tenant or sub-tenant, under the real property Leases set forth on Schedules 1.3
and 1.3(a).
"Leases" means those real property leases and equipment leases more
particularly described on Schedules 1.3, 1.3(a) and 1.4, except (x) those
designated by Purchaser pursuant to Section 2.1(b) or 5.11 and (y) the
Non-Assignable Leases.
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"Liability" means any liability or obligation (whether known or unknown,
asserted or unasserted, fixed or contingent, accrued or unaccrued, liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
"Liability Escrow Account" means an account established and maintained
jointly by G&G and Purchaser, in a bank acceptable to such parties, and
administered in accordance with Section 2.4 hereof.
"Lien" means any mortgage, pledge, security interest, charge or other
encumbrance.
"Material Adverse Effect" means a material adverse effect with respect to
the results of operations, properties, operations or financial condition of the
Business, taken as a whole.
"Non-Assignable Leases" shall mean those real property leases more
particularly described on Schedules 1.3, 1.3(a) and 1.4, the assignment of which
(i) Purchaser reasonably determines requires the consent of the landlord
thereunder (provided, Purchaser so informs the Sellers within two Business Days
prior to the final sale hearing) or (ii) if the Sellers object to the
determination of Purchaser in the foregoing clause, the Bankruptcy Court
determines requires the consent of the landlord thereunder, which consent in
either event has not been obtained as of the Closing Date.
"Non-Management Seller Group" means Edwin Holman, Gerald Chaney and
Michael McLearn, provided that none of such individuals shall have any personal
liability arising out or resulting from any references herein to the
Non-Management Seller Group.
"Official Committee" has the meaning set forth in the preamble to Article
VII.
"Order" means an Order of the Bankruptcy Court, in the form attached
hereto as Exhibit C (other than immaterial changes made after the date hereof
and agreed to by the Sellers and Purchaser, which agreement (to such immaterial
changes) shall not be unreasonably withheld by either party), authorizing, among
other things, the sale of the Purchased Assets to the Purchaser and the
assignment of the Assigned Contracts to the Purchaser, in accordance with the
terms and conditions of this Agreement and pursuant to, among others, sections
363 and 365 of the Bankruptcy Code.
"Other Contracts" means all agreements which are listed on Schedule 1.4.
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"Permit" means any permit, approval, authorization, license, variance or
permission required by a Governmental Agency under any applicable law.
"Permitted Liens" means, with respect to Leases, any Lien on the
underlying property which is not prohibited under the applicable Lease.
"Person" means any individual, partnership, corporation, trust,
association, limited liability company, Governmental Agency or other entity.
"Plan" or "Plans" has the meaning set forth in Section 3.11(a).
"Profit Sharing Plan" has the meaning set forth in Section 11.5.
"Purchase Price" has the meaning set forth in Section 2.3.
"Purchased Assets" means all of the Sellers' right, title and interest in
and to their business, properties, assets, goodwill, rights and claims of
whatever kind and nature, real or personal, tangible or intangible, known or
unknown, actual or contingent and wherever situated, including the Sellers'
rights under Leases (including, without limitation, Sellers' rights to the
Leased Property), as the same may exist on the Closing Date and are related to
the Business, including, without limitation, the following:
(a) all Leases, Leased Property and improvements and other
appurtenances thereto and rights in respect thereof;
(b) all inventories and other tangible personal property;
(c) all Equipment and Fixtures;
(d) all accounts receivable and notes receivable and other claims
for money or other obligations due to the Sellers including, without
limitation, construction allowances from landlords under the Leases,
vendor credits pursuant to the Assigned Contracts and, in each case, all
proceeds thereof;
(e) all of the Sellers' Intellectual Property, including the items
listed on Schedule 3.9, as well as all goodwill associated with the
Business;
(f) all right, title and interest in, to and under the Assigned
Contracts;
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(g) all books and records relating primarily to the Business
(including such books and records as are contained in computerized storage
media), including books and records related to inventory, purchasing,
accounting, sales, maintenance, repairs, marketing, banking, Intellectual
Property, shipping records, personnel files for Transferred Employees and
all files, customer and supplier lists, records, literature and
correspondence related to the Business; provided, however, that the
Sellers shall be entitled to make and retain copies of such books and
records to the extent they relate to Excluded Assets or Excluded
Liabilities or are otherwise required in the administration of the estates
of the Sellers and their affiliates and the Cases;
(h) to the extent legally assignable, all Permits;
(i) to the extent that any of the following relate to any Assumed
Liability or any of the Purchased Assets: claims, deposits, prepayments,
prepaid assets, refunds (excluding Tax refunds), causes of action, rights
of recovery, rights of setoff and rights of recoupment of the Sellers as
of the Closing Date, including, to the extent assignable without
additional cost to the Sellers, any such rights of the Sellers under any
property, casualty, workers' compensation or other insurance policy or
related insurance services contract respecting the Business (other than
prepaid premiums and deposits); and
(j) all cash received by the Sellers on account of sales (including
credit card sales) or receivables from and after the Closing Date;
provided, however, that notwithstanding any of the foregoing provisions of this
definition, the Purchased Assets shall not include any Excluded Assets.
"Purchaser Puerto Rico Plan" has the meaning set forth in Section 11.7.
"Purchaser Savings Plan" has the meaning set forth in Section 11.6.
"Revolving Credit and Guaranty Agreement" means the Revolving Credit and
Guaranty Agreement, dated as of May 5, 1997, as the same has been and may be
amended, among PRI, PS Stores Acquisition Corp., the subsidiaries of PRI party
thereto and The Chase Manhattan Bank, for itself and as agent for the other
financial institutions named therein.
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"Schedules" means the various Schedules referred to in this Agreement
delivered separately to Purchaser on or before the date of this Agreement.
"Seller Balance Sheet" means the balance sheet of the Business as of April
4, 1998, set forth under Column 1 of Schedule 1.6 attached hereto.
"Seller Puerto Rico Plan" has the meaning set forth in Section 11.7.
"Seller Savings Plans" has the meaning set forth in Section 11.6.
"Stores" means the premises described in the Leases and all fixtures or
leasehold improvements thereon, used or held for use by any of the Sellers in
the Business.
"Success Fee" means the Success Fee payable to Jay and Scott Galin
pursuant to the Incentive Agreement.
"Tax Return" means any report, return, information return or other
information required to be supplied to a taxing authority in connection with
Taxes.
"Taxes" means all federal, state, local and foreign taxes, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, withholding, Social Security,
unemployment, disability, real property, personal property, registration,
alternative or add-on minimum, estimated or other tax, including any interest,
penalties or additions thereto, whether disputed or not.
"Transaction Taxes" has the meaning set forth in Section 10.1.
"Transferred Employees" has the meaning set forth in Section 11.1(b).
"Transferred Non-Union Employees" has the meaning set forth in Section
11.1(b).
"Transferred Union Employees" has the meaning set forth in Section
11.1(b).
"WARN" has the meaning set forth in Section 11.1(a).
"Welfare Type Plans" has the meaning set forth in Section 11.3.
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ARTICLE II.
SALE AND PURCHASE OF
PURCHASED ASSETS AND
ASSUMPTION OF ASSUMED LIABILITIES
Section 2.1. Purchase and Sale of Purchased Assets. (a) On the terms
and subject to the conditions set forth in this Agreement, at the Closing
Purchaser shall purchase from the Sellers, and the Sellers shall sell, transfer,
assign, convey and deliver to Purchaser, all of the Sellers' right, title and
interest in and to the Purchased Assets.
(b) At any time not less than 10 Business Days prior to the final
sale hearing of the Bankruptcy Court, Purchaser, in its sole discretion may, by
written notice to the Sellers, elect to exclude up to four (4) Leases that are
Executory Contracts from the definitions of "Assigned Contracts" and "Purchased
Assets" and any such Executory Contract shall be deemed an "Excluded Asset" and
deleted from Schedules 1.3, 1.3(a) or 1.4, as applicable, and no adjustment to
the Purchase Price shall be made as a result of any such deletion; provided,
that the aggregate amount of allowable claims for damages arising from the
exclusion of Executory Contracts if the Sellers were to reject such Executory
Contracts shall not exceed $250,000.
Section 2.2. Assumption of Liabilities. On the terms and subject to
the conditions set forth in this Agreement, from and after the Closing,
Purchaser will assume and pay, perform, discharge and be responsible solely for
the following liabilities of the Sellers (the "Assumed Liabilities"):
(a) all liabilities of the Seller specifically shown or reflected in
the Adjusted Balance Sheet, as increased or decreased in the ordinary
course of the Business after the Balance Sheet Date, determined in
accordance with the principles utilized in the preparation of the Adjusted
Balance Sheet;
(b) all Liabilities of any of the Sellers accruing or arising from
and after the Closing Date under any and all Assigned Contracts;
(c) the Success Fee; and
(d) Notwithstanding the preceding clauses (a) and (b), Assumed
Liabilities shall not include (i) Liabilities with respect to Taxes
(unless otherwise specified on Schedule 1.6 hereof), (ii) Liabilities
arising under any multiemployer Plan, (iii) Liabilities of the Sellers
relating to any litigation or legal proceeding pending on the Closing Date
(other than litigation or legal proceedings with respect to Liabilities
shown or reflected on the Adjusted Balance Sheet, (iv) all cure
obligations pursuant to Section 5.7
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hereof and all other obligations of the Sellers under the Assigned
Contracts arising prior to the Closing Date and required to be performed
thereunder prior to the Closing Date, other than those specifically
assumed by Purchaser and reflected on the Adjusted Balance Sheet and (v)
Liabilities with respect to Non-Assignable Leases and all such Liabilities
shall constitute Excluded Liabilities as defined below.
All the Liabilities and obligations of the Sellers of whatever kind or nature,
known or unknown, fixed or contingent, accrued or unaccrued, other than the
Assumed Liabilities, are hereinafter referred to as the "Excluded Liabilities".
Purchaser shall not assume or pay, perform, discharge or be responsible for any
of the Excluded Liabilities.
Section 2.3. Purchase Price. The total purchase price for the
Purchased Assets is approximately $160 million, comprised of a cash payment of
$132 million (such cash portion, the "Purchase Price") plus the amount of
Assumed Liabilities. The Purchase Price shall be paid to the Sellers, subject to
the conditions set forth in this Agreement, at the Closing, (i) by wire transfer
of immediately available funds to an account designated by PRI, an amount equal
to $125 million (the "Closing Cash Payment") (subject to adjustment pursuant to
Section 5.1(1) hereof); and (ii) by payment of $7 million (subject to adjustment
pursuant to Section 5.1(1) hereof) to be held in the Liability Escrow Account
and applied pursuant to the terms of Section 2.4.
Section 2.4. Liability Escrow Account; Reimbursements. G&G and the
Purchaser shall cause certain of the Excluded Liabilities, as described in
footnote (d) to Schedule 1.6 hereof, to be paid out of the Liability Escrow
Account. The Liability Escrow Account and the payment of amounts therefrom shall
be jointly administered by Gerald Chaney and Michael Kaplan, in good faith and
consistent with the principles set forth in the footnotes to Schedule 1.6
hereof, or by such other persons as shall be designated by the Sellers (in lieu
of Gerald Chaney) or by Purchaser (in lieu of Michael Kaplan). Amounts remaining
in the Liability Escrow Account, if any, twenty (20) days after the Closing Date
shall be paid to Sellers. All disputes relating to the Liability Escrow Account
shall be settled by a third-party accounting firm mutually agreed to by the
Sellers and Purchaser prior to the Closing Date, and if such an agreement cannot
be reached, such firm as selected by the Bankruptcy Court.
Section 2.5. [INTENTIONALLY OMITTED].
Section 2.6. Allocation of Purchase Price. The Sellers and Purchaser
hereby agree on the allocation of the Purchase Price among the Purchased Assets
as set forth on Schedule 2.6 hereto. Subsequent to the Closing, the Sellers will
cooperate with Purchaser in the preparation, execution and filing with the
United States Internal Revenue Service of all
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information returns and supplements thereto required to be filed by the parties
under section 1060 of the Internal Revenue Code of 1986, as amended, relating to
the allocation of such consideration, and the Sellers and Purchaser agree to
file Form 8594 (or any substitute therefor) when and as required by applicable
law.
Section 2.7. Sale at Closing Date. The sale, transfer, assignment
and delivery by the Sellers of the Purchased Assets to Purchaser, and the
assumption by Purchaser of the Assumed Liabilities, as herein provided shall be
effected on the Closing Date by (a) the execution and delivery by the Sellers
and Purchaser of an assignment and assumption of the Assigned Contracts
substantially in the form of Exhibit A, subject only to Permitted Liens, and (b)
with respect to the other Purchased Assets and Assumed Liabilities, by the
execution and delivery by the Sellers and Purchaser of a bill of sale and
assumption agreement substantially in the form of Exhibit B.
Section 2.8. [INTENTIONALLY OMITTED].
Section 2.9. Discharge of Liens. Notwithstanding anything to the
contrary in this Agreement, if on the Closing Date there are any Liens that the
Sellers are obligated to pay and discharge under this Agreement, the Sellers may
use any portion of the Purchase Price to discharge the same, either by way of
payment, escrow or by bonding.
Section 2.10. Casualty and Condemnation. (a) In the event of any
damage or destruction by reason of any casualty to any of the Purchased Assets
after the date hereof, or if there shall be any taking by condemnation or
eminent domain of any of the Purchased Assets, the Sellers shall (i) in the case
of damage or destruction, pay over to Purchaser at Closing any insurance
proceeds received by the Sellers prior to the Closing Date (including the amount
of any applicable deductible or self-insurance retention) and assign to
Purchaser all of the Sellers' right, title and interest in and to any additional
proceeds related to such damage or destruction and (ii) in the case of
condemnation or eminent domain, pay over to Purchaser all awards received by the
Sellers on account of such condemnation or eminent domain prior to the Closing
Date and assign to Purchaser all of the Sellers' right to receive any additional
awards related to such condemnation or eminent domain; provided, that if all
such casualties and takings by condemnation or eminent domain have,
collectively, a Material Adverse Effect, Purchaser shall have the right to
terminate this Agreement prior to the Closing Date.
Section 2.11. Bond Cancellation. The parties hereto acknowledge and
agree that, on or prior to the Closing Date, the Sellers may terminate or
otherwise cancel the bonds set forth on Schedule 2.11 hereto.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Subject to Sections 3.18 and 3.19, the representations and
warranties set forth in Sections 3.1 through 3.17 are made as follows:
(i) The Sellers hereby make to Purchaser the representations and
warranties set forth in Section 3.1, Section 3.2 (other than the representation
and warranty made in clause (ii) thereof), Section 3.3 (other than the
representation and warranty made in clause (ii) thereof), Section 3.6(a) (second
sentence only), Section 3.11, Section 3.15 (other than with respect to the
representations and warranties related to any state or local sales or use Tax,
ad valorem personal property Tax, payroll Tax arising after January 31, 1998 or,
with respect to the Leases, any real property Tax relating to the Leases) and
Section 3.17; and
(ii) With respect to clause (ii) of Section 3.2, clause (ii) of
Section 3.3, Section 3.4, Section 3.6 (other than the second sentence of Section
3.6(a), Section 3.8, Section 3.9, Section 3.10, Section 3.13 and Section 3.16,
the Sellers represent and warrant to Purchaser only that none of the
Non-Management Seller Group has Knowledge, as of the date hereof, that any of
the statements made in any of such Sections or clauses is not true and correct
as of the date hereof. The foregoing provisions of this paragraph (ii) shall be
applicable notwithstanding any reference in any of such Sections or clauses to
the Knowledge of any Seller.
Section 3.1. Authority of Sellers. Each Seller is a corporation
validly existing and in good standing under the laws of its state of
organization. Each Seller has full corporate power and authority to execute and
deliver this Agreement and each of the Ancillary Agreements to which it is a
party, and the execution and delivery by each Seller of this Agreement and the
Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of each Seller, and this Agreement constitutes, and
each of the Ancillary Agreements upon its execution will constitute, the legal,
valid and binding obligation of each Seller enforceable in accordance with its
terms, subject to issuance of the Order and the receipt of the consents, waivers
and approvals specified on Schedule 3.3. Subject to any necessary authorization
from the Bankruptcy Court, each Seller has full corporate power and authority to
own its properties and to carry on the Business presently being conducted by it.
Section 3.2. No Conflict or Violation. The execution, delivery and
performance by each of the Sellers of this Agreement and the Ancillary
Agreements to which such Seller is a party do
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not and will not violate or conflict with any provision of the Certificate or
Articles of Incorporation or By-laws (or equivalent documents) of such Seller
and, assuming that the consents, waivers, authorizations, approvals,
declarations, filings and registrations referred to in Section 3.3 are obtained
or made, do not and will not (i) violate any provision of law, or any order,
judgment or decree of any court or other Governmental Agency applicable to such
Seller, or (ii) violate or result in a material breach of or constitute (with
due notice or lapse of time or both) a material default under any Assigned
Contract, loan agreement, mortgage, security agreement, indenture or other
instrument to which such Seller is a party or by which it is bound or to which
any of the Purchased Assets is subject and, in each case, became so on or after
October 12, 1995.
Section 3.3. Consents and Approvals. Schedule 3.3 sets forth a true
and complete list of each material consent, waiver, authorization or approval of
(i) any Governmental Agency and each declaration to or filing or registration
with any such Governmental Agency, or (ii) of any other Person in connection
with any Assigned Contract involving the payment by any Seller of more than
$150,000 in any calendar year, that is required for the execution and delivery
of this Agreement by the Sellers or the performance by the Sellers of their
respective obligations hereunder; provided, that the representations and
warranties set forth in this Section 3.3 shall not apply to Leases.
Section 3.4. Compliance with Law. Except as set forth on Schedule
3.4, the Sellers (i) have complied in all material respects with all laws,
regulations, orders and other legal requirements applicable to the Business or
the Purchased Assets, (ii) have not received written notice of any violation of
any law, regulation, order or other legal requirement and (iii) are not in
default in any material respect under any order, writ, judgment, award,
injunction or decree of any Governmental Agency, applicable to the Business or
the Purchased Assets.
Section 3.5. [INTENTIONALLY OMITTED]
Section 3.6. Sufficiency and Title to the Purchased Assets.
(a) The Purchased Assets constitute all of the assets or property
used or held for use in the Business, except for the Excluded Assets, and,
except as set forth on Schedule 3.6, the Sellers have good and valid title to
each of the Purchased Assets. Neither PRI nor any other entity owned directly or
indirectly by PRI (other than the Sellers) holds title to or any ownership
interest in any of the assets or property used or held for use in the Business
(other than the Excluded Assets) other than through the capital stock of the
Sellers.
(b) The entry of the Order and the delivery to the Purchaser of the
instruments of transfer of ownership
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contemplated by this Agreement will vest good and valid title to the Purchased
Assets in the Purchaser, free and clear of all interests in the Purchased Assets
including all Liens thereon, other than Permitted Liens or as set forth on any
of the schedules hereto.
Section 3.7. [INTENTIONALLY OMITTED].
Section 3.8. Assigned Contracts. True and complete copies of the
Assigned Contracts listed on Schedule 3.8 have been provided by the Sellers to
Purchaser. At the Closing, the Sellers shall have cured any and all defaults or
have provided adequate assurance that they will cure any and all defaults with
respect to Assigned Contracts as provided in Section 365 of the Bankruptcy Code
and as required by the Bankruptcy Court so that at the Closing, there shall be
no material defaults under any of the Assigned Contracts. Other than as set
forth on Schedule 3.8, neither the Sellers nor, to the best of the Sellers'
Knowledge, any other party under any of the Assigned Contracts has commenced any
action against the other or given or received any written notice of default or
violation under any Assigned Contract which was not withdrawn or dismissed,
except only for those defaults which will be cured prior to the Closing in
accordance with the Order (or which need not be cured under the Bankruptcy Code
to permit the assumption and assignment of Assigned Contracts). Each of the
Leases and other Assigned Contracts listed on Schedule 3.8 is or will be at the
Closing valid, binding and in full force and effect as against each Seller party
thereto.
Section 3.9. Intellectual Property. Schedule 3.9 sets forth a true
and complete list of all applications and registrations for material
Intellectual Property that Sellers own or use in the Business. Except as set
forth on Schedule 3.9, the Sellers either own or have the right to use by
license, sublicense, agreement or other permission all of the Intellectual
Property listed on Schedule 3.9. Except as noted on Schedule 3.9, none of the
Sellers has been charged with, nor to the Sellers' Knowledge is threatened to be
charged with, with respect to the trademarks, service marks and trade names
listed on Schedule 3.9, the infringement or other violation of the intellectual
property rights of any other Person having or that would reasonably be expected
to have a Material Adverse Effect.
Section 3.10. Labor Relations. To the Knowledge of the Sellers,
except as set forth on Schedule 3.10 hereto, there is currently no material
investigation being conducted or threatened by any Governmental Agency
concerning Sellers' compliance with wage and hours laws or regulations,
occupational safety or health laws or regulations, human rights or
anti-discrimination laws or regulations or any other laws or regulations
affecting Business Employees.
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Section 3.11. Employee Benefits.
(a) Schedule 3.11(a) sets forth all "employee benefit plans", as
defined in Section 3(3) of ERISA, and all other material employee benefit
arrangements or payroll practices including, without limitation, any such
arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits,
deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships
or tuition reimbursements, maintained by the Seller or to which the Seller
is obligated to contribute thereunder for current or former Business
Employees (each a "Plan" and collectively, the "Plans"). True, correct and
complete copies of the following documents, with respect to each of the
Plans, to the extent applicable, have been delivered or made available to
Purchaser: (i) the Plan and its related trust document, including any
amendments thereto, (ii) the most recent IRS Form 5500 filed with the
Internal Revenue Service, and (iii) summary plan description.
(b) None of the Plans is a multiemployer plan, as defined in Section
3 (37) of ERISA, or a single-employer plan, as defined in Section 4001 (a)
(15) of ERISA, that is subject to Title IV of ERISA.
(c) Except as set forth on Schedule 3.11(c), each Plan that is
intended to qualify under Section 401 of the Code and the trust maintained
pursuant thereto has received a favorable determination letter from the
IRS regarding its qualification, and, to the Knowledge of the employees of
Sellers with responsibility for such matters, nothing has occurred with
respect to the operation of any such Plan that could reasonably result in
the loss of such qualification or exemption.
(d) Except as set forth on Schedule 3.11(d), the Plans have been
maintained, in all respects, in accordance with their terms and with all
provisions of ERISA and the Code and other applicable federal and state
laws and regulations, except for any failure to so comply as would not
have a Material Adverse Effect. There are no unpaid contributions due
prior to the date hereof with respect to any Plan that are required to
have been made under the terms of the Plan or any applicable law.
(e) Except as set forth on Schedule 3.11(e), the Sellers have no
obligation to provide any deferred compensation, pension or non-pension
benefits to retired or other former employees, except for health benefits
as specifically required by Part 6 of Title I of ERISA ("COBRA") or other
applicable law or pension benefits
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payable from a Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code.
(f) All group health plans covering employees of the Sellers have
been operated in material compliance with the requirements of Section
4980B of the Code (and any predecessor provisions) and COBRA.
(g) Neither the Sellers nor to the Knowledge of the employees of
Sellers with responsibility for such matters any other "disqualified
person" or "party in interest," as defined in Section 4975 of the Code and
Section 3(14) of ERISA, respectively, has engaged in any "prohibited
transaction," as defined in Section 4975 of the Code or Section 406 of
ERISA, with respect to any Plan nor to the Knowledge of the employees of
Sellers with responsibility for such matters have there been any fiduciary
violations under ERISA which could subject any Seller (or any officer,
director or employee thereof) to any penalty or tax under Section 502(i)
of ERISA or Sections 4971 and 4975 of the Code.
(h) Except as set forth on Schedule 3.11(h), with respect to any
Plan: (i) no filing, application or other matter is pending with the IRS,
the PBGC, the United States Department of Labor or any other governmental
body; (ii) there is no action, suit or claim pending (nor, to the
Knowledge of the employees of Sellers with responsibility for such
matters, any basis for such a claim), other than routine claims for
benefits; and (iii) there are no outstanding liabilities for taxes or
penalties under ERISA, the Code or other applicable law.
Section 3.12. [INTENTIONALLY OMITTED]
Section 3.13. Litigation. Other than in connection with the Cases
and except as set forth on Schedule 3.13, there are no actions, causes of
action, claims, suits or proceedings pending or, to Sellers' Knowledge,
threatened against any of the Sellers with respect to the Business or affecting
the operation of the Business or the use of the Purchased Assets, at law or in
equity, or before or by any Governmental Agency, which (i) seeks to restrain or
enjoin the consummation of or would materially and adversely affect, the
transactions contemplated hereby or (ii) could reasonably be expected to have a
Material Adverse Effect.
Section 3.14. [INTENTIONALLY OMITTED]
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Section 3.15. Tax Matters. There is no Lien affecting any of the
Purchased Assets that arose in connection with any failure or alleged failure to
pay any Tax which will attach to the Purchased Assets after the Closing.
Section 3.16. Interim Operations. Taking into account the Sellers'
status as debtors in possession under the Bankruptcy Code, since April 4, 1998,
the Business has been operated in the ordinary course, consistent with past
practices, except as set forth on Schedule 3.16. Except in the ordinary course
of business (including the execution and delivery of post-petition leases and/or
lease renewals) and except as approved by the Bankruptcy Court, since the
Balance Sheet Date, none of the Sellers has, with respect to the Business: (i)
incurred or become subject to, or agreed to incur or become subject to, any
material obligation or Liability that is an Assumed Liability, except as
contemplated by this Agreement; (ii) mortgaged or pledged any of the Purchased
Assets, except pursuant to the Revolving Credit and Guaranty Agreement; (iii)
sold or transferred or agreed to sell or transfer any of the Purchased Assets;
(iv) suffered any extraordinary losses or waived any material rights; (v)
terminated any material contract, agreement, license, or other instrument to
which it is a party with respect to the Purchased Assets.
Section 3.17. Brokers. Except for the services provided by CIBC
Oppenheimer in connection with the transactions contemplated by this Agreement,
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by the Sellers without the intervention of any other
Person acting on the Sellers' behalf in such manner as to give rise to any valid
claim by any such Person against the Purchaser for a finder's fee, brokerage
commission or other similar payment based on an arrangement with the Sellers.
Section 3.18. Disclaimer of Additional Representations and
Warranties; Schedules.
(a) Except as expressly set forth in this Agreement, the Schedules
and Exhibits hereto, the Ancillary Agreements, and any certificate or
instrument delivered pursuant to the terms hereof or thereof, the Sellers
make no representations or warranties with respect to the Business, or its
operations, assets (including, without limitation, the Purchased Assets),
liabilities (including, without limitation, the Assumed Liabilities) or
conditions, including, with respect to the Purchased Assets, any
representation or warranty of merchantability, suitability or fitness for
a particular purpose, or quality as to the Purchased Assets, or any part
thereof, or as to the condition or workmanship thereof, or the absence of
any defects therein, whether latent or patent. Except as provided in this
Agreement, the Schedules and Exhibits hereto, the Ancillary Agreements,
and any other certificate
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or instrument delivered pursuant to the terms hereof or thereof, the
Purchased Assets are to be conveyed hereunder "AS IS" on the date hereof
and in their present condition, subject to reasonable use, wear and tear
between the date hereof and the Closing Date, and Purchaser shall rely
upon its own examination thereof.
(b) Notwithstanding anything to the contrary contained in this
Agreement, no matter primarily relating to any of the Excluded Assets or
Excluded Liabilities is required to be disclosed on any Schedule. In
addition, any item disclosed on any one Schedule shall be deemed to be
disclosed on each Schedule, where relevant. Disclosure of an item in any
Schedule shall not be deemed to be an admission that such item is
material.
Section 3.19. Limitation. Notwithstanding the foregoing provisions
of this Article III or any other provision of this Agreement, none of the
Sellers shall have any liability to Purchaser for or in respect of any
representation or warranty made in this Article III, and none of the Sellers
shall be deemed to have breached or violated any such representation or
warranty, as of the date hereof, any of Jay Galin, Scott Galin or Michael Kaplan
has Knowledge of the facts or circumstances causing such representation or
warranty to be not true and correct.
Section 3.20. Survival. Each of the representations and warranties
of Sellers described in clause (i) of the introduction to this Article III shall
survive the Closing until the earlier to occur of (x) the first anniversary of
the Closing Date or (y) the confirmation of the Sellers' plan of reorganization
by the Bankruptcy Court and each of the representations and warranties of
Sellers described in clause (ii) of the introduction to this Article III shall
survive the Closing until the earlier to occur of (x) the date which is six
months following the Closing Date or (y) the confirmation of the Sellers' plan
of reorganization by the Bankruptcy Court (the "Survival Period"). No claim may
be asserted by Purchaser against Sellers arising out of a breach of any such
representation or warranty unless written notice setting forth the basis of such
claim in reasonable detail has been furnished to the Sellers before the
expiration of the Survival Period.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Sellers as follows:
Section 4.1. Authority of Purchaser. Purchaser is a corporation,
validly existing, and in good standing under the laws of the State of Delaware.
Purchaser has full corporate power and authority to execute and deliver this
Agreement, and
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the execution and delivery by Purchaser of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Purchaser, and this Agreement
constitutes the legal, valid and binding obligation of Purchaser enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, or similar laws from time to time
in effect which affect creditors' rights generally, and by legal and equitable
limitations on the enforceability of specific remedies. Purchaser has full
corporate power and authority to own its properties and to carry on the business
presently being conducted by it.
Section 4.2. No Conflict or Violation. The execution, delivery and
performance by Purchaser of this Agreement and the Ancillary Agreements do not
and will not violate or conflict with any provision of the Certificate or
Articles of Incorporation or By-laws of Purchaser and do not and will not
violate any provision of law, or any order, judgment or decree of any court or
other Governmental Agency applicable to Purchaser, or violate or result in a
material breach of or constitute (with due notice or lapse of time or both) a
default under any loan agreement, mortgage, security agreement, indenture or
other instrument to which Purchaser is a party or by which it is bound.
Section 4.3. Consents and Approvals. The execution, delivery and
performance by Purchaser of this Agreement do not require the consent or
approval of, or filing with, any government, governmental body or agency or
other entity or person except: (i) as may be required to effect the transfer of
any Permits; or (ii) such consents, approvals and filings, the failure to obtain
or make which would not, individually or in the aggregate, have a material
adverse effect on its ability to consummate the transactions contemplated
hereby.
Section 4.4. Availability of Funds. Purchaser shall seek to obtain,
within 10 Business Days after the date hereof, commitments for debt and/or
equity financing acceptable in all respects to Purchaser, in its sole
discretion, taking into account pricing, interest rates, covenants, financial
condition of the Business and all such other factors as Purchaser deems relevant
(the "Financing Commitments"). Assuming receipt of such Financing Commitments
(which the Sellers acknowledge is not assured), Purchaser will at Closing have
funds sufficient to allow it to pay the Purchase Price at the times and in the
manner set forth in this Agreement and to satisfy all its other obligations
under this Agreement.
Section 4.5. Litigation. Except in connection with the Cases, there
are no actions, causes of action, claims, suits, proceedings, orders, writs,
injunctions, or decrees pending or, to the Knowledge of Purchaser, threatened
against Purchaser at law or in equity or before or by any Governmental Agency,
which seeks to restrain or enjoin the consummation of the transactions
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contemplated hereby or that shall otherwise materially adversely affect the
ability of Purchaser to perform its obligations hereunder.
Section 4.6. Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by Purchaser
without the intervention of any other person acting on its behalf in such manner
as to give rise to any valid claim by any such person against the Sellers or
their Affiliates for a finder's fee, brokerage commission or other similar
payment based on an arrangement with Purchaser.
Section 4.7. Adequate Assurances Regarding Executory Contracts.
Purchaser is and will be capable of satisfying the conditions contained in
sections 365(b)(1)(c) and (f) of the Bankruptcy Code with respect to the
Executory Contracts.
Section 4.8. Hart-Scott-Rodino. For purposes of the HSR Act, in
connection with the consummation of the transactions hereby (i) the Purchaser's
total assets are less than $10,000,000 and (ii) the Purchaser would be its own
"ultimate parent entity" as such term is defined under the HSR Act.
ARTICLE V.
CERTAIN COVENANTS OF THE SELLERS
Each Seller covenants with Purchaser that from and after the date hereof
through the Closing Date:
Section 5.1. Conduct of Business Before the Closing Date. Without
the prior written consent of Purchaser or unless otherwise ordered by the
Bankruptcy Court sua sponte or on motion by a third party, notice of which order
or motion shall be promptly delivered by the Sellers to Purchaser, between the
date hereof and the Closing Date, the Sellers shall not, except as required or
expressly permitted pursuant to the terms hereof, make any material change in
the Purchased Assets or the Business as it relates to the Purchased Assets, or
enter into any transaction respecting the Business, other than in any such case
in the ordinary course of the Business consistent with the Sellers' past
practices, and shall continue to operate the Stores and the Business as it
relates to the Purchased Assets in the ordinary course of the Business. Without
limiting the generality but subject to, the foregoing, unless otherwise
consented to in writing by Purchaser the Sellers shall, consistent with their
past practices:
(a) Perform all of their material post-petition obligations under
the Leases and Other Contracts in accordance with their terms, except for
obligations which are not required to be performed under the Bankruptcy
Code or which are being disputed by the Sellers in good faith;
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(b) Comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the Purchased Assets and
Assumed Liabilities except where compliance is being disputed by the
Sellers in good faith or excused by the Bankruptcy Code or other
applicable law;
(c) Not remove, agree to remove, sell or agree to sell or otherwise
transfer or permit any person or entity to remove any Equipment, Machinery
and Fixtures from the Stores, except for replacements and refurbishments
in the ordinary course of business;
(d) Not amend or modify, in any material respect, or terminate any
of the Leases or Other Contracts or agree or consent to any material
amendments or modifications or terminations thereof;
(e) Not change, in any material respect, any of their methods or
procedures relating to accounting for accounts receivable or inventory in
the Business;
(f) Promptly notify Purchaser if the G&G Sellers receive any notices
from any lessor, Governmental Agency, insurance company or any other
entity indicating any material default or the need for any material
repairs, alterations or improvements or any other matter that could
reasonably be expected to materially and adversely affect the Purchased
Assets, or that any of the Leased Properties are or may be in violation of
any law, and cause compliance at the Sellers' cost, except where
compliance is being disputed by the Sellers in good faith;
(g) Promptly notify Purchaser if the Sellers receive any notices of
or otherwise become aware of any condemnation proceedings affecting the
Stores;
(h) Not grant any unusual or extraordinary wage, salary or benefit
increases to any of the Sellers' employees (eligible to become Transferred
Employees) prior to Closing;
(i) Not enter into any material agreements that would be binding on
the Purchaser or affect any of the Purchased Assets after the Closing
Date, other than in the ordinary course of business;
(j) Promptly notify Purchaser of any order of the Bankruptcy Court
entered in the Cases that affects or will affect the operation of the
Business or the Purchased Assets and promptly deliver a copy of any such
order to Purchaser;
(k) Maintain all occurrence-based forms of insurance with respect to
the Purchased Assets as in effect on the date hereof; and
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(1) The Sellers shall, from and after the date hereof through the
Closing Date, make available to the Business an amount each week equal to
the lesser of (i) total weekly revenues of the Business for such week
minus $1 million, plus or minus 10% and (ii) $4.5 million, for operating
expenses of the Business (such amount paid by the Sellers, the "Operating
Expense Payment"). To the extent that the aggregate Operating Expense
Payments made from the date hereof through the Closing Date are less than
the Total Weekly Minimum, the parties agree that the Liability Escrow
Account shall be increased by the amount of such shortfall and the Closing
Cash Payment shall be decreased by the amount of such shortfall. As used
in this Section 5.1(1), "Total Weekly Minimum" shall mean the product of
(i) $4.5 million and (ii) the number of weeks (including any pro rata
portion of a partial week) between the date hereof and the Closing Date.
Section 5.2. Consents and Approvals. The Sellers shall use
commercially reasonable efforts to obtain (a) entry of the Order by the
Bankruptcy Court, and (b) the consent of The Chase Manhattan Bank, on behalf of
itself and as agent under the Revolving Credit and Guaranty Agreement, to this
Agreement and the transaction contemplated hereby.
Section 5.3. Information and Access. The Sellers will permit
representatives of Purchaser to have reasonable access during normal business
hours after reasonable notice from Purchaser to the Sellers, and in a manner so
as not to interfere with the normal operations, to all premises, properties,
personnel, accountants, books, records, contracts and documents of or pertaining
to the Business. Purchaser and each of its representatives will treat and hold
as confidential such information in accordance with the terms and provisions of
that certain Confidentiality Agreement, entered into on April 29, 1998, between
Pegasus Investors, L.P. and PRI, which Confidentiality Agreement remains in full
force and effect. Purchaser shall reimburse the Sellers for any reasonable
out-of-pocket costs incurred by the Sellers (but not for overhead or cost of
salaries or benefits of Purchaser's personnel) in providing such access.
Purchaser shall indemnify, defend and hold harmless the Sellers, the lessors
under the Leases and their respective Affiliates from and against any and all
claims, demands, causes of action, losses, damages, liabilities, cost and
expenses (including, without limitation, attorneys' fees and disbursements),
suffered or incurred by such Persons in connection with (i) Purchaser's and/or
Purchaser's representatives' entry upon the Leased Property, or (ii) any and all
other activities undertaken by Purchaser or Purchaser's representatives with
respect to the Leased Property pursuant to this Section 5.3. The parties hereto
agree and acknowledge that the provisions of this Section 5.3 shall in no way
affect the conditions set forth in Article VIII of this Agreement.
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Section 5.4. Further Assurances. Upon the request of the Purchaser
at any time after the Closing Date, the Sellers shall forthwith execute and
deliver such documents and take such actions as Purchaser or its counsel may
reasonably request to effectuate the purposes of this Agreement.
Section 5.5. Reasonable Efforts. Upon the terms and subject to the
conditions of this Agreement, the Sellers will use commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary or proper consistent with applicable law to
consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby. Without limiting the foregoing, the Sellers
will take or cause to be taken by others all reasonable actions required to
obtain or satisfy all consents and to continue such efforts as may be required
after the Closing Date to facilitate the full and expeditious transfer of legal
title, or the sublease or sublicense as the case may be, of the Purchased
Assets.
Section 5.6. Assignment of Contracts. At the Closing and effective
as of the Closing Date, the Sellers shall sell, assign and transfer to Purchaser
all their rights under the Assigned Contracts, free from all defaults by the
Sellers and all claims by third parties against Purchaser or the Purchased
Assets relating to any defaults by the Sellers thereunder.
Section 5.7. Cure of Defaults. The Sellers shall, on or prior to
the Closing, cure any and all defaults or provide adequate assurance that they
will cure any and all defaults with respect to Assigned Contracts as provided in
Section 365 of the Bankruptcy Code and as required by the Bankruptcy Court, so
that such Assigned Contracts may be assumed by the Sellers and assigned to the
Purchaser as applicable in accordance with the provisions of section 365 of the
Bankruptcy Code and so that Purchaser shall have no obligations for defaults
existing prior to the assignment.
Section 5.8. [INTENTIONALLY OMITTED].
Section 5.9. Accounts Receivable. Each Seller shall promptly remit
in kind to Purchaser any payments received by such Seller after the Closing in
respect of accounts receivable constituting a part of the Purchased Assets
hereunder.
Section 5.10. Name Change Filings. On the Closing Date, the Sellers
shall file with the Secretary of State of the state of incorporation of each
applicable Seller an amendment to each applicable Seller's certificate of
incorporation to change its name to a name which does not contain the words "G&G
Shops" or "G&G," and shall promptly provide Purchaser with evidence of such
filing. In addition, the Sellers shall, within 30 days after the Closing Date,
take such actions and file such documents as are necessary to reflect such name
changes in all states in
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which any such Seller is qualified to do business as a foreign corporation and
will deliver to Purchaser copies of such documents evidencing such name change
filings.
Section 5.11. Rejection of Contracts. In the event that at any time
not less than 10 Business Days prior to the final sale hearing of the Bankruptcy
Court, Purchaser gives written notice to Sellers, directing Sellers to reject up
to four (4) Leases that are Executory Contracts, such agreements shall be
deleted from Schedule 1.3, 1.3(a) or 1.4, as applicable, and shall not be deemed
an "Assigned Contract" or a "Purchased Asset"; provided, that the aggregate
allowed claims for damages arising from the exclusion of Executory Contracts, if
the Sellers were to reject such Executory Contracts shall not exceed $250,000.
Section 5.12. Transition Arrangements. From and after the Closing
Date, Sellers shall maintain all checking accounts (with sufficient funds
therein) until all checks drawn on such accounts prior to the Closing Date have
cleared. In addition, Sellers shall cooperate with Purchaser in the
establishment of such other reasonable transition arrangements (including,
without limitation, with respect to insurance, medical, payroll and banking
matters) as Purchaser shall reasonably request, for a period of up to ninety
(90) days following the Closing Date. Purchaser shall compensate the Sellers for
their actual costs incurred in providing such services including, but not
limited to, direct costs and liabilities incurred in providing such transition
services, labor costs and related overhead costs.
ARTICLE VI.
CERTAIN COVENANTS OF PURCHASER
Section 6.1. [INTENTIONALLY OMITTED].
Section 6.2. Reasonable Efforts. Upon the terms and subject to the
conditions of this Agreement, Purchaser will use commercially reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary or proper consistent with applicable law to consummate and make
effective in the most expeditious manner practicable the transactions
contemplated hereby.
Section 6.3. Consents and Approvals. Purchaser shall use
commercially reasonable efforts to provide, at the Sellers' request, assistance
in obtaining the Order in order to effect the transactions contemplated by this
Agreement.
Section 6.4. Adequate Assurances Regarding Executory Contracts.
With respect to each Executory Contract, Purchaser shall provide adequate
assurance as required under the Bankruptcy Code of the future performance of
such Executory Contract by Purchaser. Purchaser agrees that it will promptly
take all
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actions as are reasonably required by the Sellers to assist in obtaining the
Bankruptcy Court's entry of the Order, such as furnishing affidavits,
non-confidential financial information or other documents or information for
filing with the Bankruptcy Court and making Purchaser's employees and
representatives available to testify before the Bankruptcy Court, with respect
to demonstrating adequate assurance of future performance by Purchaser under the
Executory Contracts.
Section 6.5. Performance Under Assigned Contracts. Purchaser agrees
that from and after the Closing Date it shall take all actions necessary to
satisfy its obligations under the terms and conditions of each of the Assigned
Contracts.
Section 6.6. Further Assurances. Upon the request of the Sellers at
any time after the Closing Date, the Purchaser shall forthwith execute and
deliver such documents as the Sellers or their counsel may reasonably request to
effectuate the purposes of this Agreement.
ARTICLE VII.
CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the satisfaction (unless waived in
writing by the Sellers) of each of the following conditions on or prior to the
Closing Date:
Section 7.1. Representations and Warranties. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct on
and as of the Closing Date in all material respects as though such
representations and warranties were made on and as of the Closing Date.
Purchaser shall have delivered to the Sellers a certificate signed by an officer
of Purchaser, dated the Closing Date, to the foregoing effect. The Sellers shall
also have received a certificate dated the Closing Date and signed by each of
Jay Galin, Scott Galin and Michael Kaplan, stating that they have no knowledge
that any of the representations and warranties set forth in Article III hereof
are untrue; provided, that such individuals shall have no personal liability
arising out of or resulting from such certificate.
Section 7.2. Compliance with Agreement. Purchaser shall have
performed and complied in all material respects (and in all respects in the case
of Article II hereof) with all covenants and conditions to be performed or
complied with by it on or prior to the Closing Date. Purchaser shall have
delivered to the Sellers a certificate signed by an officer of Purchaser, dated
the Closing Date, to the foregoing effect.
Section 7.3. Financing. Purchaser shall have obtained Financing
Commitments which, together with Purchaser's available
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cash on the Closing Date, are sufficient to enable Purchaser to pay the Purchase
Price, and all of the conditions set forth in such Financing Commitments shall
have been satisfied.
Section 7.4. Consents. Other than the Bankruptcy Court's entry of
the Order (which is addressed in Section 7.6), all consents, waivers,
authorizations and approvals of any Governmental Agency set forth on Schedule
3.3 and the consent of The Chase Manhattan Bank, on behalf of itself and as
agent under the Revolving Credit and Guaranty Agreement, shall have been duly
obtained and shall be in full force and effect on the Closing Date.
Section 7.5. Corporate Documents. The Sellers shall have received
from Purchaser certified copies of the resolutions duly adopted by the board of
directors of Purchaser approving the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and such
resolutions shall be in full force and effect as of the Closing Date.
Section 7.6. Entry of the Order. (i) The Bankruptcy Court shall have
entered the Order; (ii) the Order shall not be stayed; (iii) the Order shall not
modify the terms and conditions of this Agreement or the transactions
contemplated hereby in any way that adversely affects the Sellers; and (iv) the
Order shall be final and no longer subject to appeal.
Section 7.7. Galin Releases. The Sellers shall have received a
release in form and substance reasonably satisfactory to them from each of Jay
Galin and Scott Galin releasing the Sellers, Warburg, Pincus Ventures, L.P. and
each of their affiliates from any and all claims arising under or related to
each of the Galins respective employment by the Sellers including, but not
limited to, the Incentive Agreement, except as to indemnification claims arising
out of the management of the Business in its ordinary course.
ARTICLE VIII.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by Purchaser) of each of the following conditions on or prior to the
Closing Date:
Section 8.1. Representations and Warranties. The representations and
warranties of the Sellers contained in this Agreement shall be true and correct
on and as of the Closing Date in all material respects as though such
representations and warranties were made on and as of the Closing Date. The
Sellers shall have delivered to Purchaser a certificate signed by the Chief
Executive Officer or the Chief Operating Officer of the G&G Sellers, dated the
Closing Date, to the foregoing effect;
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provided, that none of such individuals shall have any personal liability
arising out of or resulting from such certificate.
Section 8.2. Compliance with Agreement. The Sellers shall have
performed and complied in all material respects (and in all respects in the case
of Article II hereof) with all covenants and conditions to be performed or
complied with by them on or prior to the Closing Date. The Sellers shall have
delivered to Purchaser a certificate signed by an executive officer of each of
the Sellers, dated the Closing Date, to the foregoing effect.
Section 8.3. Agreements with Galins. On or prior to July 20, 1998,
Jay Galin, Scott Galin and the other shareholders of Purchaser shall have
entered into mutually acceptable shareholder, employment and other arrangements
(the "Purchaser Agreements") relating to the ownership, management and operation
of Purchaser and the Business after the Closing Date.
Section 8.4. Consents. Other than obtaining the Order (which is
addressed in Section 8.6), there shall have been duly obtained and in full force
and effect on the Closing Date: (i) all consents, waivers, authorizations and
approvals of any Governmental Agency required in connection with the execution,
delivery and performance of this Agreement, (ii) the consent of The Chase
Manhattan Bank, on behalf of itself and as agent under the Revolving Credit and
Guaranty Agreement and (iii) any consents required in connection with any
Assigned Contract (other than Leases) involving the payment by any Seller of
more than $150,000 in any calendar year, in each case as set forth on Schedule
3.3.
Section 8.5. Corporate Documents. Purchaser shall have received from
Sellers certified copies of the resolutions duly adopted by the boards of
directors of Sellers approving the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, and such resolutions
shall be in full force and effect as of the Closing Date.
Section 8.6. Entry of the Order. (i) The Bankruptcy Court shall have
entered the Order; (ii) the Order shall not be stayed; (iii) the Order as
entered by the Bankruptcy Court, shall not modify the terms and conditions of
this Agreement or the transactions contemplated hereby in any way that adversely
affects Purchaser; and (iv) the Order shall be final and no longer subject to
appeal.
Section 8.7. Entry of the Bidding Protections Order. The Bidding
Protections Order (as defined in Section 9.2 below), in the form annexed as
Exhibit D, shall have been entered by the Bankruptcy Court.
Section 8.8. Financing. Purchaser shall have obtained Financing
Commitments which, together with Purchaser's available
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cash on the Closing Date, are sufficient to enable Purchaser to pay the Purchase
Price, and all of the conditions set forth in such Financing Commitments shall
have been satisfied.
Section 8.9. Material Adverse Effect. No Material Adverse Effect
shall have occurred since the date of this Agreement arising from causes outside
the control of Purchaser and which could not have been avoided by Purchaser's
exercise of reasonable care.
Section 8.10. Revolving Credit and Guaranty Agreement. The Revolving
Credit and Guaranty Agreement shall not have been terminated.
Section 8.11. Release of the Galins. Jay and Scott Galin shall have
received a release from the Sellers from any and all claims asserting a breach
of the Incentive Agreement or a breach of fiduciary duty arising out of the
Galins' participation as investors and employees in the sale of the Business to
G+G Retail, Inc., including the Galins' commitment to act exclusively with
"TGV/Pegasus" as provided in the bid letter, dated May 18, 1998.
ARTICLE IX.
THE CLOSING; TERMINATION
Section 9.1. The Closing. The Closing of the purchase and sale of
the Purchased Assets (the "Closing") shall be held within two (2) Business Days
after each of the conditions precedent set forth in Articles VII and VIII have
been satisfied or waived (the "Closing Date"). The Closing shall be held at the
offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019. At the Closing, all of the transactions provided for in Article II hereof
shall be consummated on a substantially concurrent basis.
Section 9.2. Bidding Protections.
(a) Other Proposals. Except as otherwise set forth in this Section
9.2(a), the Sellers and their agents shall not solicit any proposal from any
Person or Persons to acquire, directly or indirectly, all or substantially all
of the assets of the Business or more than 50% of the voting power of the equity
securities of G&G (an "Alternative Transaction") or any inquiry which may result
in such a proposal from any person (provided that in no event shall the filing
of, submission of documents to or the presentation of evidence, testimony or
information to the Bankruptcy Court constitute the solicitation of an
Alternative Transaction). Notwithstanding anything herein to the contrary,
negotiations and discussions by the Sellers with any party that previously
submitted a written expression of interest (including, but not limited to, a
markup of a form purchase agreement) in acquiring all or substantially all of
the Business shall not
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constitute the solicitation of an Alternative Transaction; without limiting the
foregoing, such determination shall not affect whether or not the Sellers
entering into an agreement with such a party constitutes an Alternative
Transaction hereunder. Notwithstanding the foregoing or anything in this
Agreement to the contrary, if at any time prior to the Closing or termination of
this Agreement, any of the Sellers (or any representative of the Sellers)
receives any unsolicited proposal or inquiry that the Sellers determine in good
faith constitutes or may result in a G&G Superior Proposal (as defined below),
the Sellers may (and may authorize and/or permit any of their officers,
directors, employees, attorneys, agents or representatives to) (i) furnish
information with respect to the Sellers or the Business to any person or persons
making such proposal or inquiry (which may include a person or persons that made
inquiries or proposals prior to the date hereof), (ii) participate in
discussions and/or negotiations regarding such proposal or inquiry and (iii)
subject to approval by order of the Bankruptcy Court, enter into one or more
agreements with any such person or persons with respect to a G&G Superior
Proposal and, prior to or concurrently therewith, terminate this Agreement. "G&G
Superior Proposal" means any bona fide proposal made by any person or persons to
acquire, directly or indirectly, all or substantially all of the assets of the
Business or more than 50% of the voting power of the equity securities of G&G on
terms which the Boards of Directors of PRI and G&G determine in their good faith
judgment to be more favorable to the Sellers than the transaction provided for
in this Agreement (taking into account all factors relating to such proposed
transaction deemed relevant by such Boards of Directors, including, but not
limited to, the financing thereof, the proposed timing thereof and all other
conditions thereto), including a recapitalization transaction approved by the
appropriate Boards of Directors of the Sellers; provided, that no such proposal
may be deemed a G&G Superior Proposal unless such proposal includes
consideration which is in excess of the sum of (i) the Purchase Price, (ii) the
Topping Fee (as defined below), which for purposes of this Section 9.2(a) shall
be deemed to equal $2.64 million, and (iii) the Expense Reimbursement (as
defined below), which for purposes of this Section 9.2(a) shall be deemed to
equal $1,250,000.
(b) Topping Fee. If, after entry of the Bidding Protections Order
(as defined below), (i) this Agreement has not been terminated pursuant to
Sections 9.3(a), 9.3(b), 9.3(f), 9.3(g) or 9.3(h), (ii) Purchaser is not then in
default of any material obligation hereunder which would excuse performance
hereunder by the Sellers and (iii) the Sellers shall accept an offer and enter
into an agreement which provides for a G&G Superior Proposal, then Pegasus
Investors, L.P. shall, without further court order, be entitled to receive a fee
equal to 2% of Purchase Price (the "Topping Fee"); provided, however that if at
the hearing to sell all or substantially all of the Business a G&G Superior
Proposal is made and the Purchaser revises its offer to purchase the Purchased
Assets, Pegasus Investors, L.P. shall
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be entitled to receive only the Expense Reimbursement as provided below.
The Topping Fee shall be payable within five (5) days of the consummation of a
G&G Superior Proposal.
(c) Expense Reimbursement. In the event that (i) an agreement
providing for a G&G Superior Proposal is entered into or (ii) this Agreement is
terminated for any reason other than as set forth in the last sentence of this
Section 9.2(c), Pegasus Investors, L.P. shall be entitled to receive
reimbursement of the reasonable, actual, fully-documented out-of-pocket costs
and expenses paid or incurred by Purchaser or Pegasus Investors, L.P.,
commencing as of May 1, 1998 and ending on the earlier of (i) the date Purchaser
is notified of the Sellers' execution of an agreement providing for an
Alternative Transaction or a G&G Superior Proposal and (ii) the date this
Agreement is terminated, directly incident to, under or in connection with this
Agreement and the transactions contemplated hereby (including fees and
disbursements of counsel, accountants, financial advisors and other third
parties and commitment fees paid to financing institutions) in an amount not to
exceed $1,250,000 in the aggregate (the "Expense Reimbursement"). The Expense
Reimbursement shall be payable within five (5) days of the consummation of an
agreement which provides for an Alternative Transaction or a G&G Superior
Proposal; provided, that Purchaser shall have presented to the Sellers fully
detailed invoices or other documentation supporting the Expense Reimbursement.
Purchaser's claim for such Expense Reimbursement shall be a super-priority
administrative claim in the Cases senior to all unsecured administrative claims
other than those arising under (a) the Revolving Credit and Guaranty Agreement
(and related documents), (b) the letter agreement, dated March 13, 1998, between
Century Business Credit Corporation and Warburg, Pincus Ventures L.P. and (c)
administrative claims of employees of the Sellers for wages, benefits and
severance entitlements. Notwithstanding anything contained in this Agreement to
the contrary, the Purchaser shall not be entitled to receive the Expense
Reimbursement if the Agreement is terminated pursuant to Section 9.3(e) (by
the Sellers solely as a result of any default or breach by Purchaser), 9.3(f),
9.3(g) or 9.3(h); provided, however, that if within 120 days of any such
termination by the Sellers pursuant to Section 9.3(g) as a result of the
Sellers' dissatisfaction with a Financing Commitment tendered by Purchaser which
Purchaser was willing to accept, the Sellers enter into an agreement which
provides for an Alternative Transaction or a G&G Superior Proposal (i) for total
consideration (including assumption of liabilities) which equals or exceeds the
consideration to be provided by Purchaser hereunder, the Sellers shall, promptly
upon consummation of such agreement, pay to Pegasus Investors, L.P. the Expense
Reimbursement and (ii) for total consideration (including assumption of
liabilities) which is less than the consideration to be provided by Purchaser
hereunder, the Sellers shall, promptly upon consummation of such
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agreement, pay to Pegasus Investors, L.P. the Expense Reimbursement up to a
maximum of $625,000; and provided, further that if Purchaser shall fail to
tender a Financing Commitment to the Sellers hereunder, the Agreement is
terminated by the Sellers pursuant to Section 9.3(g) and the Sellers enter into
an agreement within 120 days of the date the Agreement is so terminated which
provides for an Alternative Transaction or a G&G Superior Proposal (other than a
going out of business sale, provided that a going out of business sale shall not
include a sale of all or substantially all of the Business to an entity or
entities which continues to operate the Business as a going concern under such
entity's or entities' trade names) and each of Jay Galin and Scott Galin
participate in such transaction, the Sellers shall, promptly upon consummation
of such agreement, pay to Pegasus Investors, L.P. the Expense Reimbursement up
to a maximum of $500,000.
(d) Bidding Protections Order. The Sellers shall use commercially
reasonable efforts to obtain an order in the form annexed as Exhibit D hereto
(the "Bidding Protections Order") of the Bankruptcy Court approving the
provisions of this Section 9.2, and the Purchaser shall cooperate with and take
such actions as reasonably requested by the Sellers in obtaining such order. The
Bidding Protections Order shall provide that the Topping Fee and the Expense
Reimbursement shall be payable by Sellers as set forth above.
Section 9.3. Termination. Anything in this Agreement to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated in any of the following ways at any time before the Closing and in no
other manner:
(a) By mutual written consent of Purchaser and the Sellers (in the
case of the Sellers, upon consultation with, and with the consent of, the
Official Committee); or
(b) By Purchaser as provided in Section 2.10; or
(c) By the Sellers as provided in Section 9.2;
(d) By Purchaser or the Sellers (if such terminating party is not
then in default of any obligation hereunder), if the Closing has not
occurred on or before August 31, 1998;
(e) By the Sellers or Purchaser (if such terminating party is not
then in default of any obligation hereunder) if the other party is in
breach in any material respect of any of its representations made in this
Agreement, or is in violation or default of any of its covenants or
agreements in this Agreement;
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(f) By Purchaser or the Sellers, within two Business Days following
July 15, 1998, if the Bidding Protections Order is not entered by July 15,
1998 or such Bidding Protections Order has not been consented to by the
DIP Lenders by July 15, 1998;
(g) By Purchaser or the Sellers, within two Business Days following
July 20, 1998, if Purchaser has not obtained the Financing Commitments on
or before July 20, 1998; or
(h) By Purchaser or the Sellers, within two Business Days following
July 20, 1998, if the Purchaser Agreements shall not have been entered
into and delivered to the Sellers on or before July 20, 1998.
Section 9.4. Effects of Termination. (a) In the event this Agreement
is terminated pursuant to Section 9.3, except as provided in this Section 9.4,
all further obligations of the parties hereunder shall terminate.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the Sellers shall have no liability or obligation under this Article
IX unless and until the Bidding Protections Order shall have been entered by the
Bankruptcy Court and the DIP Lenders shall have consented to the Bidding
Protections Order. Thereafter, the Sellers' liability for any termination of
this Agreement solely shall be as follows:
(i) In the event this Agreement is terminated other than as
set forth below in Section 9.4(b)(ii), the Sellers
shall only be liable to Pegasus Investors, L.P. for the
Expense Reimbursement pursuant and subject to the terms
of Section 9.2(c).
(ii) In the event this Agreement is terminated due to the
Sellers' execution of an agreement providing for a G&G
Superior Proposal, the Sellers shall be liable to
Pegasus Investors, L.P. for (i) the Topping Fee
pursuant and subject to the terms of Section 9.2(b)
and (ii) the Expense Reimbursement pursuant and subject
to the terms of Section 9.2(c).
(c) In the event this Agreement is terminated pursuant to Section
9.3(e) (by the Sellers solely as a result of any default or breach by
Purchaser), Purchaser shall be liable for any and all Damages incurred or
suffered by any Seller as a result of such default or delay, up to a maximum of
$3 million. Each of Pegasus Partners, L.P. and Pegasus Related Partners, L.P.
acknowledges and agrees that it shall have joint and several liability with
Purchaser up to such maximum amount of Damages.
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(d) The foregoing provisions of this Section 9.4 shall not limit
the rights of the parties hereto to seek specific performance of any obligation
hereunder of any other party.
ARTICLE X.
TAXES
The parties hereto hereby covenant and agree as follows:
Section 10.1. Taxes Related to Purchase of Assets. The parties
recognize and acknowledge that, because the sale, transfer, assignment and
delivery of the Purchased Assets is being made in connection with the Sellers'
plan of reorganization, they may be exempt under section 1146(c) of the
Bankruptcy Code and the Order from all state and local transfer, recording,
stamp or other similar transfer taxes (collectively, "Transaction Taxes") that
may be imposed by reason of the sale, transfer, assignment and delivery of the
Purchased Assets; provided, however, that if Transaction Taxes are assessed for
any reason, then the Sellers shall bear the cost of such Transaction Taxes along
with any recording and filing fees. Purchaser and the Sellers agree to cooperate
to determine the amount of Transaction Taxes payable in connection with the
transactions contemplated under this Agreement. Transaction Taxes shall not
include any Taxes for which the Sellers are responsible under Section 10.2.
Sellers shall bear the cost of any use or sales tax that may be imposed as a
result of the transactions contemplated hereby or, together with Purchaser,
jointly seek to establish a basis for an exemption therefrom. Purchaser and the
Sellers agree to cooperate in the preparation and filing of any and all required
returns for or with respect to such Transaction Taxes and/or use or sales taxes
with any and all appropriate taxing authorities.
Section 10.2. Cooperation on Tax Matters. Purchaser and the Sellers
agree to furnish or cause to be furnished to each other, as promptly as
practicable, such information and assistance relating to the Business as is
reasonably necessary for the preparation and filing of any Tax Return, claim for
refund or other required or optional filings relating to tax matters, for the
preparation for and proof of facts during any tax audit, for the preparation for
any tax protest, for the prosecution or defense of any suit or other proceeding
relating to tax matters and for the answer of any governmental or regulatory
inquiry relating to tax matters.
Purchaser agrees to retain possession of all files and records
delivered to Purchaser by the Sellers for a period of at least six years from
the Closing Date. In addition, from and after the Closing Date, Purchaser agrees
that it will provide access to the Sellers and their attorneys, accountants and
other representatives (after reasonable notice and during normal
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business hours) to such files and records as the Sellers may reasonably deem
necessary to properly prepare for, file, prove, answer, prosecute and/or defend
any such return, filing, audit, protest, claim, suit, inquiry or other
proceeding. Sellers shall reimburse Purchaser for any reasonable out-of-pocket
costs incurred by Purchaser (but not for overhead or cost of salaries or
benefits of Purchaser's personnel) in providing such access.
ARTICLE XI.
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
Section 11.1. Employment.
(a) Offer to Hire. Effective as of the Closing Date, Purchaser
shall (i) offer to hire, in a comparable position and at the same rate of
pay, each active Business Employee who is primarily involved in the
conduct of the Business on the day immediately prior to the Closing Date
and all those inactive Business Employees who are on approved leave on the
Closing Date because of jury duty, family or medical leave, sick leave,
vacation or military duty or (ii) pay and discharge all severance
obligations (including any WARN (as defined below) liability triggered as
a result of Purchaser's failure to offer employment to such Business
Employees) owed to the Business Employees set forth in the preceding
sentence to which Purchaser does not offer employment. Purchaser shall be
responsible for any obligations or Liabilities to the Business Employees
under the Worker Adjustment and Retraining Notification Act and any
similar state or local "plant closing" law ("WARN") to the extent WARN
thresholds are exceeded as a result of actions taken by the Purchaser on
or after the Closing Date with respect to the Business Employees. The
Sellers shall be responsible for any obligations or Liabilities to the
Business Employees under WARN as a result of actions taken by the Sellers
prior to the Closing Date.
(b) Transferred Employees. The Business Employees who accept and
commence employment with Purchaser and whose terms and conditions of
employment are covered by a collective bargaining agreement with any of
the Sellers immediately prior to the Closing Date shall be referred to
herein as "Transferred Union Employees." The Business Employees who accept
and commence employment with Purchaser and whose terms and conditions of
employment are not covered by a collective bargaining agreement with any
of the Sellers immediately prior to the Closing Date shall be referred to
herein as "Transferred Non-Union Employees." Collectively, the Transferred
Union Employees and the Transferred-Non Union Employees shall be referred
to herein as the "Transferred Employees." Purchaser's obligation with
respect to Transferred Employees shall commence as of the Closing Date.
Upon request of Purchaser, the Sellers shall
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provide Purchaser reasonable access to and copies of data regarding ages,
dates of hire, compensation, job description and, subject to applicable
law, such other personnel records as Purchaser may reasonably request in
respect of the Business Employees.
(c) Terms of Employment. For the period ending one year after the
Closing Date, Purchaser will provide Transferred Non-Union Employees with
benefits under Purchaser's employee benefit plans which are substantially
equivalent to those provided to such employees pursuant to the Plans
specified in Schedule 3.11(a) and will provide Transferred Union Employees
with such benefits as shall be required under the terms of any applicable
collective bargaining agreement covering such employees from and after the
Closing Date. Except as provided otherwise in this Article XI or as
required by the terms of any collective bargaining agreement, the
Transferred Employees' employment with Purchaser shall be upon such terms
and conditions as Purchaser, in its sole discretion, shall determine, and
nothing herein expressed or implied by this Agreement shall confer upon
any Business Employee, or legal representative thereof, any rights or
remedies, including any right to employment, or for any specified period,
of any nature or kind whatsoever, under or by reason of this Agreement.
Section 11.2. Collective Bargaining Agreements. Effective as of the
Closing Date, Purchaser shall assume until their scheduled expiration dates the
collective bargaining agreements listed on Schedule 3.10 in respect of the
Transferred Union Employees and shall be solely responsible for discharging all
obligations (including the establishment of such employee benefit plans,
programs and arrangements as may be required by such collective bargaining
agreements) and Liabilities arising thereunder on and after the Closing Date.
Purchaser shall have no responsibility or Liability in respect of any collective
bargaining agreement covering any current or former employees of the Sellers
during the period of employment by the Sellers.
Section 11.3. Employee Welfare Benefit Plans. Except with respect to
any claim that is covered by an Assigned Contract or otherwise constitutes an
Assumed Liability, the Sellers shall retain responsibility for all hospital,
medical, life insurance, disability and other welfare plan expenses and
benefits, and for all workers' compensation, unemployment compensation and other
government mandated benefits (collectively referred to herein as "Welfare Type
Plans"), in respect of claims covered by Plans and which are incurred by
Transferred Employees and their dependents prior to the Closing Date. Purchaser
shall be responsible for all claims incurred on or after the Closing Date by
Transferred Employees and their dependents under all Welfare Type Plans that are
maintained by Purchaser for the Transferred Employees and their dependents. For
purposes of this Section 11.3, claims shall be deemed to have been incurred:
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(a) with respect to all death or dismemberment claims, on the
actual date of death or dismemberment;
(b) with respect to all disability claims, other than short-term
disability or salary continuation benefits, on the date the claimant
became unable to (i) perform his or her regular duties of employment, in
the case of an employee claimant, or (ii) perform the normal day-to-day
responsibilities that would reasonably be expected of someone of similar
age and lifestyle, in the case of a dependent claimant;
(c) with respect to short-term disability or salary continuation
claims, on each day for which income benefits are payable to the claimant;
(d) with respect to all medical, drug or dental claims, on the date
the service was received or the supply was purchased by the claimant;
provided, however, that a medical claim relating to a claimant's
hospitalization shall be deemed to be incurred on the date the claimant
was first hospitalized; and
(e) with respect to workers' compensation claims, on the date the
incident occurred.
Transferred Employees shall participate as of the Closing Date under Welfare
Type Plans established or provided by Purchaser without, to the extent
practicable, any waiting periods, any evidence of insurability and any
preexisting physical or mental condition restrictions (except to the extent
applicable and unsatisfied under the Sellers' Welfare Type Plans), and Purchaser
shall provide credit, to the extent recognized by a similar Plan of the Sellers,
for claims incurred prior to the Closing Date for purposes of applying
deductibles, co-payments, out of pocket maximums and benefit maximums. Prior to
and following the Closing Date, the Sellers shall provide Purchaser with the
records and other data needed for Purchaser to comply with the provisions of
this Section. At Purchaser's request, the Sellers shall, to the extent
practicable, arrange to have coverage under their Welfare Type Plans extended
for the Transferred Employees through the end of the month in which the Closing
occurs.
Section 11.4. COBRA. Purchaser shall have sole responsibility for
"continuation coverage" benefits provided after the Closing Date under
Purchaser's group health plans to all Transferred Employees, and "qualified
beneficiaries" of Transferred Employees, for whom a "qualifying event" occurs
after the Closing Date. The Sellers shall be responsible for providing any
notices to the Transferred Employees required pursuant to the Consolidated
Omnibus Budget Reconciliation Act, and shall have sole responsibility for
"continuation coverage" benefits provided under the Sellers' group health plans
to all employees of the Sellers, and "qualified beneficiaries" of employees of
the
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Sellers, for whom a "qualifying event" has occurred on or prior to the Closing
Date. The terms "continuation coverage," "qualified beneficiaries" and
"qualifying event" shall have the meanings ascribed to them under Section 4980B
of the Code and Sections 601-608 of ERISA.
Section 11.5. G & G Profit Sharing Plan. G&G currently sponsors and
maintains a qualified defined contribution profit sharing plan known as the G&G
Retirement Plan and Trust (the "Profit Sharing Plan") which provides certain
retirement benefits for certain eligible employees of the G&G Sellers, including
certain Transferred Employees. Effective as of the Closing Date, the Sellers and
Purchaser shall take all necessary and appropriate action to cause Purchaser to
assume the sponsorship of the Profit Sharing Plan. Purchaser and the Sellers
agree that the Purchaser shall be deemed the successor to and assignee of the
Sellers for all purposes under the Profit Sharing Plan, including for purposes
of determining the date on which a termination of employment, separation from
service or other similar event has occurred under the Profit Sharing Plan. As of
the Closing Date, the Sellers and their respective Affiliates shall have no
Liability for the payment of benefits to any participants accrued under the
Profit Sharing Plan before or after the Closing Date, and Purchaser shall
indemnify and hold the Sellers and their respective Affiliates harmless from and
against any Liability as a result of any claim against a Seller or its
Affiliates for the payment of benefits under the Profit Sharing Plan. Nothing
contained herein shall interfere with Purchaser's right to amend or terminate
the Profit Sharing Plan, in accordance with its terms and applicable law,
following its assumption.
Section 11.6. 401(k) Savings Plan. G&G is currently a Participating
employer in two 401(k) plans known as the Petrie Retail, Inc. 401(k) Savings
Plan and the Petrie Retail, Inc. 401(k) Plan for UAW Local 2326 Employees
(collectively the "Seller Savings Plans") which provide benefits for certain of
the Transferred Employees. Effective as of the Closing Date, Purchaser shall
adopt or provide a savings plan or plans with a cash or deferred arrangement
that is qualified under Section 401(a) of the Code on behalf of the Transferred
Employees who participated in the Seller Savings Plans (the "Purchaser Savings
Plan"), and that expressly provides that: (i) Transferred Employees who were
participants in the Seller Savings Plans immediately prior to the Closing Date
will continue their participation in the Purchaser Savings Plans as of the
Closing Date without interruption and (ii) all Transferred Employees will have
their months and years of service with the Sellers and their Affiliates which is
recognized under the Seller Savings Plans credited for eligibility, vesting and
other purposes for which service is taken into account under the Seller Savings
Plans. As soon as practicable after the Closing Date, the Sellers shall cause
the assets of the trust under the Seller Savings Plans in respect of the
aggregate benefits accrued (including unvested
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benefits) under the Seller Savings Plans by the Transferred Employees to be
valued and transferred to the trust under the Purchaser Savings Plan; provided,
however, that Purchaser shall first have provided the Sellers with either a copy
of a favorable determination letter from the IRS or an opinion of counsel
reasonably satisfactory to the Sellers regarding the qualification, in form, of
the Purchaser Savings Plan under Section 401(a) of the Code. The assets to be
transferred from the trust under the Seller Savings Plans pursuant to this
Section 11.6 shall be in cash or, to the extent mutually agreed to by the
Sellers and Purchaser, a combination of cash, securities and other property;
provided, however, that any outstanding loans attributable to the accounts of
the Transferred Employees shall be transferred in kind. The actual amount
transferred from the trust under the Seller Savings Plans shall be adjusted to
reflect any normal and reasonable administrative expenses properly attributable
to the accounts of the Transferred Employees during the period following the
Closing Date. At the time the assets that are held in the trust with respect to
the Transferred Employees under the Seller Savings Plans are paid to the trust
under the Purchaser Savings Plans, the Purchaser Savings Plans shall assume all
liabilities of the Seller Savings Plans for the applicable benefits so
transferred, and such transfer shall be in full discharge of all obligations of
the Seller Savings Plans in respect thereof. During the period following the
Closing Date and preceding the transfer of assets and liabilities pursuant to
this Section 11.6, (i) the Sellers shall take such action as is necessary to
prevent a default by any Transferred Employee with an outstanding loan from the
Seller Savings Plans unless and until such Transferred Employee fails to make a
timely payment on such loan and (ii) Purchaser will cooperate with and assist
the Sellers or their designee in the continued administration of the Seller
Savings Plans, including, subject to the consent of the Transferred Employee,
collecting and remitting to the trustee of the Seller Savings Plans payroll
deductions relating to any outstanding loans. Notwithstanding the above, the
amount transferred to the trust under the Purchaser Savings Plans shall in no
event be less than the amount necessary to satisfy the requirements of Section
414(l) of the Code and ERISA.
Section 11.7. Puerto Rico Savings Plan. G&G is currently a
Participating employer in a plan known as the Petrie Retail, Inc. Savings Plan
for Puerto Rico Employees (the "Seller Puerto Rico Plan") which provides certain
deferred compensation benefits for certain eligible employees of the Sellers,
including certain of the Transferred Employees. Effective as of the Closing
Date, Purchaser shall adopt or provide a savings plan or plans with a cash or
deferred arrangement that is qualified under Section 1165(a) of the Puerto Rico
Internal Revenue Code of 1994 on behalf of the Transferred Employees (the
"Purchaser Puerto Rico Plan"), and that expressly provides that: (i) Transferred
Employees who were Participants in the Seller Puerto Rico Plan immediately prior
to the Closing Date will continue their participation in the Purchaser Puerto
Rico Plan as of the Closing
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Date without interruption, and (ii) all Transferred Employees will have their
months and years of service with the Sellers and their Affiliates which is
recognized under the Seller Puerto Rico Plan credited for eligibility, vesting
and other purposes for which service is taken into account under the Seller
Puerto Rico Plan. As soon as practicable after the Closing Date, the Sellers
shall cause the assets of the trust under the Seller Puerto Rico Plan in respect
of the aggregate benefits accrued (including unvested benefits) under the Seller
Puerto Rico Plan by the Transferred Employees to be valued and transferred to
the trust under the Purchaser Puerto Rico Plan; provided, however, that
Purchaser shall first have provided the Sellers with either a copy of a
favorable determination letter from the Puerto Rico Department of Treasury or an
opinion of counsel reasonably satisfactory to the Sellers regarding the
qualification, in form, of the Purchaser Puerto Rico Plan under Section 1165 of
the Puerto Rico Internal Revenue Code of 1994. The assets to be transferred from
the trust under the Seller Puerto Rico Plan pursuant to this Section 11.7 shall
be in cash or, to the extent mutually agreed to by the Sellers and Purchaser, a
combination of cash, securities and other property; provided, however, any
outstanding loans attributable to the accounts of the Transferred Employees
shall be transferred in kind. The actual amount transferred from the trust under
the Seller Puerto Rico Plan shall be adjusted to reflect any normal and
reasonable administrative expenses properly attributable to the accounts of the
Transferred Employees during the period following the Closing Date. At the time
the assets that are held in the trust with respect to the Transferred Employees
under the Seller Puerto Rico Plan are paid to the trust under the Purchaser
Puerto Rico Plans, the Purchaser Puerto Rico Plans shall assume all liabilities
of the Seller Puerto Rico Plan for the applicable benefits so transferred, and
such transfer shall be in full discharge of all obligations of the Seller Puerto
Rico Plan in respect thereof. During the period following the Closing Date and
preceding the transfer of assets and liabilities pursuant to this Section 11.7,
(i) the Sellers shall take such action as is necessary to prevent a default by
any Transferred Employee with an outstanding loan from the Seller Puerto Rico
Plan unless and until such Transferred Employee fails to make a timely payment
on such loan and (ii) Purchaser will cooperate with and assist the Sellers or
their designee in the continued administration of the Seller Puerto Rico Plan,
including, subject to the consent of the Transferred Employee, collecting and
remitting to the trustee of the Seller Puerto Rico Plan payroll deductions
relating to any outstanding loans. Notwithstanding the above, the amount
transferred to the trust under the Purchaser Puerto Rico Plans shall in no event
be less than the amount necessary to satisfy the applicable requirements of the
Puerto Rico Internal Revenue Code of 1994.
Section 11.8. Vacation and Sick Leave. Each Transferred Employee
will be credited by Purchaser with any unused vacation and sick leave earned as
of the Closing Date
40
<PAGE>
under the vacation and sick leave policy of the Sellers applicable to such
Transferred Employee, and the Sellers shall have no Liability therefor following
the Closing Date. Purchaser shall recognize service by each Transferred Employee
with the Sellers for purposes of determining entitlement to vacation and sick
leave following the Closing Date under the applicable vacation and sick leave
policy of the Sellers; provided, however, that this Section 11.8 shall not be
construed so as to entitle any Transferred Employee to be credited with any
benefits under Purchaser's vacation and sick leave policy with respect to any
period of employment prior to the Closing Date other than as provided in the
preceding sentence.
Section 11.9. Severance Benefits. Purchaser agrees that in the event
that any Business Employee does not accept employment with Purchaser, Purchaser
will provide such person with a severance benefit which is not less than one
week's salary for each year of such person's service with the Sellers and
Purchaser, but not less than two weeks or more than 12 weeks. Purchaser further
agrees that in the event that (i) any Business Employee whose terms and
conditions of employment are covered by a collective bargaining agreement with
any of the Sellers immediately prior to the Closing Date or (ii) any Transferred
Union Employee does not accept employment with Purchaser or is terminated by
Purchaser, other than for cause, during the one-year period immediately
following the Closing Date, Purchaser will make all payments required by the
terms of the collective bargaining agreements covering such persons.
Notwithstanding the foregoing, in the event the individuals set forth on
Schedule 11.9 are entitled to payment under the Change in Control Severance Plan
Covering Key Employees of Petrie Retail, Inc. and its Operating Subsidiaries
(the "Change in Control Plan"), Purchaser agrees to make all payments to such
individuals, on behalf of Sellers, required by the terms of the Change in
Control Plan, in lieu of the severance benefits required by the preceding
sentence. The parties agree that nothing contained in this Section 11.9 shall be
deemed to confer upon any Person other than the parties to this Agreement any
legal or equitable right, remedy or claim under or with respect to this
Agreement or any provision of this Agreement.
ARTICLE XII.
INDEMNIFICATION
Section 12.1. Indemnification by the Purchaser. From and after the
date of this Agreement, the Purchaser will indemnify, defend and hold the
Sellers, their Affiliates and their respective officers, directors, employees
and agents harmless from and against any and all claims, actions, suits,
demands, assessments, judgments, losses, liabilities, damages, penalties, costs
and expenses (including, without limitation, reasonable attorneys' fees to the
extent permitted by law and accounting fees and investigation costs)
(collectively, "Losses")
41
<PAGE>
that may be incurred by any such indemnified party and, directly or indirectly,
resulting or arising from, related to or incurred in connection with (i) the use
or operation of the Purchased Assets or the conduct of the Business after the
Closing Date, (ii) the Assumed Liabilities, (iii) those liabilities and
obligations arising after the Closing Date under the Assigned Contracts included
in the Purchased Assets and acquired by the Purchaser hereunder; provided,
however, that this Section 12.1 does not apply to any such liabilities and
obligations arising from breaches of such Assigned Contracts or defaults under
Assigned Contracts by the Sellers, and (iv) any breach of any representation or
warranty or any covenant, obligation or agreement of the Purchaser contained in
this Agreement; provided, further, that Purchaser shall not be required to
indemnify the Sellers under this clause (iv) of this Article XII in respect of
any Losses related to any breach of any of the Purchaser's representations and
warranties ("Purchaser Breach Losses") until the aggregate amount of all
Purchaser Breach Losses exceeds $500,000, whereupon Purchaser shall be required
to indemnify the Sellers in respect of all Purchaser Breach Losses and not only
those in excess of $500,000.
Section 12.2. Indemnification by the Sellers. From and after the
date of this Agreement, each Seller will indemnify, defend and hold the
Purchaser, its Affiliates and their respective officers, directors, employees
and agents harmless from and against any and all Losses that may be incurred by
any such indemnified party, directly or indirectly resulting or arising from,
related to or incurred in connection with (i) the Excluded Liabilities, (ii) the
Excluded Assets (iii) liabilities in connection with the Non-Assignable Leases
and (iv) any breach of any representation or warranty or any covenant,
obligation or agreement of the Sellers contained in this Agreement; provided,
that, with respect to this clause (iv), the indemnification rights of Purchaser
with respect to Losses related to any breach of any of the Sellers'
representations and warranties set forth in (a) Section 3.1, Section 3.2 (other
than the representation and warranty made in clause (ii) thereof), Section 3.3
(other than the representation and warranty made in clause (ii) thereof),
Section 3.6(a) (second sentence only), Section 3.11, Section 3.15 (other than
with respect to the representations and warranties related to any state or local
sales or use Tax, ad valorem personal property Tax, payroll Tax arising after
January 31, 1998 or, with respect to the Leases, any real property Tax relating
to the Leases) and Section 3.17 ("Non-Business Seller Breach Losses") and (b)
clause (ii) of Section 3.2, clause (ii) of Section 3.3, Section 3.4, Section 3.6
(other than the second sentence of Section 3.6(a), Section 3.8, Section 3.9,
Section 3.10, Section 3.13 and Section 3.16 ("Business Seller Breach Losses"
and, together with the Business Seller Breach Losses, the "Seller Breach
Losses") shall survive only for the applicable Survival Periods; and provided,
further, that the Sellers shall not be required to indemnify Purchaser under
this clause (iv) of this Article XII in respect of any Seller Breach Loss until
the
42
<PAGE>
aggregate amount of all Seller Breach Losses exceeds $500,000 (the "Aggregate
Basket Amount"), whereupon the Sellers shall be required to indemnify Purchaser
in respect of all Seller Breach Losses and not only those in excess of the
Aggregate Basket Amount; and provided, further, that the Sellers shall only be
liable under this clause (iv) of this Article XII for Business Seller Breach
Losses up to an aggregate amount of $4,500,000, it being understood that the
Sellers shall be liable under this Article XII for all Non-Business Seller
Breach Losses.
Section 12.3. Notice of Claim; Right to Participate In and Defend
Third Party Claim. (a) In the event that any indemnified party (which term
includes all Persons entitled to indemnification under Section 12 and their
successors and assigns) receives notice of the assertion of any claim, the
commencement of any suit, action or proceeding or the imposition of any penalty
or assessment by a third party in respect of which indemnity may be sought under
this Agreement ("Third Party Claim") and the indemnified party intends to seek
indemnity under this Agreement, then the indemnified party will promptly provide
the indemnifying party with notice of the Third Party Claim. The failure by an
indemnified party to notify an indemnifying party of a Third Party Claim does
not relieve the indemnifying party of any indemnification responsibility under
Section 12 unless and only to the extent that such failure adversely prejudices
the ability of the indemnifying party to defend such Third Party Claim.
(b) The indemnifying party has the right to control the defense,
compromise or settlement of the Third Party Claim with counsel of its choosing
if the indemnifying party delivers written notice to the indemnified party
within seven calendar days following the indemnifying party's receipt of notice
of the Third Party Claim from the indemnified party acknowledging its
obligations to indemnify the indemnified party with respect to such Third Party
Claim in accordance with this Section 12 and establishes security, or otherwise
demonstrates its ability, in a manner reasonably satisfactory to the indemnified
party to secure or provide for the indemnifying party's obligations under this
Section 12 with respect to such Third Party Claim. In its defense, compromise or
settlement of any Third Party Claim, the indemnifying party will provide the
indemnified party, in a timely manner, with such information with respect to
such defense, compromise or settlement as the indemnified party requests and
will not assume any position or take any action that would impose an obligation
of any kind or restrict the actions of the indemnified party. The indemnified
party will be entitled (at the indemnified party's expense) to participate in
the defense by the indemnifying party of any Third Party Claim with its own
counsel. Notwithstanding the foregoing, if the indemnifying party fails, in the
reasonable opinion of the indemnified party, to take reasonable steps necessary
to defend a Third Party Claim within ten calendar days after receiving notice
from the indemnified party that the indemnified party believes
43
<PAGE>
the indemnifying party has failed to take such steps, the indemnified party may
assume its own defense, and the indemnifying party will be responsible for any
reasonable expenses therefor. Without the prior written consent of the
indemnified party, the indemnifying party will not enter into any settlement or
compromise of any Third Party Claim which could lead to liability or create any
financial or other obligation on the part of the indemnified party for which
the indemnified party is not entitled to reimbursement under this Agreement.
(c) In the event that the indemnifying party does not undertake the
defense, compromise or settlement of a Third Party Claim, the indemnified party
has the right to control the defense or settlement of such Third Party Claim
with counsel of its choosing at the cost of the indemnifying party; provided,
however, that the indemnified party will not settle or compromise any Third
Party Claim without the indemnifying party's prior written consent, unless (i)
the terms of such settlement or compromise release the indemnified party and the
indemnifying party from any and all liability with respect to the Third Party
Claim or (ii) the indemnifying party has not (x) acknowledged its obligations to
indemnify the indemnified party with respect to such Third Party Claim in
accordance with this Section 12 and (y) established security, or otherwise
demonstrated its ability, in a manner reasonably satisfactory to the indemnified
party to secure or provide for the indemnifying party's obligations under this
Section 12 with respect to such Third Party Claim.
(d) Any indemnifiable claim under this Agreement that is not a Third
Party Claim will be asserted by the indemnified party by promptly delivering
notice thereof to the indemnifying party. If the indemnifying party does not
respond to such notice within 15 calendar days after its receipt, it shall have
no further right to contest the validity of such claim.
Section 12.4. Right to Indemnification Not Affected by Knowledge.
Subject to Section 3.19, the right to indemnification, payment of Losses or
other remedy based on the representations, warranties, covenants and
obligations in this Agreement will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant or
obligation.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
Section 13.1. Representations and Warranties. The representations
and warranties of the parties to this Agreement made in this Agreement, subject
to the exceptions thereto, will not be affected by any information furnished to,
or any
44
<PAGE>
investigation conducted by, any of them or their representatives in connection
with the subject matter of this Agreement.
Section 13.2. Notices. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one (1) Business
Day after the date when sent to the recipient by reputable express courier
service (charges prepaid) or (d) seven (7) Business Days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the Sellers and to Purchaser at the addresses indicated below:
If to Purchaser: G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Attention: Scott D. Galin
Facsimile No. (212) 695-4952
and
Pegasus Investors, L.P.
99 River Road
Cos Cob, Connecticut 06807
Attention: Jonathan Berger
Facsimile No. (203) 869-6940
With copies
(which shall not
constitute notice) to:
Kaye, Scholer, Fierman, Hays &
Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Mark S. Selinger, Esq.
Facsimile No. (212) 836-8689
and
Shack & Siegel, P.C.
530 Fifth Avenue
16th Floor
New York, New York 10036
Attention: Donald Shack, Esq.
Facsimile No. (212) 730-1964
45
<PAGE>
If to the Sellers: Petrie Retail, Inc.
150 Meadowlands Parkway
Secaucus, New Jersey 07094
Attention: Michael B. McLearn
Facsimile No. (201) 392-0938
With a copy Willkie Farr & Gallagher
(which shall not 787 Seventh Avenue
constitute notice) to: New York, New York 10019
Attention: Cornelius T. Finnegan III
Facsimile No. (212) 728-8111
and
Hahn & Hessen, LLP
350 Fifth Avenue
Suite 3700
New York, New York 10118
Attention: Mark S. Indelicato
Facsimile No. (212) 594-7167
or to such other address as any party hereto may, from time to time, designate
in writing delivered pursuant to the terms of this Section.
Section 13.3. Amendments. The terms, provisions and conditions of
this Agreement may not be changed, modified or amended in any manner except by
an instrument in writing duly executed by each of the parties hereto.
Section 13.4. Assignment. This Agreement is binding upon and inures
to the benefit of the successors and assigns of each party to this Agreement
(including any trustee appointed in respect of the Sellers under the Bankruptcy
Code), but no rights, obligations or liabilities under this Agreement may be
assigned by any party without the prior written consent of the other parties
hereto, except that Purchaser shall have the right, on or prior to the Closing
Date, to assign all or any portion of its rights under this Agreement to one or
more wholly owned subsidiaries of Purchaser and/or to one or more entities under
common ownership with Purchaser; provided, however, that no such assignment
shall relieve Purchaser of its obligations hereunder.
Section 13.5. Announcements. All press releases, notices to
customers and suppliers and other announcements prior to the Closing Date with
respect to this Agreement and the transactions contemplated by this Agreement
shall be approved by both Purchaser and PRI prior to the issuance thereof;
provided that any party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing party shall
advise the other party (which shall be PRI in the case of disclosure proposed to
be made by Purchaser and Purchaser in the case of disclosure proposed to be made
by any of
46
<PAGE>
the Sellers) prior to making such disclosure and provide such other party an
opportunity to review and comment on the proposed disclosure)
Section 13.6. Expenses. Except as otherwise set forth in this
Agreement, each party to this Agreement shall bear all of its legal, accounting,
investment banking and other expenses incurred by it or on its behalf in
connection with the transactions contemplated by this Agreement, whether or not
such transactions are consummated.
Section 13.7. Entire Agreement. This Agreement and the Ancillary
Agreements constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede and are in full substitution
for any and all prior agreements and understandings between them relating to
such subject matter. The Exhibits and Schedules to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement.
Section 13.8. Descriptive Headings. The descriptive headings of the
several sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 13.9. Counterparts. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by any one or more
parties hereto, and each such executed counterpart shall be, and shall be deemed
to be, an original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.
Section 13.10. Governing Law; Jurisdiction. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of New York, without giving effect to the principles of conflicts
of laws thereof. For so long as the Sellers are subject to the jurisdiction of
the Bankruptcy Court, the parties hereto irrevocably elect as the sole judicial
forum for the adjudication of any matters arising under or in connection with
this Agreement, and consent to the jurisdiction of, the Bankruptcy Court. After
the Sellers are no longer subject to the jurisdiction of the Bankruptcy Court,
the parties hereto irrevocably elect as the sole judicial forum for the
adjudication of any matters arising under or in connection with this Agreement,
and consent to the jurisdiction of, the courts of the County of New York, State
of New York or of the United States of America for the Southern District of New
York.
Section 13.11. Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
Any references to any federal, state, local or foreign statute or law will also
47
<PAGE>
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the context otherwise requires: (a) a term has the
meaning assigned to it by this Agreement; (b) an accounting term not otherwise
defined has the meaning assigned to by GAAP; (c) the word "or" is not exclusive;
(d) the words "include", "includes" and "including" shall be deemed to be
followed by the words "without limitation"; (e) words in the singular include
the plural and in the plural include the singular; (f) provisions apply to
successive events and transactions; and (g) "$" means the currency of the United
States of America.
48
<PAGE>
Section 13.12. Substantive Consolidation. Purchaser hereby
acknowledges that the Cases have been substantively consolidated and agrees that
the Sellers shall not be deemed to have breached any representations, warranties
or covenants hereunder solely as a result of such substantive consolidation.
Section 13.13. Severability. In the event that any one or more of
the provisions contained in this Agreement or in any other instrument referred
to herein shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.
IN WITNESS WHEREOF, the Sellers and Purchaser have executed and
delivered this Agreement as of the day and year first written above.
G & G SHOPS, INC.
By: /s/ Edwin J. Holman
---------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
PSL, INC.
By: /s/ Edwin J. Holman
---------------------------------
Name: Edwin J. Holman
Title: Chairman and Chief Executive
Officer
49
<PAGE>
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By: /s/ Edwin J. Holman
---------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
50
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 253 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MPA Corp.
Progresso-Corchado Corp.
Rave Apparel of Bayamon Corporation
Rave Apparel Corporation of Humacao
Whitney Stores, Inc.
By: /s/ Edwin J. Holman
---------------------------------
Name: Edwin J. Holman
Title: Chairman and Chief Executive
Officer
51
<PAGE>
G+G RETAIL, INC.
By: /s/ Jonathan Berger
---------------------------------
Name: Jonathan Berger
Title: Vice President
PEGASUS PARTNERS, L.P.
By: /s/ Jonathan Berger
---------------------------------
Name: Jonathan Berger
Title: Vice President
As to Section 9.4 only.
PEGASUS RELATED PARTNERS, L.P.
By: /s/ Jonathan Berger
---------------------------------
Name: Jonathan Berger
Title: Vice President
As to Section 9.4 only.
<PAGE>
EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS, that the Sellers (the "Assignors"
hereunder), pursuant to the terms of that certain Asset Purchase Agreement,
dated July 6, 1998, by and among the Sellers and Purchaser (the "Agreement"),
for and in consideration of Ten Dollars ($10.00) and other good and valuable
consideration from G+G Retail, Inc., a Delaware corporation ("Assignee"), the
receipt and sufficiency of which are hereby acknowledged by Assignors, do hereby
assign, transfer, sell and convey unto Assignee, its successors and assigns, all
of Assignors' right, title and interest in, to and under the Assigned Contracts
described on Exhibit A attached hereto and incorporated herein by reference,
together with all renewal options, if any, options to purchase and all other
rights privileges and benefits belonging to or held by Assignors under the
Assigned Contracts.
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
forever, subject, however, to all terms, conditions and provisions in the
Assigned Contracts.
In consideration for the foregoing assignment, Assignee hereby accepts the
foregoing assignment and agrees to assume, perform and be bound by all of the
duties, obligations and liabilities of Assignors under the Assigned Contracts
arising on and after the date hereof.
Assignors further agree to execute and deliver to Assignee such further
instruments of transfer and assignment as Assignee may from time to time
reasonably request in order to transfer and assign to and vest in Assignee all
of the rights, privileges and property hereby transferred and assigned or
intended so to be.
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
A-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed to be effective as of the ___ day of July, 1998.
G & G SHOPS, INC.
By:___________________________
Name:
Title:
PSL, INC.
By:___________________________
Name:
Title:
A-2
<PAGE>
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By:___________________________
Name:
Title:
A-3
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 223 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MDA Corp.
Progresso-Corchado Corp.
Rave Apparel Corp of Bayamon
Rave Apparel Corp of Humacao
Whitney Stores, Inc.
By:___________________________
Name:
Title:
A-4
<PAGE>
G+G RETAIL, INC.
By:___________________________
Name:
Title:
A-5
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That the Sellers, in consideration for their receipt of the Purchase Price and
for other good and valuable consideration paid to the Sellers by G+G RETAIL,
INC., a Delaware corporation (the "Purchaser"), receipt and sufficiency of
which is hereby accepted and acknowledged, have granted, bargained, sold,
transferred, assigned and delivered, and notwithstanding that the following
property may be conveyed by separate and specific transfer documents, by these
presents do hereby grant, bargain, sell, transfer, assign and deliver unto said
Purchaser all of their right, title and interest in the assets, property and
property rights collectively constituting the Purchased Assets owned by the
Sellers under that certain Asset Purchase Agreement, dated July 6, 1998, by and
among the Sellers and Purchaser (the "Agreement") (all capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Agreement) and consisting of the following:
(a) all Leases, Leased Property and improvements and other
appurtenances thereto and rights in respect thereof;
(b) all inventories and other tangible personal property;
(c) all Equipment and Fixtures;
(d) all accounts receivable and notes receivable and other claims for
money or other obligations due to the Sellers including, without
limitation, construction allowances from landlords under the Leases,
vendor credits pursuant to the Assigned Contracts and, in each case,
all proceeds thereof;
(e) all of the Sellers' Intellectual Property, as well as all
goodwill associated with the Business;
(f) all right, title and interest in, to and under the Assigned
Contracts;
(g) all books and records relating primarily to the Business
(including such books and records as are contained in computerized
storage media), including books and records related to inventory,
purchasing, accounting, sales, maintenance, repairs, marketing,
banking, Intellectual Property, shipping records, personnel files for
Transferred Employees and all
B-1
<PAGE>
files, customer and supplier lists, records, literature and
correspondence related to the Business; provided, however, that the
Sellers shall be entitled to make and retain copies of such books and
records to the extent they relate to Excluded Assets or Excluded
Liabilities or are otherwise required in the administration of the
estates of the Sellers and their affiliates and the Cases;
(h) to the extent legally assignable, all Permits;
(i) to the extent that any of the following relate to any Assumed
Liability or any of the Purchased Assets: claims, deposits,
prepayments, prepaid assets, refunds (excluding Tax refunds), causes
of action, rights of recovery, rights of setoff and rights of
recoupment of the Sellers as of the Closing Date, including, to the
extent assignable without additional cost to the Sellers, any such
rights of the Sellers under any property, casualty, workers'
compensation or other insurance policy or related insurance services
contract respecting the Business (other than prepaid premiums and
deposits); and
(j) all cash received by the Sellers on account of sales (including
credit card sales) or receivables from and after the Closing Date;
TO HAVE AND TO HOLD the same unto said Purchaser and its successors and assigns,
to and for its or their use, forever; and
The Sellers do hereby warrant that they are the lawful owners of the foregoing
Purchased Assets; that the foregoing Purchased Assets are free and clear of all
Liens (except as may otherwise be stated in the Agreement); and that the Sellers
have the right to sell the foregoing Purchased Assets; and
To the extent provided in the Agreement, the Sellers do hereby agree to warrant
and defend the sale of the foregoing Purchased Assets hereby made unto the
Purchaser and its successors and assigns against all persons whomsoever; and
The Sellers hereby constitute and appoint, effective as of the date hereof, the
Purchaser, its successors and assigns as the true and lawful attorney-in-fact of
the Sellers with full power of substitution in the name of such Purchaser or in
the name of the Sellers but for the benefit of the Purchaser (a) to collect for
the account of the Purchaser any item of the foregoing Purchased Assets and (b)
to institute and prosecute all proceedings which the Purchaser may in its
discretion deem proper in order to assert or enforce any right, title or
interest in or to the foregoing Purchased Assets and to defend or compromise any
and all actions, suits or proceedings in respect of any of the foregoing
Purchased Assets. The Purchaser shall be entitled to
B-2
<PAGE>
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof. The
Purchaser shall indemnify and hold harmless each Seller for damages arising out
of the performance of its duties hereunder. THE SELLERS HEREBY DECLARE THAT THE
FOREGOING APPOINTMENT IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE AND
PERPETUAL AND SHALL NOT BE TERMINATED BY ANY ACT OF THE SELLERS OR THEIR
SUCCESSORS OR ASSIGNS, BY OPERATION OF LAW OR BY THE OCCURRENCE OF ANY OTHER
EVENT OR IN ANY OTHER MANNER.
B-3
<PAGE>
IN WITNESS WHEREOF, the Sellers have caused this Bill of Sale and
Assumption Agreement to be executed by its proper corporate officers this ____
day of _____, 1998.
G & G SHOPS, INC.
BY: ____________________
Name:
Title:
PSL, INC.
BY: ____________________
Name:
Title:
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<PAGE>
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By:_____________________________
Name:
Title:
B-5
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 223 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MDA Corp.
Progresso-Corchado Corp.
Rave Apparel Corp of Bayamon
Rave Apparel Corp of Humacao
Whitney Stores, Inc.
By:_________________________
Name:
Title:
B-6
<PAGE>
UNITED STATES BANKRUPTCY COURT EXHIBIT C
SOUTHERN DISTRICT OF NEW YORK
- -------------------------------------X
In re : Chapter 11
PETRIE RETAIL, INC., et al. : Case No. 95 B 44528 (AJG)
: (Jointly Administered)
:
Debtors.
- -------------------------------------X
ORDER PURSUANT TO SECTIONS 105, 363, 365 AND 1146 OF THE
BANKRUPTCY CODE: (A) AUTHORIZING SUBJECT DEBTORS TO (i)
SELL SUBSTANTIALLY ALL OF THE ASSETS RELATING TO THE BUSINESS
OF G&G SHOPS, INC. AND CERTAIN OF ITS AFFILIATES, AND (ii)
ASSUME, ASSIGN AND/OR SELL CERTAIN UNEXPIRED LEASES AND
EXECUTORY CONTRACTS RELATING THERETO, FREE AND CLEAR OF ALL
LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES; (B) APPROVING
ASSET PURCHASE AGREEMENT AND OTHER AGREEMENTS RELATED THERETO;
(C) AUTHORIZING SUBJECT DEBTORS TO CONSUMMATE ALL TRANSACTIONS
CONTEMPLATED BY SUCH AGREEMENTS; AND (D) GRANTING RELATED RELIEF
Upon the motion (the "Motion") dated July 6, 1998 of the
above-captioned debtors and debtors in possession (collectively, the "Debtors"),
for an order pursuant to sections 105, 363, 365 and 1146 of title 11 of the
United States Code (the "Bankruptcy Code"), as supplemented by Rules 2002, 4001,
6004, 6006, 9007, 9008 and 9019 of the Federal Rules of Bankruptcy Procedure
(the "Bankruptcy Rules"), inter alia, (a) approving that certain Asset Purchase
Agreement dated as of July __, 1998 (the "Purchase Agreement"),/1/ among G & G
Shops, Inc. ("G&G"), certain of the subsidiaries of G&G, PSL, Inc. ("PSL"),
____________________
/1/ Capitalized terms used herein and not otherwise defined have the meanings
ascribed to them in the Purchase Agreement or the Motion.
C-1
<PAGE>
the other Debtors identified in the Purchase Agreement (together with G&G and
PSL, the "Subject Debtors") and G+G Retail, Inc. ("Purchaser"), a copy of
which was filed with the Court on July ___, 1998, and authorizing the Subject
Debtors to take all steps necessary or appropriate to consummate the Purchase
Agreement; (b) authorizing the sale of the Purchased Assets to Purchaser, free
and clear of all liens, claims, interests and encumbrances other than those to
which Purchaser has agreed to take subject, or to such other Successful Bidder;
(c) authorizing the Subject Debtors to assume and assign the Assigned Contracts
to Purchaser or to such other Successful Bidder; and (d) granting related
relief, all as more fully set forth in the Motion; and upon the affidavit of
Michael J. Kelly, Esq., submitted in support of the Motion pursuant to Local
Bankruptcy Rule 9077-1(a), the Order to Show Cause, dated July 6, 1998 (the
"Scheduling Order"), which scheduled (i) a hearing (the "Bidding Protections
Hearing") to consider approval of the Bidding Protections and other relief, and
(ii) a hearing (the "Sale Hearing," and together with the Bidding Protections
Hearing, the "Hearings") to consider the remainder of the relief sought by the
Motion; and the Scheduling Order having established a bar date of July 20, 1998
(the "Cure Objection Deadline"), by which landlords and other non-debtor parties
to the Assigned Contracts had to file objections setting forth, among other
things, all outstanding defaults and any purported conditions to assignment
under the Assigned Contracts, whether monetary or non-monetary, and claims of
every kind and character existing as of June 30, 1998, and any objections to
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<PAGE>
the Asset Purchase Agreement, or be forever barred from asserting other
defaults, pursuing any other claims which may have existed on said date under
the Assigned Contracts, and taking any action inconsistent with the Asset
Purchase Agreement; and the Bidding Protections Hearing having been held on July
15, 1998; and the Bidding Protections Order dated July ___, 1998 having been
entered; and the Sale Hearing having been held on July 27, 1998; and upon the
Motion and full record of the Hearings and upon all of the submissions filed
herein and all prior proceedings in these cases, and upon the affidavits of
service and Publication of the Notice reflecting compliance with the notice
requirements contained in the Scheduling Order; and after due deliberation and
sufficient cause appearing therefor; it is
HEREBY FOUND AND DETERMINED, that:
a. The Court has jurisdiction to hear and determine the Motion and all
related matters pursuant to 28 U.S.C. (S)(S) 1334 and 157 and the "Standing
Order of Referral of Cases to Bankruptcy Judges" of the United States District
Court for the Southern District of New York, dated December 10, 1984 (Ward,
Acting C.J.). Venue of this proceeding in this district is proper pursuant to 28
U.S.C. (S) 1409. The Motion and Hearings constitute core proceedings pursuant to
28 U.S.C. (S) 157(b)(2)(A), (B), (N) and (O). The statutory predicates for the
relief granted herein are sections 105, 363, 365 and 1146 of the Bankruptcy
Code, as
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<PAGE>
complemented by Bankruptcy Rules 2002, 4001, 6004, 6006, 9007, 9008 and 9019.
b. The Debtors have demonstrated sufficient cause to expedite the
Hearings on and determination of the Motion and the related relief requested in
connection therewith; delay will cause the Debtors and their estates irreparable
harm.
c. Proper, timely and sufficient notice of the Motion and the Hearings
was provided by direct mail and publication of the Notice and is sufficient
pursuant to Bankruptcy Rules 2002, 4001, 6004 and 6006 and the Scheduling Order.
No other or further notice of the Motion, the Hearings, or the entry of this
Order is necessary. A reasonable opportunity to object to or be heard regarding
the relief requested in the Motion has been afforded to all interested parties
including (i) each creditor listed on the Debtors' schedules as holding a claim
in an undisputed, liquidated amount greater than zero or that timely filed a
proof of claim in these cases; (ii) the United States Trustee; (iii) all persons
who are known by the Subject Debtors to have liens upon or other interests in
the Purchased Assets; (iv) all parties to the Assigned Contracts at the notice
addresses required in the Assigned Contracts; (v) the Securities and Exchange
Commission in Washington, D.C.; (vi) the Pension Benefit Guaranty Corporation;
(vii) the District Director of the Internal Revenue Service for the Southern
District of New York; (viii) the United States Attorney for the Southern
District of New York; (ix) the New York State Commissioner of Taxation and the
equivalent taxing
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<PAGE>
authorities for each of the states in which the Subject Debtors have operated
the business; and (x) all parties who have appeared and filed demands for copies
of all notices and other papers.
d. The Subject Debtors have advanced sound and sufficient business
justification, and it is a reasonable exercise of the Subject Debtors' business
judgment to (i) sell all their right, title and interest in and to the Purchased
Assets upon the terms and conditions set forth in the Purchase Agreement, (ii)
assume and assign to Purchaser the Assigned Contracts and (iii) consummate all
transactions contemplated by the Purchase Agreement.
e. The provisions of sections 363(b), 363(f) and 365 of the Bankruptcy
Code have been complied with and are applicable as to the Purchased Assets.
f. Consummation of the Purchase Agreement and the related agreements
(collectively, the "Transaction Documents") is in the best interests of the
Subject Debtors, the other Debtors herein and their estates, all creditors,
equity holders and other parties in interest.
g. All of the transactions contemplated by the Transaction Documents,
including the sale of the Purchased Assets, are properly authorized under
sections 105, 363, 365 and 1146 of the Bankruptcy Code.
h. The Purchase Agreement incorporates the highest or otherwise best
offer received for the Purchase Assets following
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<PAGE>
a period of active and thorough solicitation and the conduct of an open and
complete sale process managed by the Debtors and CIBC Oppenheimer reasonably
calculated to yield the highest or otherwise best offer for the Purchased
Assets.
i. The sale, conveyance and assignment of the Purchased Assets pursuant
to the Transaction Documents is free and clear of any and all liens, security
interests, pledges, hypothecations, encumbrances, claims (including but not
limited to any and all "claims" as defined in Section 101(5) of the Bankruptcy
Code and any and all rights and claims under any bulk transfer statutes and
similar laws) or other interests of whatever kind or nature in or with respect
to any of the Purchased Assets (including but not limited to any options or
rights to purchase such assets and any mechanic's or tax liens), whether arising
by agreement, by statute or otherwise and whether arising before, on or after
the date on which these chapter 11 cases were commenced (collectively, "Liens").
j. The Subject Debtors and the Purchaser are exempt from and excused from
complying with any jurisdiction's bulk transfer laws or any laws or regulations
requiring notice to any taxing authority of any jurisdiction prior to, or other
laws which might directly or indirectly affect, consummation of the transactions
contemplated by the Transaction Documents or the relief requested in the Motion
and the provisions of this Order.
k. The Transaction Documents: (i) were proposed, negotiated, and entered
into in good faith after arms-length
C-6
<PAGE>
bargaining by the parties; and (ii) provide the Subject Debtors with the highest
or otherwise best offer received for the Purchased Assets. Purchaser is a good
faith purchaser pursuant to section 363(m) of the Bankruptcy Code and entitled
to the protections thereunder.
l. In connection with the assumption and assignment of the Assigned
Contracts, at or prior to the Closing, the Subject Debtors shall pay all cure
amounts to the non-debtor parties to the Assigned Contracts as required by the
Bankruptcy Code or the Court, provided that if the Debtors dispute the cure
amount of an Assigned Contract, the Debtors will establish an escrow fund and
deposit the full cure amount asserted by the non-Debtor party to the contract
(or such lesser amount as ordered by the Court) into the escrow fund, to be held
in escrow subject to further order of the Court or agreement of the parties.
m. The Purchaser has provided adequate assurance of its future
performance under the Assigned Contracts and the proposed assumption and
assignment of the Assigned Contracts satisfy the requirements of the Bankruptcy
Code including, inter alia, sections 365(b)(1) and (3) and 365(f) to the extent
applicable. Specifically, the record has established that: (i) Jay Galin has
been President of G&G since 1968 and Scott Galin has been Executive Vice
President of G&G since 1991, Jay and Scott Galin will have an equity interest in
the Purchaser and will continue to operate and manage the business for the
Purchaser; (ii) Jay and Scott Galin have substantial proven retailing experience
and
C-7
<PAGE>
ability to efficiently and effectively operate the Business at the premises
covered by the Assigned Contracts in accordance with the terms of the Assigned
Contracts and Jay and Scott Galin have experience in operating stores having the
same or similar uses as permitted under the Assigned Contracts, in first-class
shopping centers sufficient to enable it to successfully operate the premises
for the permitted uses under the Assigned Contracts; (iii) Jay and Scott Galin
have reputation and experience and the Purchaser has a financial condition equal
to or better than each of the Debtors which is a party to any of the Assigned
Contracts; (iv) the assignment of the Assigned Contracts to Purchaser does not
materially adversely affect the quality or type of business operation conducted
at the Stores by the Debtors heretofore; (v) Purchaser will continue to operate
the business and the stores under the existing trade names and pursuant to the
other terms of the Assigned Contracts; and (vi) assuming the value of the
Purchased Assets minus the value of the Assumed Liabilities totals an amount
equal to the cash Purchase Price, the net worth of Purchaser is in excess of
$30,000,000.
n. The assignments of the Assigned Contracts shall be effective
notwithstanding any provisions precluding or impairing the rights of the Subject
Debtors to assign the Assigned Contracts or preventing or restricting Purchaser
from operating retail stores under its trade names.
C-8
<PAGE>
o. The Assigned Contracts are valid and binding, in full force and
effect, and enforceable in accordance with their terms.
p. The sale of the Purchased Assets to the Purchaser and the assumption
by the Purchaser of the Assumed Liabilities will maximize the assets of the
estates of the Subject Debtors and is in contemplation of the formulation of a
plan of reorganization and necessary to the confirmation and consummation of any
plan of reorganization. Accordingly, the sale of the Purchased Assets shall be
deemed a sale "under a plan" within the meaning of section 1146(c) of the
Bankruptcy Code exempt from any and all stamp taxes, recording taxes and similar
taxes.
NOW, THEREFORE, IT IS HEREBY ADJUDGED, DECREED AND ORDERED that:
1. The findings of fact set forth above and conclusions of law stated
herein shall constitute the Court's findings of fact and conclusions of law
pursuant to Bankruptcy Rule 7052, made applicable to this proceeding pursuant to
Bankruptcy Rule 9014. To the extent any finding of fact later shall be
determined to be a conclusion of law, it shall be so deemed, and to the extent
any conclusion of law later shall be determined to be a finding of fact, it
shall be so deemed.
2. The Motion is granted; provided, however, that notwithstanding
anything contained herein or in the Transaction Documents to the contrary, the
Subject Debtors shall be deemed
C-9
<PAGE>
to have assumed and assigned each Assigned Contract as of the date of, and only
upon the Closing, and absent such Closing, each Assigned Contract shall neither
be deemed assumed nor assigned and shall in all respects be subject to further
administration under the Bankruptcy Code.
3. The Transaction Documents are hereby approved. The Subject Debtors are
authorized to sell to Purchaser all of their right, title and interest in and to
the Purchased Assets pursuant to the terms of the Transaction Documents.
4. The Debtors are authorized and empowered to execute, deliver and
perform under the Transaction Documents and all agreements and documents
contemplated thereby and related thereto, and to take or perform such actions
and expend such funds as may be necessary to effectuate the terms of the
Transaction Documents, all transactions related thereto and this Order.
5. From and after the Closing Date, the Purchaser shall assume, satisfy
and discharge the Assumed Liabilities and shall defend, indemnify and hold the
Debtors harmless from and against any and all liabilities for any claim or
pecuniary loss arising out of or related to the Assumed Liabilities from and
after the Closing Date.
6. The Purchaser has not assumed or otherwise become obligated for any of
the Excluded Liabilities and has not purchased any of the Excluded Assets.
Consequently, all holders
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<PAGE>
of Excluded Liabilities are hereby enjoined from asserting or prosecuting any
claim or cause of action against the Purchaser or the Purchased Assets to
recover on account of any Excluded Liabilities. All persons having any interest
in the Excluded Assets are hereby enjoined from asserting or prosecuting any
claim or cause of action against the Purchaser for any liability associated with
the Excluded Assets.
7. As of the Closing Date, the Seller shall not be responsible for any
Assumed Liability and all holders of Assumed Liabilities are hereby enjoined
from asserting or prosecuting any claim or cause of action against the Debtors
or their estates to recover any claim that is an Assumed Liability. All persons
having any interest in the Assumed Liabilities are hereby enjoined from
asserting or prosecuting any claim or cause of action against the Debtors for
any liability associated with the Assumed Liabilities.
8. Pursuant to sections 105(a) and 363(f) of the Bankruptcy Code, the
Purchased Assets shall be sold free and clear of all Liens of any kind or
nature, except for the Permitted Liens. Nothing contained herein shall be deemed
to be an acknowledgment or consent by the Debtors as to the amount, priority or
allowance of any claim or validity, force and effect, or immunity from
avoidance, of any Lien.
9. Upon the Closing Date, each of the Debtors' creditors, except holders
of Permitted Liens with respect to such liens, is authorized and directed to
execute such documents and take all
C-11
<PAGE>
other action as may be necessary to release its Liens upon or other interests in
the Purchased Assets.
10. The Subject Debtors are authorized to pay or to provide funds to the
Purchaser to pay all cure amounts with respect to the Assigned Contracts
pursuant to the Transaction Documents (or, if disputed, paying into escrow the
disputed cure amount or such lesser amount as ordered by the Court) so that all
such payments are made within ten (10) business days of the Closing.
11. All parties to the Assigned Contracts are forever barred and enjoined
from raising or asserting against the Debtors and the Purchaser any default or
breach under, or any claim or pecuniary loss, or condition to assignment,
arising under or related to, the Assigned Contracts existing as of the Closing
or arising by reason of the Closing unless such default, breach, claim,
pecuniary loss or condition was raised or asserted prior to the Cure Objection
Deadline in strict accordance with the provisions of the Scheduling Order.
12. The Assigned Contracts, upon assignment to the Purchaser, shall be
deemed valid and binding, in full force and effect and enforceable in accordance
with their terms, subject to the provisions of this Order, and, pursuant to
section 365(k) of the Bankruptcy Code, the Subject Debtors shall be relieved
from any further liability, except for any cure obligations as herein provided.
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<PAGE>
13. Despite any provision to the contrary that entitles any party to or
beneficiary of any Assigned Contract to any compensation, injunctive relief or
other right of any kind, by reason of the assignment of any Assigned Contract,
failure to comply with such provision in connection with the consummation of the
Transaction Documents shall not be a default or triggering event under any
Assigned Contract and such provision shall not be enforceable.
14. Pursuant to section 1146 of the Bankruptcy Code, all transfers and the
delivery of instruments of transfer under the Transaction Documents are exempt
from any and all stamp taxes, recording taxes and similar taxes imposed upon
such sale or transfer under any Federal, State or local law.
15. This Order shall be binding upon and inure to the benefit of any
successors and assigns of the Purchaser and the Subject Debtors, including
without limitation, any trustee appointed for the Subject Debtors in their
respective chapter 11 cases or subsequent chapter 7 cases.
16. Purchaser is hereby determined to be a good faith purchaser under
section 363(m) of the Bankruptcy Code, and is entitled to the protections
afforded to a good faith purchaser thereunder.
17. Pursuant to this Court's Order dated January 12, 1999: (A) Approving
And Authorizing Debtors to Enter into (i) Fourth Amendment To Revolving Credit
And Guaranty Agreement And (ii)
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<PAGE>
Third Amendment To Related Junior Participation Agreement; and (B) Granting
Other Related Relief (the "January 12 Order"), the net proceeds from the sale of
the Purchased Assets shall (a) first promptly be paid to The Chase Manhattan
Bank, as Agent for the Debtors' debtor-in-possession lenders under the
debtor-in-possession financing agreement (the "DIP Agreement"), and applied to
repay in full, if such proceeds are sufficient, all Obligations under and as
defined in the DIP Agreement (other than, prior to the Senior Loan Termination
Date (as defined in the DIP Agreement), fees owed to Warburg, Pincus Ventures,
L.P. pursuant to Section 2.19 of the DIP Agreement); and (b) thereafter, be
applied, distributed and utilized in accordance with the remaining provisions of
the January 12 Order.
18. The Debtors shall be authorized and empowered (but not directed) to
pay, or establish an escrow account for, all or any portion of any real estate
or personal property taxes (including any interest or penalties thereon) on the
Purchased Assets.
19. This Order shall be effective and enforceable immediately upon entry.
20. The failure specifically to include any particular provisions of the
Transaction Documents in this Order shall not diminish or impair the efficacy of
such provisions, it being the intent of the Court that the Transaction Documents
are approved in their entirety.
21. The Court shall retain sole and exclusive jurisdiction over all
matters arising from or related to the Purchased
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<PAGE>
Assets, the Motion, the Transaction Documents, the implementation thereof and
this Order.
Dated: New York, New York
July ____, 1998
______________________________
UNITED STATES BANKRUPTCY JUDGE
C-15
<PAGE>
EXHIBIT D
UNITED STATES BANKRUPTCY COURT HEARING DATE: JULY __, 1998
SOUTHERN DISTRICT OF NEW YORK HEARING TIME: _____ _.M.
- --------------------------------------------------X
:
In re : Chapter 11
:
PETRIE RETAIL, INC., et al., : Case No. 95 B 44528 (AJG)
: (Jointly Administered)
Debtors. :
:
- --------------------------------------------------X
ORDER APPROVING TOPPING FEE AND EXPENSE REIMBURSEMENT
AND ESTABLISHING BIDDING PROCEDURES RELATED TO ASSET
PURCHASE AGREEMENT PROVIDING FOR THE SALE OF
SUBSTANTIALLY ALL OF THE ASSETS RELATING TO THE BUSINESS
OF G & G SHOPS, INC. AND CERTAIN OF ITS AFFILIATES AND
RELATED TRANSACTIONS
Upon the motion (the "Motion"), dated July 6, 1998, of G & G
Shops, Inc. ("G&G"), PSL, Inc. ("PSL") and certain subsidiaries and/or
affiliates of Petrie Retail, Inc. ("PRI") and G&G (collectively, the "Seller"),
certain of the above-captioned debtors and debtors in possession (collectively
with the Seller, the "Debtors"), for orders, (l) approving a topping fee and
expense reimbursement (respectively, the "Topping Fee" and "Expense
Reimbursement") and establishing bidding procedures for competing bids to
purchase the Purchased Assets (defined below), and establishing procedures for
determining Cure Obligations (as defined in the Motion), and (2) pursuant to
sections 105, 363, 365 and 1146 of title 11 of the United States Code (the
"Bankruptcy Code"), as supplemented by Rules 2002, 4001, 6004, 6006, 9007 and
9008 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"),
among other things: (a) authorizing
D-1
<PAGE>
and approving an asset purchase agreement substantially in the form of that
certain Asset Purchase Agreement dated as of July 6, 1998 (the "Purchase
Agreement"), among the Seller and G & G Retail, Inc. ("Purchaser"), a copy of
which was filed with the Court on July __, 1998; (b) authorizing the sale of
substantially all of the assets relating to the business of G&G and certain of
its affiliates in accordance with the Purchase Agreement (as defined in the
Purchase Agreement, the "Purchased Assets"),/1/ to Purchaser under the Purchase
Agreement, free and clear of all liens, claims, interests and encumbrances
other than those to which Purchaser has agreed to take subject; (c) authorizing
the Seller to assume, assign and/or sell the Assigned Contracts; (d) authorizing
the Seller to take all steps necessary or appropriate to consummate the Purchase
Agreement and to consummate all transactions related thereto; and (e) granting
related relief, all as more fully set forth in the Motion; and this Court having
scheduled a hearing (the "Bidding Protections Hearing") to consider (i)
authorizing and approving the Topping Fee and Expense Reimbursement and (ii)
establishing bidding procedures for competing offers for the Purchased Assets,
by Order to Show Cause, dated July __, 1998 (the "Order to Show Cause"); and
notice of the Bidding Protections Hearing and that portion of the relief
requested by the Motion to be considered at the Bidding Protections Hearing
having been provided in the form and manner prescribed in the Order to Show
Cause; and such notice
_____________
1. All capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Motion.
D-2
<PAGE>
constituting due and adequate notice of the Bidding Protections Hearing and no
other or further notice being necessary or required; and the Bidding Protections
Hearing having been held on July __, 1998; and it appearing, based upon the
Motion, the full record of these cases and the record of the Bidding Protections
Hearing, that the relief requested at such hearing is in the best interests of
the Debtors, their estates, creditors and other parties in interest; and after
due deliberation and sufficient cause appearing therefor, it is
ORDERED, that the Topping Fee and Expense Reimbursement provisions
contained in Section 9.2 of the Purchase Agreement are approved in all respects;
and it is further
ORDERED, that the Debtors are authorized and empowered to pay the Topping
Fee and Expense Reimbursement to Pegasus Investors, L.P., as required under and
pursuant to the Purchase Agreement, within five (5) business days after Pegasus
Investors, L.P. becomes entitled thereto without further order of the Court; and
it is further
ORDERED, that the Debtors are authorized and empowered to take or perform
such actions and expend such funds as may be necessary to effectuate the terms
of this Order; and it is further
ORDERED, that the Bidding Procedures set forth in paragraph seventy-six
(76) of the Motion are approved; and it is further
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<PAGE>
ORDERED, that any offer to purchase the Purchased Assets must conform
with the Bidding Procedures; and it is further
ORDERED, that parties desiring to submit a competing bid for the
Purchased Assets must file and serve in accordance with the Bidding Procedures
a written intention to bid on the Purchased Assets upon: (i) Willkie Farr &
Gallagher, Attorneys for the Debtors, 787 Seventh Avenue, New York, New York
10019-6099, Attention: Michael J. Kelly, Esq., (ii) the United States Trustee,
80 Broad Street, Third Floor, New York, New York 10004, Attention: Patricia
Schrage, Esq.; (iii) Zalkin, Rodin & Goodman LLP, Attorneys for Chase, 750 Third
Avenue, New York, New York 10017, Attention: Richard Toder, Esq.; (iv) Hahn &
Hessen, Attorneys for the Creditors' Committee, 350 Fifth Avenue, Suite 3700,
New York, New York 10118, Attention: William Fabrizio, Esq.; (v) Kaye, Scholer,
Fierman, Hays & Handler, LLP, Attorneys for the Purchaser, 425 Park Avenue, New
York, New York, Attention: Herbert S. Edelman, Esq. and Mark S. Selinger, Esq.,
and Shack & Siegel, P.C., Attorneys for Jay and Scott Galin, 530 Fifth Avenue,
16th Floor, New York, New York 10036, Attention: Donald Shack, Esq.; and (vi)
CIBC Oppenheimer Corp., 425 Lexington Avenue, 3rd Floor, New York, New York
10017, Attention: Brian Gerson, so as to be received not later than seventy-two
(72) hours prior to the Sale Hearing; and it is further
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<PAGE>
ORDERED, that this Court shall retain exclusive jurisdiction to
consider and resolve any matter, claim or dispute arising from or relating to
the Topping Fee and Expense Reimbursement or the implementation of this Order.
Dated: New York, New York
July __, 1998
______________________________
UNITED STATES BANKRUPTCY JUDGE
D-5
<PAGE>
EXHIBIT 2.02
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
AMENDMENT NO. 1, dated as of July 27, 1998, to the Asset Purchase
Agreement (the "Purchase Agreement") dated as of July 6, 1998 among G & G Shops,
Inc., ("G&G"), each of the subsidiaries of G&G and Petrie Retail, Inc. specified
on the schedules to the Purchase Agreement, PSL, Inc. and G+G Retail, Inc.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Purchase Agreement.
WHEREAS, the parties hereto desire to amend the Purchase Agreement
in accordance with the terms hereof.
NOW, THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Section 9.3(g) of the Purchase Agreement is hereby amended by
deleting the two references to the date "July 20, 1998" contained therein and
replacing them with the date "July 29, 1998."
2. Section 9.3(h) of the Purchase Agreement is hereby amended by
deleting the two references to the date "July 20, 1998" contained therein and
replacing them with the date "July 29, 1998."
3. Except as set forth herein, the Purchase Agreement shall continue
in full force and effect in accordance with its terms (as modified by order of
the Bankruptcy Court) and the Purchase Agreement, as amended hereby, is hereby
ratified and confirmed by the parties thereto.
4. This Amendment No. 1 shall be construed, performed and enforced
in accordance with, and governed by, the laws of the State of New York, without
giving effect to the principles of conflicts of laws thereof.
5. For the convenience of the parties, any number of counterparts of
this Amendment No. 1 may be executed by any one or more parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original, but
all of which shall constitute, and shall be deemed to constitute, in the
aggregate, but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 1 as of the day and year first written above.
G & G SHOPS, INC.
By: /s/ Edwin J. Holman
--------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
PSL, INC.
By: /s/ Edwin J. Holman
--------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
and Chief Executive Officer
78 Nassau Sweet Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By: /s/ Edwin J. Holman
--------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
2
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 253 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MPA Corp.
Progresso-Corchado Corp.
Rave Apparel of Bayamon Corporation
Rave Apparel Corporation of Humacao
Whitney Stores, Inc.
By: /s/ Edwin J. Holman
--------------------------------
Name: Edwin J. Holman
Title: Chairman of the Board
and Chief Executive Officer
G+G RETAIL, INC.
By: /s/ Jonathan Berger
--------------------------------
Name: Jonathan Berger
Title: Vice President
3
<PAGE>
EXHIBIT 2.03
AMENDMENT
TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT, dated as of August 24, 1998, to ASSET PURCHASE
AGREEMENT dated as of July 6, 1998 among G & G Shops, Inc., a Delaware
corporation ("G&G") and a debtor and debtor-in-possession in a case pending
under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of G&G
specified on Schedule 1.1 thereto (each a "G&G Seller" and collectively the "G&G
Sellers"), each of which is a debtor and debtor-in-possession in a case pending
under chapter 11 of the Bankruptcy Code, each of the Subsidiaries of Petrie
Retail, Inc., a Delaware corporation ("PRI"), specified on Schedule 1.2 thereto
(each a "Petrie Seller" and collectively the "Petrie Sellers"), each of which is
a debtor and debtor-in-possession in a case pending under chapter 11 of the
Bankruptcy Code, PSL, Inc., a Delaware corporation and a debtor and
debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code
("PSL" and, together with the Petrie Sellers, the "Other Sellers") (G&G,
together with the G&G Sellers and the Other Sellers, each a "Seller" and
collectively the "Sellers"), and G+G Retail, Inc., a Delaware corporation
("Purchaser").
PRELIMINARY STATEMENT
WHEREAS, the Sellers and Purchaser entered into the Asset Purchase
Agreement referred to above (the "Agreement");
WHEREAS, the Sellers and Purchaser desire to make certain amendments
to the Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
AMENDMENTS
The Agreement is hereby amended as follows:
(a) Section 2.3 is amended by adding at the end of the first
sentence thereof the following:
"and 15,000 shares of the Class C Common Stock of G&G Retail
Holdings, Inc."
<PAGE>
(b) Section 8.1 is amended by adding thereto, immediately after the
words "Chief Operating Officer," the following:
"or the Chief Administrative and Chief Financial Officer".
(c) Schedule 1.3 to the Agreement is supplemented by the attached
Supplement to Schedule 1.3.
(d) The attached Schedule 2.6 is added to the Agreement as Schedule
2.6.
ARTICLE II
RATIFICATION
The Agreement, as amended pursuant to Article I, is hereby ratified
and confirmed.
-2-
<PAGE>
IN WITNESS WHEREOF, Sellers and Purchaser have executed and
delivered this Amendment as of the day and year first written above.
G & G SHOPS, INC.
By: /s/ Gerald M. Chaney
------------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President -
Chief Administrative Officer
and Chief Financial Officer
PSL, INC.
By: /s/ Gerald M. Chaney
------------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President -
Chief Administrative Officer
and Chief Financial Officer
-3-
<PAGE>
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By: /s/ Gerald M. Chaney
------------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President -
Chief Administrative Officer
and Chief Financial Officer
-4-
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 253 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MPA Corp.
Progresso-Corchado Corp.
Rave Apparel of Bayamon Corporation
Rave Apparel Corporation of Humacao
Whitney Stores, Inc.
By: /s/ Gerald M. Chaney
------------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President -
Chief Administrative Officer
and Chief Financial Officer
G+G RETAIL, INC.
By: /s/ Jonathan Berger
------------------------------------
Name: Jonathan Berger
Title: Vice President
-5-
<PAGE>
EXHIBIT 3.01
State of Delaware
Office of the Secretary of State
-----------------------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "G+G RETAIL, INC.," FILED IN THIS OFFICE ON THE TWENTY-SIXTH
DAY OF JUNE, A.D. 1998, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9741694
DATE: 05-13-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/26/1998
981251230 -- 2914098
CERTIFICATE OF INCORPORATION
OF
G+G RETAIL, INC.
1. The name of the corporation is G+G Retail, Inc. (the
"Corporation").
2. The address of the Corporation's registered office in Delaware is
15 East North Street, Dover (Kent County), Delaware 19901. United Corporate
Services, Inc. is the Corporation's registered agent at that address.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
4. The aggregate number of shares which the Corporation shall have
authority to issue is 1,000 shares of Class B Common Stock, $.01 par value per
share (the "Class B Common Stock").
5. The name of the sole incorporator is Sabrina Clerge and her
mailing address is c/o Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park
Avenue, New York, New York 10022.
6. The Board of Directors shall have the power to make, alter or
repeal the by-laws of the Corporation.
7. The election of the Board of Directors need not be by written
ballot.
8. The Corporation shall indemnify to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware as amended from time
to time each person who is or was a director or officer of the Corporation and
the heirs, executors and administrators of such a person.
<PAGE>
9. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director for
any act or omission occurring subsequent to the date when this provision becomes
effective, except that he may be liable (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
Dated: June 26, 1998
/s/ Sabrina Clerge
--------------------------
Sabrina Clerge
Sole Incorporator
<PAGE>
State of Delaware
Office of the Secretary of State
----------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE OF
REGISTERED AGENT OF "G+G RETAIL, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY
OF SEPTEMBER, A.D. 1998, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9741693
DATE: 05-13-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/04/1998
981348302 -- 2914098
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is
G+G RETAIL, INC.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805,
County of New Castle.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to Corporation Service Company, the business
office of which is identical with the registered office of the corporation
as hereby changed.
4. The corporation has authorized the changes hereinbefore set forth
by resolution of its Board of Directors.
Signed on September 3, 1998
/s/ Jonathan Berger
-------------------------------
Jonathan Berger, Vice President
<PAGE>
EXHIBIT 3.02
AMENDED AND RESTATED
BY-LAWS
of
G+G RETAIL, INC.
(the "Corporation")
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stockholders shall be held on
such date and at such time as shall be designated from time to time by the board
of directors (the "Board") and stated in the notice of meeting.
1.2 Special Meetings. Special meetings of the stockholders may be called
by resolution of the Board or by the president and shall be called by the
president or secretary upon the written request (stating the purpose or purposes
of the meeting) of a majority of the directors then in office or by the holders
of 30% or more of the shares entitled to vote. Only business related to the
purposes set forth in the notice of the meeting may be transacted at a special
meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders may be held
in or outside Delaware at the place and time specified by the Board or the
directors or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each meeting
of stockholders shall be given to each stockholder entitled to vote at the
meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required
under Section 1.5 of these by-laws or by law. Each notice of a meeting shall be
given, personally or by mail, not less than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. If mailed, notice shall be considered
given when mailed to a stockholder at his address on the Corporation's records.
The attendance of any stockholder at a meeting, without protesting at the
beginning of the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in person or by
proxy of the holders of a majority of the shares entitled to vote at such
meeting shall constitute a quorum for the transaction of any business. In the
absence of a quorum a majority in voting interest of those present or, if no
stockholders are present, any officer entitled to preside at or to act as
secretary of the meeting, may adjourn the meeting until a quorum is present. At
any adjourned
<PAGE>
meeting at which a quorum is present any action may be taken which might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place are announced at the meeting at
which the adjournment is taken except that, if adjournment is for more than
thirty days or if, after the adjournment, a new record date is fixed for the
meeting, notice of the adjourned meeting shall be given pursuant to Section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be entitled to one
vote for each share registered in his name. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by Section 1.8 of these by-laws. Voting need not be by
written ballot unless requested by a stockholder at the meeting or ordered by
the chairman of the meeting. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney-in-fact. No proxy
shall be valid after three years from its date unless it provides otherwise.
1.7 List of Stockholders. Not less than 10 days prior to the date of any
meeting of stockholders, the secretary of the Corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
the meeting is to be held, if that place shall have been specified in the notice
of the meeting, or (b) if not so specified, at the place where the meeting is to
be held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required or permitted
to be taken at any meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voting. Prompt notice of the taking of any such action shall be
given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The business of
the Corporation shall be managed by the Board, which shall consist of not less
than one and not more than five directors. The number of directors may be
changed by resolution of eighty percent (80%) of the entire Board or by the
stockholders, but no decrease may shorten the term of any incumbent director.
Directors shall be elected at each annual meeting of stockholders by a plurality
of the votes cast and shall hold office until the next annual meeting of
stockholders and
2
<PAGE>
until the election and qualification of their respective successors, subject to
the provisions of Section 2.10 of these by-laws. As used in these by-laws, the
term "entire Board" means the total number of directors which the Corporation
would have if there were no vacancies on the Board.
2.2 Pegasus Partners, L.P. and Pegasus Related Partners, L.P. Rights. So
long as each of Pegasus Partners, L.P. and Pegasus Related Partners, L.P.
(collectively, the "Pegasus Funds") owns any common stock of the Corporation,
directly or indirectly through one or more affiliates, it shall have the right
(i) exercisable by written notice to the Corporation and each of the other
stockholders, if any, to designate at least one member of the Board, (ii) to
consult with and advise management of the Corporation, (iii) to receive all
material provided to members of the Board, and (iv) to visit and inspect the
properties of the Corporation and each of its direct or indirect subsidiaries,
examine and copy their books of record and account, and discuss their affairs,
finances and accounts with their officers and independent public accountants,
all at such reasonable times as such Pegasus Fund may desire, and to have its
representative(s) meet with the senior management of the Corporation annually to
discuss the Corporation's operations and prospects. Each Pegasus Fund may at any
time direct that the person(s) designated by it to serve as a member of the
Board be removed, with or without cause. If the director(s) designated by either
Pegasus Fund dies, resigns or is removed by such Pegasus Fund, such Pegasus Fund
shall have the right to designate a successor(s).
2.3 Quorum and Manner of Acting. Eighty percent (80%) of the entire Board
shall constitute a quorum for the transaction of business at any meeting, except
as provided in Section 2.11 of these by-laws. Action of the Board shall be
authorized by the vote of all of the directors present at the time of the vote
if there is a quorum, unless otherwise provided by law or these by-laws. In the
absence of a quorum a majority of the directors present may adjourn any meeting
from time to time until a quorum is present.
2.4 Place of Meetings. Meetings of the Board may be held in or outside
Delaware.
2.5 Annual and Regular Meetings. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of stockholders and at
the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.6 Special Meetings. Special meetings of the Board may be called by the
president or by any of the directors. Only business related to the purposes set
forth in the notice of meeting may be transacted at a special meeting.
2.7 Notice of Meetings; Waiver of Notice. Notice of the time and place of
each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to
3
<PAGE>
him at his residence or usual place of business at least three days before the
meeting, or by delivering or telephoning or telegraphing it to him at least two
days before the meeting. Notice of a special meeting shall also state the
purpose or purposes for which the meeting is called. Notice need not be given to
any director who submits a signed waiver of notice before or after the meeting
or who attends the meeting without protesting at the beginning of the meeting
the transaction of any business because the meeting was not lawfully called or
convened. Notice of any adjourned meeting need not be given, other than by
announcement at the meeting at which the adjournment is taken.
2.8 Board or Committee Action Without a Meeting. Any action required or
permitted to be taken by the Board or by any committee of the Board may be taken
without a meeting if all of the members of the Board or of the committee consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceeding of the Board or of the
committee.
2.9 Participation in Board or Committee Meetings by Conference Telephone.
Any or all members of the Board or of any committee of the Board may participate
in a meeting of the Board or of the committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at the meeting.
2.10 Resignation and Removal of Directors. Any director may resign at any
time by delivering his resignation in writing to the president or secretary of
the Corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any or all of the directors may be removed at
any time, for cause, by vote of the stockholders.
2.11 Vacancies. In the event a vacancy occurs, a replacement director
shall be elected in accordance with Section 2.1 of these by-laws; provided,
however, that any vacancy in the Board created by an increase in the number of
directors, may be filled for the unexpired term by a majority vote of the
remaining directors, though less than a quorum.
2.12 Compensation. Directors shall receive such compensation as the Board
determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid for
serving the Corporation, its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by eighty
percent (80%) of the entire Board, may designate an Executive Committee of one
or more directors which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, section 141(c) of the Delaware
General Corporation Law, or any other applicable law. The
4
<PAGE>
members of the Executive Committee shall serve at the pleasure of the Board. All
action of the Executive Committee shall be reported to the Board at its next
meeting.
3.2 Other Committees. The Board, by resolution adopted by eighty percent
(80%) of the entire Board, may designate other committees of directors of one or
more directors, which shall serve at the Board's pleasure and have such powers
and duties as the Board determines.
3.3 Rules Applicable to Committees. The Board, by Resolution adopted by
eighty percent (80%) of the entire Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of a committee, the member or members present at a meeting of the
committee and not disqualified, whether or not a quorum, may unanimously appoint
another director to act at the meeting in place of the absent or disqualified
member. All action of a committee shall be reported to the Board at its next
meeting. Each committee shall adopt rules of procedure and shall meet as
provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the Corporation shall be
the chairman, the president, one or more vice presidents (including an executive
vice president, if the Board so determines), a secretary, a treasurer and such
other executive officers as the Board of Directors may determine. Any two or
more offices may be held by the same person, except the offices of president and
secretary. The Board may require any officer, agent or employee to give security
for the faithful performance of his duties.
4.2 Election; Term of Office. The executive officers of the Corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next annual meeting of the Board and until the election of his
successor, subject to the provisions of Section 4.4.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and have such powers and duties
as the Board determines. The Board may delegate to any executive officer or to
any committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at any
time by delivering his resignation in writing to the president or secretary of
the Corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any officer appointed by the Board or appointed
by an executive officer or by a committee may be removed by the Board either
with or without cause, and in the case of an officer appointed by an executive
officer or by a committee, by the officer or committee who appointed him or by
the president.
5
<PAGE>
4.5 Vacancies. A vacancy in any office may be filled for the unexpired
term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws for
election or appointment to the office.
4.6 The Chairman. The chairman of the board shall be the chief executive
officer of the Corporation and shall preside at all meetings of the Board and of
the stockholders. Subject to the control of the Board, he shall have general
supervision over the business of the Corporation and shall have such other
powers and duties as chairmen of corporations usually have or as the Board
assigns to him.
4.7 The President. The president shall be the chief operating officer of
the Corporation. Subject to the control of the Board and the chairman of the
board, he shall have general supervision over the business of the Corporation
and shall have such other powers and duties as presidents of corporations
usually have or as the Board assigns to him.
4.8 Vice President. Each vice president shall have such powers and duties
as the Board, the chairman or the president assigns to him.
4.9 The Treasurer. The treasurer shall be the chief financial officer of
the Corporation and shall be in charge of the Corporation's books and accounts.
Subject to the control of the Board, he shall have such other powers and duties
as the Board, the chairman or the president assigns to him.
4.10 The Secretary. The secretary shall be the secretary of, and keep the
minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board, the chairman or the president assigns to him. In
the absence of the secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
4.11 Salaries. The Board may fix the officers' salaries, if any, or it may
authorize the chairman or the president to fix the salary of any other officer.
5. SHARES.
5.1 Certificates. The Corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the chairman, the president or a vice president and by the secretary or an
assistant secretary, or the treasurer or an assistant treasurer, and shall be
sealed with the Corporation's seal or a facsimile of the seal. Any or all of the
signatures on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the Corporation's
books, upon surrender of the certificate for the shares, properly endorsed. The
Board may require satisfactory
6
<PAGE>
surety before issuing a new certificate to replace a certificate claimed to have
been lost or destroyed.
5.3 Determination of Stockholders of Record. The Board may fix, in
advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action.
6. MISCELLANEOUS.
6.1 Seal. The Board shall adopt a corporate seal, which shall be in the
form of a circle and shall bear the Corporation's name and the year and state in
which it was incorporated.
6.2 Fiscal Year. The fiscal year of the Corporation shall be determined by
resolution of the Board.
6.3 Voting of Shares in Other Corporations. Shares in other corporations
which are held by the Corporation may be represented and voted by the Board, or
by a person appointed by resolution of eighty percent (80%) of the entire Board.
6.4 Amendments. Subject to the rights of any class or series of stock set
forth in the Certificate of Incorporation, these by-laws may be amended,
repealed or adopted by resolution of eighty percent (80%) of the entire Board.
7
<PAGE>
EXHIBIT 4.01
================================================================================
G+G RETAIL, INC.
SERIES A AND SERIES B
11% SENIOR NOTES DUE 2006
INDENTURE
Dated as of May 17, 1999
U.S. Bank Trust National Association
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1)....................................... 7.10
(a)(2)....................................... 7.10
(a)(3)....................................... N.A.
(a)(4)....................................... N.A.
(a)(5)....................................... 7.10
(b).......................................... 7.10
(c).......................................... N.A.
311(a).......................................... 7.11
(b).......................................... 7.11
(c).......................................... N.A.
312(a).......................................... 2.05
(b).......................................... 11.03
(c).......................................... 11.03
313(a).......................................... 7.06
(b)(1)....................................... 10.03
(b)(2)....................................... 7.06; 7.07
(c).......................................... 7.06; 11.02
(d).......................................... 7.06
314(a).......................................... 4.03
(b).......................................... N.A.
(c)(1)....................................... N.A.
(c)(2)....................................... N.A.
(c)(3)....................................... N.A.
(e).......................................... 11.05
(f).......................................... N.A.
315(a).......................................... 7.01
(b).......................................... 7.05; 11.02
(c).......................................... 7.01
(d).......................................... 7.01
(e).......................................... 6.11
316(a) (last sentence).......................... 2.09
(a)(1)(A).................................... 6.05
(a)(1)(B).................................... 6.04
(a)(2)....................................... N.A.
(b).......................................... 6.07
(c).......................................... 2.12
317(a)(1)....................................... 6.08
(a)(2)....................................... 6.09
(b).......................................... 2.04
318(a).......................................... N.A.
(b).......................................... N.A.
(c).......................................... 11.01
</TABLE>
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
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TABLE OF CONTENTS
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE..................... 1
Section 1.01. Definitions............................................... 16
Section 1.02. Other Definitions......................................... 16
Section 1.03. Incorporation by Reference of Trust Indenture Act......... 16
Section 1.04. Rules of Construction..................................... 17
ARTICLE 2. THE NOTES...................................................... 17
Section 2.01. Form and Dating........................................... 17
Section 2.02. Execution and Authentication.............................. 18
Section 2.03. Registrar and Paying Agent................................ 19
Section 2.04. Paying Agent to Hold Money in Trust....................... 19
Section 2.05. Holder Lists.............................................. 19
Section 2.06. Transfer and Exchange..................................... 19
Section 2.07. Replacement Notes......................................... 31
Section 2.08. Outstanding Notes......................................... 31
Section 2.09. Treasury Notes............................................ 32
Section 2.10. Temporary Notes........................................... 32
Section 2.11. Cancellation.............................................. 32
Section 2.12. Defaulted Interest........................................ 33
ARTICLE 3. REDEMPTION AND PREPAYMENT...................................... 33
Section 3.01. Notices to Trustee........................................ 33
Section 3.02. Selection of Notes to Be Redeemed......................... 33
Section 3.03. Notice of Redemption...................................... 33
Section 3.04. Effect of Notice of Redemption............................ 34
Section 3.05. Deposit of Redemption Price............................... 34
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Section 3.06. Notes Redeemed in Part...................................... 35
Section 3.07. Optional Redemption......................................... 35
Section 3.08. Mandatory Redemption........................................ 35
Section 3.09. Offer to Purchase by Application of Excess Proceeds......... 35
ARTICLE 4. COVENANTS........................................................ 37
Section 4.01. Payment of Notes............................................ 37
Section 4.02. Maintenance of Office or Agency............................. 37
Section 4.03. Reports..................................................... 38
Section 4.04. Compliance Certificate...................................... 38
Section 4.05. Taxes....................................................... 39
Section 4.06. Stay, Extension and Usury Laws.............................. 39
Section 4.07. Restricted Payments......................................... 39
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries................................................ 41
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.. 42
Section 4.10. Asset Sales................................................. 45
Section 4.11. Transactions with Affiliates................................ 46
Section 4.12. Liens....................................................... 47
Section 4.13. Business Activities......................................... 47
Section 4.14. Corporate Existence......................................... 47
Section 4.15. Offer to Repurchase Upon Change of Control.................. 47
Section 4.16. Limitation on Sale and Leaseback Transactions............... 48
Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly
Owned Subsidiaries.......................................... 48
Section 4.18. Payments for Consent........................................ 49
Section 4.19. Additional Subsidiary Guarantees............................ 49
ARTICLE 5. SUCCESSORS....................................................... 49
Section 5.01. Merger, Consolidation, or Sale of Assets.................... 49
Section 5.02. Successor Corporation Substituted........................... 50
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ARTICLE 6. DEFAULTS AND REMEDIES............................................ 50
Section 6.01. Events of Default........................................... 50
Section 6.02. Acceleration................................................ 52
Section 6.03. Other Remedies.............................................. 52
Section 6.04. Waiver of Past Defaults..................................... 53
Section 6.05. Control by Majority......................................... 53
Section 6.06. Limitation on Suits......................................... 53
Section 6.07. Rights of Holders of Notes to Receive Payment............... 53
Section 6.08. Collection Suit by Trustee.................................. 54
Section 6.09. Trustee May File Proofs of Claim............................ 54
Section 6.10. Priorities.................................................. 54
Section 6.11. Undertaking for Costs....................................... 55
ARTICLE 7. TRUSTEE.......................................................... 55
Section 7.01. Duties of Trustee........................................... 55
Section 7.02. Rights of Trustee........................................... 56
Section 7.03. Individual Rights of Trustee................................ 56
Section 7.04. Trustee's Disclaimer........................................ 57
Section 7.05. Notice of Defaults.......................................... 57
Section 7.06. Reports by Trustee to Holders of the Notes.................. 57
Section 7.07. Compensation and Indemnity.................................. 57
Section 7.08. Replacement of Trustee...................................... 58
Section 7.09. Successor Trustee by Merger, etc............................ 59
Section 7.10. Eligibility; Disqualification............................... 59
Section 7.11. Preferential Collection of Claims Against Company........... 59
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE......................... 59
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.... 59
Section 8.02. Legal Defeasance and Discharge.............................. 59
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Section 8.03. Covenant Defeasance......................................... 60
Section 8.04. Conditions to Legal or Covenant Defeasance.................. 60
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions....................... 62
Section 8.06. Repayment to Company........................................ 62
Section 8.07. Reinstatement............................................... 62
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................. 63
Section 9.01. Without Consent of Holders of Notes......................... 63
Section 9.02. With Consent of Holders of Notes............................ 63
Section 9.03. Compliance with Trust Indenture Act......................... 65
Section 9.04. Revocation and Effect of Consents........................... 65
Section 9.05. Notation on or Exchange of Notes............................ 65
Section 9.06. Trustee to Sign Amendments, etc............................. 65
ARTICLE 10. SUBSIDIARY GUARANTEES........................................... 65
Section 10.01. Guarantee.................................................. 65
Section 10.02. Limitation on Guarantor Liability.......................... 66
Section 10.03. Execution and Delivery of Subsidiary Guarantee............. 67
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms......... 67
Section 10.05. Releases Following Sale of Assets and Certain Other Events. 68
ARTICLE 11. MISCELLANEOUS................................................... 68
Section 11.01. Trust Indenture Act Controls............................... 68
Section 11.02. Notices.................................................... 69
Section 11.03. Communication by Holders of Notes with Other Holders of
Notes...................................................... 70
Section 11.04. Certificate and Opinion as to Conditions Precedent......... 70
Section 11.05. Statements Required in Certificate or Opinion.............. 70
Section 11.06. Rules by Trustee and Agents................................ 71
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders............................................... 71
Section 11.08. Governing Law.............................................. 71
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Section 11.09. No Adverse Interpretation of Other Agreements.............. 71
Section 11.10. Successors................................................. 71
Section 11.11. Severability............................................... 71
Section 11.12. Counterpart Originals...................................... 71
Section 11.13. Table of Contents, Headings, etc........................... 71
</TABLE>
EXHIBITS
Exhibit A1 FORM OF NOTE
Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF NOTATION OF GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
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INDENTURE dated as of May 17, 1999 between G+G Retail, Inc., a Delaware
corporation (the "Company"), and U.S. Bank Trust National Association, as
trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 11% Series A Senior
Notes due 2006 (the "Series A Notes") and the 11% Series B Senior Notes due 2006
(the "Series B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person: (1)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, whether or
not such Indebtedness is incurred in connection with, or in contemplation of,
such other Person merging with or into, or becoming a Subsidiary of, such
specified Person; and (2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Sale" means: (1) the sale, lease, conveyance or other disposition
of any assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole shall be governed by the provisions
of Section 4.15 and Section 5.01; and (2) the issuance of Equity Interests in
any of the Company's Restricted Subsidiaries or the sale of Equity Interests in
any of its Subsidiaries. Notwithstanding the preceding, the following items
shall not be deemed to be Asset Sales: (1) any single transaction or series of
related transactions that involves assets having a fair market value of less
than $1.0 million; (2) a transfer of assets between or among the Company and its
Wholly Owned Restricted Subsidiaries; (3) an issuance of Equity Interests
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by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary; (4) the sale or lease of equipment, inventory,
accounts receivable or other assets in the ordinary course of business; (5) the
sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment
or Permitted Investment that is permitted by Section 4.07; and (7) the sale and
leaseback of any assets within 90 days of the acquisition of such assets.
"Attributable Debt" means in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means: (1) with respect to a corporation, the board
of directors of the corporation; (2) with respect to a partnership, the Board of
Directors of the general partner of the partnership; and (3) with respect to any
other Person, the board or committee of such Person serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to 85% (or 90% for
the calendar months of July, August, October and November) of the book value of
all inventory owned by the Company as of the end of the most recent fiscal
quarter preceding such date, calculated in accordance with GAAP.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means: (1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and (4) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
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"Cash Equivalents" means: (1) United States dollars (including such
dollars as are held as overnight bank deposits and demand deposits with banks);
(2) securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof) having
maturities of not more than one year from the date of acquisition; (3)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case,
with any lender party to the Credit Agreement or with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of "B" or better or rated "A3" or better by Moody's Investors
Service, Inc. or "A" or better by Standard & Poor's Ratings Group; (4)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (2) and (3) above entered into with
any financial institution meeting the qualifications specified in clause (3)
above; (5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each case
maturing within 270 days after the date of acquisition; and (6) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (5) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following: (1) the
direct or indirect sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole to any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act) (other than the
Principals and the Related Parties); (2) the adoption of a plan relating to the
liquidation or dissolution of the Company; (3) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the Beneficial Owner, directly or
indirectly, of more than a majority of the Voting Stock of the Company or
Holdings, measured by voting power rather than number of shares; (4) the first
day on which a majority of the members of the Board of Directors of the Company
or Holdings are not Continuing Directors; or (5) the first day on which Holdings
ceases to own 100% of the outstanding Equity Interests of the Company.
"Company" means G+G Retail, Inc., and any and all successors thereto.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus: (1)
an amount equal to any extraordinary loss plus any net loss realized by such
Person or any of its Restricted Subsidiaries in connection with an Asset Sale,
to the extent such losses were deducted in computing such Consolidated Net
Income; plus (2) provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent that
any such expense was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of
3
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prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus (5) non-cash items increasing such
Consolidated Net Income for such period, other than the accrual of revenue in
the ordinary course of business, in each case, on a consolidated basis and
determined in accordance with GAAP.
"Consolidated Net Income" means with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that: (1) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned Restricted
Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders; (3) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded; (4) the cumulative effect of a change in accounting principles and
any ongoing non-cash effect from a change since the date of this Indenture in
the time period over which goodwill relating to the Company's purchase of
substantially all of the assets of G+G Shops, Inc. on August 28, 1998 may be
amortized shall be excluded; and (5) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the specified Person
or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the sum of: (1) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date; plus (2) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or Holdings who: (1) was a member of
such Board of Directors on the date of this Indenture; or (2) was nominated for
election or elected to such Board of Directors with the approval of either (i) a
majority of the Board of Directors who were members of such Board either (x) on
the date of this Indenture or (y) at the time of such nomination or election or
(ii) one or more Principals and their Related Parties; provided that (x) such
Principals, together with their Related Parties, Beneficially Own at least 35%
of the outstanding Voting Stock of the Company and (y) no other Person or group
(other than the Principals and the Related Parties) Beneficially Owns more
Voting Stock of Holdings than such Principals and their Related Parties.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
4
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"Credit Agreement" means that certain Loan and Security Agreement, dated
as of October 30, 1998, by and between the Company and Congress Financial
Corporation, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables), bankers' acceptances or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes in
global form, or any successor entity thereto.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, substantially
in the form of Exhibit A1 hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f) hereof.
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"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of: (1) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations; plus (2) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period; plus (3) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus (4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividends on Equity Interests payable solely
in Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Restricted Subsidiary of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that
have been made by the specified Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be given pro
forma effect as if they had occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated on a pro forma basis in accordance with Regulation S-X under the
Securities Act, but without giving effect to clause (3) of the proviso set forth
in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded; and (3)
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the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the specified
Person or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii), 2.06(d)(iii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantor" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under: (1) interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, foreign exchange contracts
and currency swap agreements; and (2) other agreements or arrangements designed
to protect such Person against fluctuations in interest rates and/or currency
values.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means G&G Retail Holdings, Inc.
"IAI Global Note" means the global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold to Institutional Accredited
Investors.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of: (1)
borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof); (3)
banker's acceptances; (4) representing Capital Lease Obligations; (5) the
balance deferred and unpaid of the purchase price of any property, except any
such balance that constitutes an accrued expense or trade payable; or (6)
representing any Hedging Obligations, if and to the extent any of the preceding
items
7
<PAGE>
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of the specified Person prepared in accordance
with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of
others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by the specified Person of any indebtedness of
the sort described in clause (1) through (6) above of any other Person.
Notwithstanding the foregoing, the term "Indebtedness" shall not include Non-
Recourse Debt or indebtedness that constitutes "Indebtedness" merely by virtue
of a pledge of Equity Interests of an Unrestricted Subsidiary securing the same.
The amount of any Indebtedness outstanding as of any date shall be: (1) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount; and (2) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds a beneficial interest in a
Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees but excluding receivables arising in the ordinary
course of business), advances or capital contributions (excluding commission,
travel and other advances to officers, employees, directors and independent
contractors of the Company and its Restricted Subsidiaries made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, either (x) such Person is no longer a Restricted Subsidiary of the
Company or (y) if such Subsidiary was a Wholly Owned Subsidiary immediately
preceding such sale or disposition, such Person is no longer a Wholly Owned
Subsidiary, then in each case, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of Section 4.07. The
acquisition by the Company or any Restricted Subsidiary of the Company of a
Person that holds an Investment in a third Person shall be deemed to be an
Investment by the Company or such Restricted Subsidiary in such third Person in
an amount equal to the fair market value of the Investment held by the acquired
Person in such third Person in an amount determined as provided in the final
paragraph of Section 4.07.
"Jay Galin Consulting Agreement" means the consulting agreement between
Jay Galin and the Company in the form attached to Jay Galin's employment
agreement with the Company in effect on the date of this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
8
<PAGE>
"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement, as specified in writing by the
Company to the Trustee from time to time or any Holder or Holders of more than
25% in principal amount of the then outstanding Notes.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however: (1) any
gain, together with any related provision for taxes on such gain, realized in
connection with: (a) any Asset Sale; or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any
extraordinary gain, together with any related provision for taxes on such
extraordinary gain.
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and any reserve for indemnities, reimbursements or
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (1) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise or (c) constitutes the lender; (2) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the Notes) of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (3) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
9
<PAGE>
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is, unless
otherwise stated herein, reasonably acceptable to the Trustee, that meets the
requirements of Section 11.05 hereof. The counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Cedel, a
Person who has an account with the Depositary, Euroclear or Cedel, respectively
(and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Business" means the business conducted by the Company and its
Restricted Subsidiaries on the date of the closing of this offering and other
businesses reasonably related thereto.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment: (a) such Person becomes
a Wholly Owned Restricted Subsidiary of the Company; or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10;
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) the incurrence by the Company or any of its Restricted Subsidiaries of
performance, bid or advance payment bonds, surety bonds, custom bonds, utility
bonds and similar obligations arising in the ordinary course of business;
(8) endorsements of instruments for collection or deposit in the ordinary
course of business;
(9) loans and advances to employees and officers not to exceed $500,000
outstanding in the aggregate at any time incurred in the ordinary course of
business;
10
<PAGE>
(10) loans to employees, directors and officers in connection with the
purchase by such Persons of Equity Interests of Holdings so long as the cash
proceeds of such purchase received by Holdings are contemporaneously remitted by
Holdings to the Company as a capital contribution;
(11) investments in account debtors received in connection with the
bankruptcy or reorganization, or in settlement of delinquent obligations, of
customers;
(12) investments in existence on the date of this Indenture; and
(13) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (13) that are at the time outstanding not to exceed
$5.0 million.
"Permitted Liens" means:
(1) Liens on assets of the Company and any Guarantor securing
Indebtedness and other Obligations under Credit Facilities that were permitted
by the terms of this Indenture to be incurred;
(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of Section 4.09 covering only
the assets acquired with such Indebtedness;
(7) Liens existing on the date of this Indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor;
(9) zoning restrictions, easements, licenses, covenants and other similar
restrictions and encumbrances affecting the use of real property not interfering
in any material respect with the ordinary conduct of the business of the Company
and its Restricted Subsidiaries;
(10) judgment liens not giving rise to an Event of Default;
11
<PAGE>
(11) Liens, rights of setoff and credit balances with respect to deposit
accounts and other Cash Equivalents;
(12) deposits with the owner or lessor of premises leased and operated in
the ordinary course of business;
(13) nonconsensual liens that do not individually or in the aggregate
detract materially from the value or transferability of the assets of the
Company or any of its Restricted Subsidiaries, or impair materially the use of
any such assets in the operation of the respective businesses of the Company and
its Restricted Subsidiaries;
(14) Liens securing Hedging Obligations; and
(15) Liens incurred in the ordinary course of business of the Company or
any Subsidiary of the Company with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (1) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus all accrued interest thereon and the amount of all expenses and premiums
incurred in connection therewith); (2) such Permitted Refinancing Indebtedness
has a final maturity date not earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (3) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (4) such
Indebtedness is incurred either by the Company or by the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means (1) each of (x) Pegasus Partners, L.P., (y) Pegasus
Related Partners, L.P. and (z) Pegasus G&G Retail, L.P. and Pegasus G&G Retail
II, L.P. for so long as they are directly or indirectly controlled by or under
common control with either Pegasus Partners, L.P. or Pegasus Related Partners,
L.P. (together, the "Pegasus Funds") and (2) Jay Galin and Scott Galin
(together, the "Galins").
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Stock) of Holdings or the Company pursuant to a
registration statement filed with the SEC in accordance with the Securities Act;
provided that in the event of a Public Equity Offering by Holdings, Holdings
contributes to the capital of the Company net cash proceeds of such Public
Equity
12
<PAGE>
Offering in an amount sufficient to redeem the Notes called for redemption in
accordance with the terms thereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of this Indenture, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in the
form of Exhibit A1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in the
form of Exhibit A2 hereto bearing the Private Placement Legend and deposited
with or on behalf of and registered in the name of the Depositary or its
nominee, issued in a denomination equal to the outstanding principal amount of
the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" means: (1) any controlling general partner or controlling
stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the
case of an individual) of any Principal; (2) any trust, corporation, partnership
or other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of any
one or more Principals and/or such other Persons referred to in the immediately
preceding clause (1); or (3) any controlling general partner or controlling
stockholder of any Related Party described in clause (1) above or any
controlling general partner or controlling stockholder of any such Related Party
described in clause (1) above. In addition, (1) each of the Galins shall be the
Related Party of the other and (2) each of the Pegasus Funds shall be a Related
Party of the other.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private
Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement
Legend.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
this Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person: (1) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and (2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and on the Notes, executed
pursuant to the provisions of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unit Agreement" means the Unit Agreement among the Company, G&G Retail
Holdings, Inc. and the Unit Agent, dated as of the date hereof and amended from
time to time.
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"Unrestricted Global Note" means a permanent global Note substantially in
the form of Exhibit A1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (1) has no
Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (3) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (4) has not guaranteed
or otherwise directly or indirectly provided credit support for any Indebtedness
of the Company or any of its Restricted Subsidiaries. Any designation of a
Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the preceding conditions and was permitted by
Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to meet
the preceding requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09, the Company shall
be in default of such Section. The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if: (1) such Indebtedness is permitted under Section 4.09, calculated
on a pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period; and (2) no Default or Event of Default would be
in existence following such designation. Any Subsidiary so designated as a
Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture and deliver an Opinion of Counsel to the Trustee within ten Business
Days of the date on which it was so designated.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing: (1) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by (2) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined
in
Term Section
---- -------
<S> <C>
"Affiliate Transaction".................................. 4.11
"Asset Sale Offer"....................................... 3.09
"Authentication Order"................................... 2.02
"Bankruptcy Law"......................................... 4.01
"Change of Control Offer"................................ 4.15
"Change of Control Payment".............................. 4.15
"Change of Control Payment Date"......................... 4.15
"Covenant Defeasance".................................... 8.03
"Event of Default"....................................... 6.01
"Excess Proceeds"........................................ 4.10
"incur".................................................. 4.09
"Legal Defeasance"....................................... 8.02
"Offer Amount"........................................... 3.09
"Offer Period"........................................... 3.09
"Paying Agent"........................................... 2.03
"Payment Default"........................................ 6.01
"Permitted Debt"......................................... 4.09
"Purchase Date".......................................... 3.09
"Registrar".............................................. 2.03
"Restricted Payments".................................... 4.07
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the Company and
the Guarantors, respectively, and any successor obligor upon the Notes and the
Subsidiary Guarantees, respectively.
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All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules adopted
by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company, the Guarantors
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby. However, to the
extent any provision of any Note conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibits A1 or A2 attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A1 attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of
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the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(b)(iii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference
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in this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to deal with
Holders or an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a
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successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary, (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the Trustee
or the Depositary in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes following an
Event of Default and delivers a written notice to such effect to the Trustee;
provided that in no event shall the Regulation S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee. Global Notes also may be exchanged or replaced, in whole or in
part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The
transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Temporary Regulation S Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged, (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase and (3) instructions given by
the Depositary to effect the transfer or exchange referred
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to in (1) above or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903 under the Securities
Act. Upon consummation of an Exchange Offer by the Company in accordance
with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications and certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1)
a broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as defined
in Rule 144) of the Company;
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(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Notes in an aggregate principal amount equal to
the aggregate principal amount of beneficial interests transferred
pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Note.
(v) Notation by the Trustee of Transfer of Beneficial Interests Among
Global Notes. Upon satisfaction of the requirements for transfer of beneficial
interests in a Global Note pursuant to clauses (iii) or (iv) above, the Trustee,
as Registrar, shall reduce or cause to be reduced the aggregate principal amount
of the relevant Global Note from which the beneficial interest is being
transferred, and increase or cause to be increased the aggregate principal
amount of Global Note to which the beneficial interest is being transferred, in
each case, by the principal amount of the beneficial interest being transferred
and shall direct the Depositary to make corresponding adjustments in its
book-entry system. No transfer of beneficial interests in a Global Note shall be
effected until, and any transferee pursuant thereto shall succeed to the rights
of a holder of beneficial interests in a Global Note only when, the Registrar
has made appropriate adjustments to the applicable Global Note in accordance
with this paragraph.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
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(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
shall bear
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the Private Placement Legend and shall be subject to all restrictions on
transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary Global Note to
Definitive Notes. Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the
Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
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(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred
to a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred
to a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred
to an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable;
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(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(c)
thereof; or
(2) (if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
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Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes
and increase or cause to be increased the aggregate principal amount of
the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of Definitive Notes so
transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes.
Any Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
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<PAGE>
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall
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<PAGE>
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE
SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE
501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS
SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(iii),
(c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or
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<PAGE>
(f) to this Section 2.06 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar
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<PAGE>
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05
hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company and the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
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The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section as
not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Note; however, Notes held by the Company or a Subsidiary of the Company
shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the Company
may prepare and the Trustee, upon receipt of an Authentication Order, shall
authenticate temporary Notes. Temporary Notes shall be substantially in the form
of certificated Notes but may have variations that the Company considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
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Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in an offer
to purchase at any time, the Trustee shall select the Notes to be redeemed or
purchased among the Holders of the Notes in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
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The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with
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the preceding paragraph, interest shall be paid on the unpaid principal, from
the redemption date until such principal is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case at the rate
provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to May 15, 2003. On or after May 15, 2003, the Company may redeem all or a
part of the Notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on May 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.................................................. 105.50%
2004.................................................. 102.75%
2005 and thereafter................................... 100.00%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time prior to May 15, 2002, the Company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes issued under this
Indenture at a redemption price of 111% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that: (1) at least 65% of the aggregate principal amount of Notes
issued under this Indenture remains outstanding immediately after the occurrence
of such redemption (excluding Notes held by the Company and its Subsidiaries);
and (2) the redemption must occur within 60 days of the date of the closing of
such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Company shall not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the
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"Offer Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to Section 4.10 hereof (the
"Offer Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer. Payment for any Notes so purchased
shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to each of the Holders, with a copy to the Trustee.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer
shall be made to all Holders. The notice, which shall govern the terms of the
Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may elect to have Notes purchased in integral multiples of $1,000
only;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
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(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Note, and the
Trustee, upon written request from the Company shall authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or
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agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes, within the time periods specified in the SEC's rules and regulations (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports, in each
case. In addition, following consummation of the Exchange Offer, whether or not
required by the rules and regulations of the SEC, the Company shall file a copy
of all such information and reports referred to above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA ss. 314(a).
(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company and each Guarantor (to the extent that such Guarantor is
so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
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(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each of the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the Company or a
Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company; (3) make any payment on
or with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated to the Notes or the Subsidiary
Guarantees, except a payment of interest or principal at the Stated Maturity
thereof; or (4) make any Restricted Investment (all such payments and other
actions set
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forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clauses (2), (3) and (4) of the next succeeding paragraph), is less than the
sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of this Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests (other than
Disqualified Stock) of the Company or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted into
or exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of the
Company), plus
(c) to the extent that any Restricted Investment that was made after
the date of this Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment, plus
(d) in the event that any Unrestricted Subsidiary is designated as a
Restricted Subsidiary in accordance with the provisions of this Indenture,
the lesser of (i) the aggregate fair market value of all outstanding
Investments owned by the Company and its Restricted Subsidiaries in such
Subsidiary at the time of such designation or (ii) the aggregate amount of
Restricted Investments made in such Unrestricted Subsidiary since the date
of this Indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any Guarantor or
of any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption,
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repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness of the Company or
any Guarantor with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (4) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (5) payments to Holdings to enable Holdings to repurchase, redeem or
otherwise acquire or redeem for value any Equity Interests of Holdings held by
any current or former member of the Company's (or any of its Restricted
Subsidiaries') management or any of its current or former directors; provided
that the aggregate price paid for all such repurchased, redeemed or acquired
Equity Interests shall not exceed $500,000 in any twelve-month period (excluding
for purposes of calculating such amounts during any period loans incurred to
finance the purchase of such Equity Interests that are repaid); (6) payments to
Holdings to enable Holdings to (i) pay franchise taxes and other fees and
expenses necessary to maintain its corporate existence, (ii) pay reasonable fees
to its directors and (iii) perform accounting, legal, corporate reporting and
other administrative functions in the ordinary course of business, provided that
such payments do not exceed $1.0 million in the aggregate; and (7) payments to
Holdings to enable Holdings to fund payments under any plan implemented in the
ordinary course of business to compensate management of the Company or any of
its Restricted Subsidiaries based on the value of Holdings' common stock.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of this
Section 4.07 or reduce the amount available for future Investments under one or
more clauses of the definition of Permitted Investments, as the Company shall
determine. That designation will only be permitted if such Investment would be
permitted at that time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default. Any Subsidiary so designated as a Restricted
Subsidiary must become a Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel to the Trustee within ten Business Days of the
date on which it was so designated.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to: (1) pay dividends or make any other distributions on
its Capital Stock to the Company or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its profits,
or pay any indebtedness owed to the Company or any of its
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Restricted Subsidiaries; (2) make loans or advances to the Company or any of its
Restricted Subsidiaries; or (3) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries.
The preceding paragraph will not apply to encumbrances or restrictions
existing under or by reason of:
(1) Existing Indebtedness (including the Credit Agreement) as in effect
on the date of this Indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in such Existing Indebtedness (including the
Credit Agreement), as in effect on the date of this Indenture;
(2) this Indenture, the Notes and the Subsidiary Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred;
(5) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business and consistent with past
practices;
(6) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose restrictions on
the property so acquired of the nature described in clause (3) of the preceding
paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course of
business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Subsidiaries to issue any shares of Preferred Stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.5 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The proceeding paragraph will not prohibit the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness under Credit Facilities in an aggregate principal amount
at any one time outstanding under this clause (1) (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Company and its Restricted Subsidiaries thereunder) not to exceed the lesser
of (x) $30.0 million less the aggregate amount of all Net Proceeds of Asset
Sales applied by the Company or any of its Restricted Subsidiaries to repay
Indebtedness under a Credit Facility and effect a corresponding commitment
reduction thereunder pursuant to Section 4.10 and (y) the amount of the
Borrowing Base as of the date of such incurrence;
(2) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the related Subsidiary Guarantees to be issued on
the date of this Indenture and the Exchange Notes and the related Subsidiary
Guarantees to be issued pursuant to the Registration Rights Agreement;
(4) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed $5.0 million at
any time outstanding;
(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations or purchase money
obligations, in each case, incurred for the purpose of financing all or any part
of the purchase price of point of sale equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause (5), not to exceed
$5.0 million;
(6) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used
to refund, refinance or replace
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Indebtedness (other than intercompany Indebtedness) that was permitted by this
Indenture to be incurred under the first paragraph of this covenant or clauses
(2), (3), (4), (5), (6) or (13) of this paragraph;
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or a Guarantor; provided, however, that: (a) if
the Company or any Guarantor is the obligor on such Indebtedness and the obligor
is not a Guarantor or the Company, such Indebtedness must be expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes, in the case of the Company, or the Subsidiary Guarantee,
in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary thereof or a
Guarantor and (ii) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted Subsidiary
thereof or a Guarantor; shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (7);
(8) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or hedging
(i) interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding or (ii) currency
values with respect to transactions entered into by the Company or a Restricted
Subsidiary in the ordinary course of business;
(9) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company to the extent such
Indebtedness was permitted to be incurred by another provision of this covenant;
(10) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in Fixed Charges of the Company
as accrued;
(11) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness consisting of performance, bid or advance payment bonds, surety
bonds, custom bonds, utility bonds and similar obligations arising in the
ordinary course of business;
(12) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred or
assumed in connection with the disposition of any business, asset or Subsidiary
of the Company, provided that the maximum assumable Indebtedness shall at no
time exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; and
(13) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (13), not to exceed $5.0 million.
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The Company will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of the Company unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; provided,
however, that no Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.
For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (1) through (13) above,
or is entitled to be incurred pursuant to the first paragraph of this Section
4.09, the Company will be permitted to classify such item of Indebtedness on the
date of its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this Section. Indebtedness under
Credit Facilities outstanding on the date on which Notes are first issued and
authenticated under this Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (1) of the definition of
Permitted Debt.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of; (2) such fair market value is
determined by the Company's Board of Directors and evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee; and (3) at least 85% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash. For purposes of
this provision, each of the following shall be deemed to be cash: (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability; and (b) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Subsidiary into cash (to the extent of the cash received in that conversion)
within 90 days following the closing of such Asset Sale.
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply any such Net Proceeds: (1) to repay any Indebtedness under
the Credit Facilities to the extent that such Indebtedness is secured by a Lien
on the assets and/or Equity Interests so issued or sold or otherwise disposed of
in the Asset Sale; (2) to acquire all or substantially all of the assets of, or
a majority of the Voting Stock of, another Permitted Business; (3) to make a
capital expenditure in a Permitted Business; or (4) to acquire other long-term
assets that are used or useful in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any manner
that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to
those set forth in this Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the
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maximum principal amount of Notes and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by this Indenture. If the aggregate principal amount of Notes and
such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and such other
pari passu Indebtedness to be purchased on a pro rata basis based on the
principal amount of Notes and such other pari passu Indebtedness tendered. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of such
conflict.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors; and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph: (1) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary; (2) any consulting,
advisory or management agreement entered into by the Company or any of its
Restricted Subsidiaries; provided that the aggregate compensation paid to
affiliates of the Company, its Restricted Subsidiaries or Related Parties under
all such agreements (excluding the Jay Galin Consulting Agreement) does not
exceed $500,000 in any twelve-month period; (3) transactions between or among
the Company and/or its Restricted Subsidiaries; (4) agreements in effect on the
date of this Indenture and any modification thereto or any transaction
contemplated thereby (including pursuant to any modification thereto) in any
replacement agreement therefor so long as such modification or replacement is
not more disadvantageous to the Holders in any material respect than the
original agreement as in effect on the date of this Indenture; (5) the Jay Galin
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Consulting Agreement; (6) payments to Holdings to enable Holdings to pay, and
payments by the Company or any of its Restricted Subsidiaries of, fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employees or consultants of Holdings, the Company or any Restricted Subsidiary
thereof for their service to the Company or its Restricted Subsidiaries; (7)
sales of Equity Interests (other than Disqualified Stock) to Affiliates of the
Company; and (8) Restricted Payments that are permitted by Section 4.07.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind on any asset now owned or hereafter acquired, except
Permitted Liens.
Section 4.13. Business Activities.
The Company shall not, and shall not permit any Subsidiary to, engage in
any business other than Permitted Businesses, except to such extent as would not
be material to the Company and its Restricted Subsidiaries taken as a whole.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall make an
offer (a "Change of Control Offer") to each Holder to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within 10 days following any
Change of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute a Change of Control and stating: (1)
that the Change of Control Offer is being made pursuant to this Section 4.15 and
that all Notes tendered will be accepted for payment; (2) the purchase price and
the purchase date, which shall be no later than 30 days and no later than 60
days from the date such notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest; (4) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (5) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address
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specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Notes delivered for purchase,
and a statement that such Holder is withdrawing his election to have the Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with this Section 4.15, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Section 4.15 by virtue of such conflict.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payments for the Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered by such Holder, if any; provided, that each such new Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.15, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.15 and Section 3.09 hereof and all other provisions of this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.16. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary may enter into a sale and leaseback
transaction if: (1) the Company or that Restricted Subsidiary, as applicable,
could have incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge Coverage
Ratio test in the first paragraph of Section 4.09; (2) the gross cash proceeds
of that sale and leaseback transaction are at least equal to the fair market
value, as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee, of the property that is the
subject of that sale and leaseback transaction; and (3) the transfer of assets
in that sale and leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with Section 4.10.
Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless: (1) (x) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests in such Wholly Owned Restricted
Subsidiary or (y) if such transfer, conveyance, sale, lease or other disposition
is of less than all of the Equity Interests in such Wholly Owned Restricted
Subsidiary, such transfer, conveyance, sale, lease or other disposition is made
in compliance with Section 4.07 and (2) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with Section 4.10. In addition, the Company will not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests (other
than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company.
Section 4.18. Payments for Consent.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
to all Holders of the Notes that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
Section 4.19. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries acquires or creates
another domestic Restricted Subsidiary after the date of this Indenture, then
that newly acquired or created Restricted Subsidiary must become a Guarantor and
execute a supplemental indenture in the form of Exhibit F, a Notation of
Guarantee in the form of Exhibit E and deliver an Opinion of Counsel to the
Trustee within ten Business Days of the date on which it was acquired or
created. If any Subsidiary that is not a Guarantor at any time guarantees
Indebtedness of the Company or a Guarantor, the Company will cause such
Subsidiary to contemporaneously execute and deliver a supplemental Indenture
providing for the guarantee of the payment of the Notes by such Subsidiary in
the form of Exhibit F.
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless: (1) either: (a) the Company is the surviving
corporation; or (b) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (2) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of
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the Company under the Notes, this Indenture, the Unit Agreement and the
Registration Rights Agreement pursuant to agreements reasonably satisfactory to
the Trustee; (3) immediately after such transaction no Default or Event of
Default exists; and (4) the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made: (a)
will have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding the
transaction; and (b) will, on the date of such transaction after giving pro
forma effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09. In
addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 will not apply to a sale,
assignment, transfer, conveyance, lease or other disposition of assets between
or among the Company and any of its Wholly Owned Restricted Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes and such default continues for a
period of 30 days;
(2) the Company defaults in the payment when due of principal of, or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise;
(3) the Company or any of its Restricted Subsidiaries fails to comply with
any of the provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
(4) the Company or any of its Significant Subsidiaries fails to observe or
perform any other covenant, representation, warranty or other agreement in this
Indenture for 60 days after notice to the
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Company by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding voting as a single class;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Significant Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Significant
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of this Indenture, if that default: (a) is caused by a failure to
pay principal of, or interest or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default"); or (b) results in the acceleration of such
Indebtedness prior to its express maturity, and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $5.0 million (net of amounts covered by
insurance policies issued by insurers rated at least "A" by A.M. Best Company
that have not denied or disclaimed coverage and with respect to which an
enforcement proceeding has not been commenced), which judgments are not paid,
discharged or stayed within 60 days;
(7) except as permitted by this Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee; and
(8) the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary
pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due; or
(9) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a custodian of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all
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or substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clause (8) or (9) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Significant Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (8) or
(9) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to Section
3.07, an equivalent premium shall also become and be immediately due and payable
to the extent permitted by law upon the acceleration of the Notes. If an Event
of Default occurs prior to May 15, 2003, by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Notes prior to May 15, 2003,
then, upon acceleration of the Notes, an additional premium shall also become
and be immediately due and payable in an amount, for each of the years beginning
on May 15 of the years set forth below, as set forth below (expressed as a
percentage of the principal amount of the Notes on the date of payment that
would otherwise be due but for the provisions of this sentence):
Year Percentage
---- ----------
1999.................................................. 116.50%
2000.................................................. 113.75%
2001.................................................. 111.00%
2002.................................................. 108.25%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in
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exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or
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after the respective due dates expressed in the Note (including in connection
with an offer to purchase), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium and Liquidated
Damages, if any and interest, respectively; and
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Third: to the Company, any Guarantor or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
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(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
Subject to Section 7.01,
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or any Affiliate of
the Company with the same rights it would have if it were not Trustee. However,
in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or
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resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA ss. 313(a) (but if no event described in TIA ss.
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA ss. 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
reasonable costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its
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powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence, bad faith or willful misconduct.
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder, except to the extent the Company is
materially prejudiced as a result of such failure. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the
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then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder who has been a Holder
for at least six months, fails to comply with Section 7.10, such Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
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Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Guarantor shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
deemed to have been discharged from its obligations with respect to all
outstanding Notes and the Subsidiary Guarantees on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and each Guarantor shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes and the Subsidiary Guarantees, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of outstanding Notes to receive solely from the trust fund described
in Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on such Notes when such payments are due, (b) the Company's
obligations with respect to such Notes under Article 2 and Section 4.02 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article
Eight. Subject to compliance with this Article Eight, the Company may exercise
its option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
released from their obligations under the covenants contained in Sections
4.03(a), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18,
4.19 hereof and clause (4) of Section 5.01 hereof with respect to the
outstanding Notes and Subsidiary Guarantees on and after the date the conditions
set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes and Subsidiary Guarantees shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes and Subsidiary Guarantees, the Company and
Guarantors may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture and such Notes and Subsidiary
Guarantees shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(3) through 6.01(7) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
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(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium and Liquidated Damages, if any,
and interest on the outstanding Notes on the stated date for payment thereof or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default resulting
from the incurrence of Indebtedness all or a portion of the proceeds of which
will be used to defease the Notes pursuant to this Article Eight concurrently
with such incurrence) or insofar as Section 6.01(8) or 6.01(9) hereof is
concerned, at any time in the period ending on the 91st day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of Counsel
(which may be subject to customary exceptions) to the effect that on the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
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payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Subsidiary Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's or a Guarantor's
obligations to the Holders of the Notes by a successor to the Company or a
Guarantor pursuant to Article 5 or Article 10 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA; and
(f) to allow any Guarantor to execute a supplemental indenture and/or a
Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee
may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15
hereof), the Subsidiary Guarantees and the Notes with the consent of the Holders
of at least a majority in principal amount of the Notes then outstanding voting
as a single class (including consents obtained in connection with a tender offer
or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest or Liquidated Damages, if any, on the Notes, except a payment default
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resulting from an acceleration that has been rescinded) or compliance with any
provision of this Indenture, the Subsidiary Guarantees or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes). Section 2.08 hereof shall determine which Notes are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or Liquidated Damages, if any, on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest or premium or Liquidated Damages, if any, on the
Notes;
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(g) waive a redemption payment with respect to any Note (other than a
payment required by either of Section 4.10 or Section 4.15);
(h) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
(i) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or this Indenture, except in accordance with the terms of this
Indenture.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
ARTICLE 10.
SUBSIDIARY GUARANTEES
Section 10.01. Guarantee.
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Subject to this Article 10, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Subsidiary Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantors or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Subsidiary Guarantee. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Guarantee.
Section 10.02. Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Subsidiary
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any
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Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the
Holders and the Guarantors hereby irrevocably agree that the obligations of such
Guarantor under this Indenture and the Subsidiary Guarantees shall be limited to
the maximum amount as will, after giving effect to such maximum amount and all
other contingent and fixed liabilities of such Guarantor that are relevant under
such laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under this Article 10, result
in the obligations of such Guarantor under its Subsidiary Guarantee not
constituting a fraudulent transfer or conveyance.
Section 10.03. Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 10.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of such Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Guarantor by its
President or one of its Vice Presidents.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new Subsidiaries
subsequent to the date of this Indenture, if required by Section 4.19 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Subsidiary Guarantees in accordance with Section 4.19 hereof
and this Article 10, to the extent applicable.
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms.
Except as otherwise provided in Section 10.05, no Guarantor may sell or
otherwise dispose of all or substantially all of its assets to, or consolidate
with or merge with or into (whether or not such Guarantor is the surviving
Person), another Person, other than the Company or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor under this Indenture, its Subsidiary
Guarantee, the Registration Rights Agreement and the Unit Agreement
pursuant to a supplemental indenture satisfactory to the Trustee; or
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(b) the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.10.
In case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clauses (1) and (2) above, nothing contained in this Indenture or in any of the
Notes shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor.
Section 10.05. Releases Following Sale of Assets and Certain Other Events.
A Guarantor will be released and relieved of any obligations under its
Subsidiary Guarantee (1) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor (including by way of merger
or consolidation ) to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of the Company, if the Guarantor applies the
Net Proceeds of that sale or other disposition in accordance with Section 4.10,
(2) in connection with any sale of all of the Capital Stock of a Guarantor to a
Person that is not (either before or after giving effect to such transaction) a
Subsidiary of the Company, if the Company applies the Net Proceeds of that sale
in accordance with Section 4.10, or (3) if the Company designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted Subsidiary in accordance with
this Indenture. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale, other
disposition or designation was made by the Company in accordance with the
provisions of this Indenture, including without limitation Section 4.10 hereof,
the Trustee shall execute any documents reasonably required in order to evidence
the release of any Guarantor from its obligations under its Subsidiary
Guarantee.
Any Guarantor not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10.
ARTICLE 11.
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA ss.318(c), the imposed duties shall control.
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Section 11.02. Notices.
Any notice or communication by the Company, any Guarantor or the Trustee
to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or any Guarantor:
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Telecopier No.: (212) 643-4319
Attention: Chief Financial Officer
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Telecopier No.: (212) 836-8689
Attention: Mark S. Selinger, Esq.
and
Shack & Siegel, PC
530 Fifth Avenue
16th Floor
New York, New York 10036
Telecopier No.: (212) 730-1964
Attention: Donald D. Shack, Esq.
If to the Trustee:
U.S. Bank Trust National Association
100 Wall Street
16th Floor
New York, New York 10005
Telecopier No.: (212) 809-5459
Attention: Glenn Anderson
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
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Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 11.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 11.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
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(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Guarantor, as such, shall have any liability
for any obligations of the Company or such Guarantor under the Notes, the
Subsidiary Guarantees, this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors. All agreements of each Guarantor in this Indenture shall bind its
successors, except as otherwise provided in Section 10.05.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
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The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of May 17, 1999
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------------
Name: Scott Galin
Title: President and Chief Operating
Officer
U.S. BANK TRUST NATIONAL ASSOCIATION
By: /s/ Glenn W. Andersen
------------------------------------
Name: Glenn W. Andersen
Title: Vice President
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EXHIBIT A1
[Face of Note]
================================================================================
CUSIP/CINS ____________
11% [Series A] [Series B] Senior Notes due 2006
No. ___ $_____________
G+G RETAIL, INC.
promises to pay to _____________________________________________________________
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on May 15, 2006.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated: _______________, ____
G+G RETAIL, INC.
By:______________________________________
Name: Scott Galin
Title: President
By:______________________________________
Name: Michael Kaplan
Title: Chief Financial Officer
(SEAL)
This is one of the Notes referred to
in the within-mentioned Indenture:
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: __________________________________
Authorized Signatory
================================================================================
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[Back of Note]
11% [Series A] [Series B] Senior Notes due 2006
[Insert the Global Note Legend, if applicable pursuant to the provisions of the
Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the provisions
of the Indenture]
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. G+G Retail, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 11% per annum
from May 17, 1999 until maturity and shall pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
The Company will pay interest and Liquidated Damages semi-annually in arrears on
May 15 and November 15 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date"). Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance; provided that
if there is no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be November 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the May 1 or November 1 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium and Liquidated Damages, if any, and interest
at the office or agency of the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium and Liquidated Damages on,
all Global Notes and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of the
Notes include those stated
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in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $107 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to May 15, 2003. On
or after May 15, 2003, the Company may redeem all or a part of the Notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
Year Percentage
---- ----------
2003.................................................. 105.50%
2004.................................................. 102.75%
2005 and thereafter................................... 100.00%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to May 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes issued
under this Indenture at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that: (1) at least 65% of the aggregate principal amount of
Notes issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and (2) the redemption must occur within 60 days of the date of
the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in Paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 10 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
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Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes voting as a single class. Without the
consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, or to allow any Guarantor to execute a supplemental indenture to
the Indenture and/or a Subsidiary Guarantee with respect to the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of
A1-4
<PAGE>
principal of or premium, if any, on the Notes when the same becomes due and
payable at maturity, upon redemption (including in connection with an offer to
purchase) or otherwise, (iii) failure by the Company or any of its Restricted
Subsidiaries to comply with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the
Indenture; (iv) failure by the Company or any of its Significant Subsidiaries
for 60 days after notice to the Company by the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding to comply with
certain other agreements in the Indenture; (v) default under certain other
agreements relating to Indebtedness of the Company or any of its Significant
Subsidiaries which default results in the acceleration of, or constitutes a
payment default with respect to, such Indebtedness prior to its express
maturity; (vi) certain final judgments for the payment of money that remain
undischarged for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries; and
(viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor or any Person
acting on its behalf shall deny or disaffirm its obligations under such
Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest, premium or Liquidated Damages, if any, on, or the principal
of, the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such, shall not
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A1-5
<PAGE>
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED
DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the A/B Exchange Registration
Rights Agreement dated as of May 17, 1999, between the Company and the parties
named on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Attention: Chief Financial Officer
A1-6
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: _____________________
Your Signature: ____________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:__________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$__________________
Date: _______________
Your Signature: ____________________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.: ____________________________________
Signature Guarantee*: __________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-8
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
Amount of Amount of
decrease in increase in Principal Amount Signature of
Principal Principal at maturity of authorized
Amount Amount this Global Note officer of
at maturity of at maturity of following such Trustee or
Date of this Global this Global decrease Note
Exchange Note Note (or increase) Custodian
-------- ---- ---- ------------- ---------
A1-9
<PAGE>
EXHIBIT A2
[Face of Regulation S Temporary Global Note]
================================================================================
CUSIP/CINS ____________
11% [Series A] [Series B] Senior Notes due 2006
No. ___ $_____________
G+G RETAIL, INC.
promises to pay to _____________________________________________________________
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on May 15, 2006.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated: _______________, ____
G+G RETAIL, INC.
By:______________________________________
Name: Scott Galin
Title: President
By:______________________________________
Name: Michael Kaplan
Title: Chief Financial Officer
(SEAL)
This is one of the Notes referred to
in the within-mentioned Indenture:
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: __________________________________
Authorized Signatory
================================================================================
A2-1
<PAGE>
[Back of Regulation S Temporary Global Note]
11% [Series A] [Series B] Senior Notes due 2006
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE
HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (1) ABOVE.
A2-2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. G+G Retail, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 11% per annum
from May 17, 1999 until maturity and shall pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
The Company will pay interest and Liquidated Damages semi-annually in arrears on
May 15 and November 15 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date"). Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance; provided that
if there is no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be November 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or more
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest hereon; until so exchanged in full, this Regulation
S Temporary Global Note shall in all other respects be entitled to the same
benefits as other Senior Subordinated Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the May 1 or November 1 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium, interest and Liquidated Damages, if any, at
the office or agency of the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium and Liquidated Damages on,
all Global Notes and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as
A2-3
<PAGE>
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $107 million in
aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to May 15, 2003. On
or after May 15, 2003, the Company may redeem all or a part of the Notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.................................................. 105.50%
2004.................................................. 102.75%
2005 and thereafter................................... 100.00%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to May 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes issued
under this Indenture at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that: (1) at least 65% of the aggregate principal amount of
Notes issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and (2) the redemption must occur within 60 days of the date of
the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in Paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 10 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus
A2-4
<PAGE>
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
fixed for the closing of such offer, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
(or such Subsidiary) may use such deficiency for general corporate purposes. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Holders of Notes that are the subject of an offer
to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes voting as a single class. Without the
consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements
A2-5
<PAGE>
of the SEC in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Subsidiary Guarantee with
respect to the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company or any of its Restricted Subsidiaries to comply with Section
4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or
any of its Significant Subsidiaries for 60 days after notice to the Company by
the Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with certain other agreements in the Indenture; (v)
default under certain other agreements relating to Indebtedness of the Company
or any of its Significant Subsidiaries which default results in the acceleration
of, or constitutes a payment default with respect to, such Indebtedness prior to
its express maturity; (vi) certain final judgments for the payment of money that
remain undischarged for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Material Subsidiaries;
and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor or any Person
acting on its behalf shall deny or disaffirm its obligations under such
Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest, premium or Liquidated Damages, if any, on, or the principal
of, the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company or any of the Guarantors, as such,
shall not have any liability for any obligations of the Company or such
Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
A2-6
<PAGE>
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED
DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the A/B Exchange Registration
Rights Agreement dated as of May 17, 1999, between the Company and the parties
named on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Attention: Chief Financial Officer
A2-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: _____________________
Your Signature: ____________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:__________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$__________________
Date: _______________
Your Signature: ____________________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.: ____________________________________
Signature Guarantee*: __________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A2-9
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or of other Restricted Global Notes
for an interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Amount of Amount of
decrease in increase in Principal Amount Signature of
Principal Principal at maturity of authorized
Amount Amount this Global Note officer of
at maturity of at maturity of following such Trustee or
Date of this Global this Global decrease Note
Exchange Note Note (or increase) Custodian
-------- ---- ---- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10019
[Registrar address block]
Re: 11% Senior Notes, due 2006
Reference is hereby made to the Indenture, dated as of May 17, 1999 (the
"Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S. Bank
Trust National Association, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| Check if Transferee will take delivery of a beneficial interest in
the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. |_| Check if Transferee will take delivery of a beneficial interest in
the Temporary Regulation S Global Note, the Regulation S Global Note or a
Definitive Note pursuant to Regulation S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a
B-1
<PAGE>
U.S. Person or for the account or benefit of a U.S. Person (other than an
Initial Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will be subject to the restrictions on Transfer enumerated in
the Private Placement Legend printed on the Regulation S Global Note, the
Temporary Regulation S Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a beneficial
interest in the IAI Global Note or a Definitive Note pursuant to any provision
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) |_| such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule
904, and the Transferor hereby further certifies that it has not engaged
in any general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Note or
Restricted Definitive Notes and the requirements of the exemption claimed,
which certification is supported by (1) a certificate executed by the
Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of
Counsel provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that such
Transfer is in compliance with the Securities Act. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend
printed on the IAI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.
4. |_| Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the
B-2
<PAGE>
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Definitive Notes and in the Indenture.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903 or
Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will not be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
________________________________________
[Insert Name of Transferor]
By:_____________________________________
Name:
Title:
Dated: ____________
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ___________), or
(ii) |_| Regulation S Global Note (CUSIP ___________), or
(iii) |_| IAI Global Note (CUSIP ___________); or
(b) |_| a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ___________), or
(ii) |_| Regulation S Global Note (CUSIP ___________), or
(iii) |_| IAI Global Note (CUSIP ___________); or
(iv) |_| Unrestricted Global Note (CUSIP ___________); or
(b) |_| a Restricted Definitive Note; or
(c) |_| an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
[Registrar address block]
Re: 11% Senior Notes, due 2006
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of _________________
(the "Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S.
Bank Trust National Association, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) |_| Check if Exchange is from Restricted Definitive Note to beneficial
interest in an Unrestricted Global Note. In connection with the Owner's Exchange
of a Restricted Definitive Note for a beneficial interest in an Unrestricted
Global Note, the Owner hereby certifies (i) the beneficial
C-1
<PAGE>
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) |_| Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to beneficial
interest in a Restricted Global Note. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
|_| 144A Global Note, |_| Regulation S Global Note, |_| IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
________________________________________
[Insert Name of Transferor]
By:_____________________________________
Name:
Title:
Dated: ____________
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10019
[Registrar address block]
Re: 11% Senior Notes, due 2006
Reference is hereby made to the Indenture, dated as of May 17, 1999 (the
"Indenture"), between G+G Retail, Inc., as issuer (the "Company"), and U.S. Bank
Trust National Association, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) |_| a beneficial interest in a Global Note, or
(b) |_| a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest
therein is subject to certain restrictions and conditions set forth in the
Indenture and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Notes or any interest therein except in compliance
with, such restrictions and conditions and the United States Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Note or beneficial interest
in a Global Note from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies
D-1
<PAGE>
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
________________________________________
[Insert Name of Accredited Investor]
By:_____________________________________
Name:
Title:
Dated: ____________
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of May 17, 1999 (the "Indenture") among G+G
Retail, Inc., the Guarantors listed on Schedule I thereto and U.S. Bank Trust
National Association, as trustee (the "Trustee"), (a) the due and punctual
payment of the principal of, premium, if any, and interest on the Notes (as
defined in the Indenture), whether at maturity, by acceleration, redemption or
otherwise, the due and punctual payment of interest on overdue principal and
premium, and, to the extent permitted by law, interest, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms of the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the
Indenture are expressly set forth in Article 10 of the Indenture and reference
is hereby made to the Indenture for the precise terms of the Subsidiary
Guarantee.
[NAME(S) OF GUARANTOR(S)]
By: _____________________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of G+G Retail, Inc. (or its permitted successor), a Delaware
corporation (the "Company"), the Company, the other Guarantors (as defined in
the Indenture referred to herein) and ____________________, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of May 17, 1999 providing for the
issuance of an aggregate principal amount of up to $107 million of 11% Senior
Notes due 2006 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as
follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally guarantee to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, that:
(i) the principal of and interest on the Notes will be promptly paid
in full when due, whether at maturity, by acceleration, redemption
or otherwise, and interest on the overdue principal of and interest
on the Notes, if any, if lawful, and all other obligations of the
Company to the Holders or the Trustee hereunder or thereunder will
be promptly paid in full or performed, all in accordance with the
terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be promptly
paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so
guaranteed or any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay the same
immediately.
F-1
<PAGE>
(b) The obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or the
Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Notes with respect to any provisions hereof
or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever.
(d) This Subsidiary Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and the
Indenture, and the Guaranteeing Subsidiary accepts all obligations of a
Guarantor under the Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors, or any custodian,
trustee, liquidator or other similar official acting in relation to either
the Company or the Guarantors, any amount paid by either to the Trustee or
such Holder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right
of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Subsidiary Guarantee, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Article 6
of the Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Subsidiary Guarantee.
(h) The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the exercise of such right does not
impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect
to any maximum amount and any other contingent and fixed liabilities that
are relevant under any applicable Bankruptcy or fraudulent conveyance
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under Article 10 of
the Indenture, this new Subsidiary Guarantee shall be limited to the
maximum amount permissible such that the obligations of such Guarantor
under this Subsidiary Guarantee will not constitute a fraudulent transfer
or conveyance.
F-2
<PAGE>
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the
Subsidiary Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) Except as otherwise provided in the Indenture, no Guarantor may sell
or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person), another Person, other than the Company or another Guarantor,
unless:
(i) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(ii) either:
(x) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor under this Indenture, its Subsidiary
Guarantee, the Registration Rights Agreement and the Unit Agreement
pursuant to a supplemental indenture satisfactory to the Trustee; or
(y) the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.10 of the Indenture.
(b) In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of the Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 and Section 10.05 of Article
10 of the Indenture, and notwithstanding clauses (1) and (2) above, nothing
contained in the Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into the Company or another
Guarantor, or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety to the Company or
another Guarantor.
5. RELEASES.
(a) A Guarantor will be released and relieved of any obligations under its
Subsidiary Guarantee (i) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor (including by way of merger
or consolidation ) to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of the Company, if the Guarantor applies the
Net
F-3
<PAGE>
Proceeds of that sale or other disposition in accordance with Section 4.10 of
the Indenture, (ii) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect to such
transaction) a Subsidiary of the Company, if the Company applies the Net
Proceeds of that sale in accordance with Section 4.10 of the Indenture, or (iii)
if the Company designates any Restricted Subsidiary that is a Guarantor as an
Unrestricted Subsidiary in accordance with the Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale, other disposition or designation was made by the
Company in accordance with the provisions of the Indenture, including without
limitation Section 4.10 of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Subsidiary Guarantee.
(b) Any Guarantor not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10 of the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
F-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[GUARANTEEING SUBSIDIARY]
By: ________________________________
Name:
Title:
G+G RETAIL, INC.
By: ________________________________
Name:
Title:
[EXISTING GUARANTORS]
By:_________________________________
Name:
Title:
[TRUSTEE],
as Trustee
By:_________________________________
Authorized Signatory
F-5
<PAGE>
EXHIBIT 4.02
FORM OF 11% SERIES B SENIOR NOTE DUE 2006
OF G+G RETAIL, INC.
[Face of Note]
________________________________________________________________________________
CUSIP/CINS ____________
11% Series B Senior Notes due 2006
No. ___ $____________
G+G RETAIL, INC.
promises to pay to______________________________________________________________
or registered assigns,
the principal sum of____________________________________________________________
Dollars on May 15, 2006.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated: _______________, ____
G+G RETAIL, INC.
By:_____________________________________
Name: Scott Galin
Title: President
By:_____________________________________
Name: Michael Kaplan
Title: Chief Financial Officer
(SEAL)
This is one of the Notes referred to
in the within-mentioned Indenture:
U.S. Bank Trust National Association,
as Trustee
By: __________________________________
Authorized Signatory
________________________________________________________________________________
1
<PAGE>
[Back of Note]
11% Series B Senior Notes due 2006
[Insert the Global Note Legend, if applicable pursuant to the provisions of the
Indenture]
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. G+G Retail, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 11% per annum
from May 17, 1999 until maturity and shall pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
The Company will pay interest and Liquidated Damages semi-annually in arrears on
May 15 and November 15 of each year, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date"). Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance; provided that
if there is no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be November 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the May 1 or November 1 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of May 17, 1999 ("Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code (S)(S)77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. To
the extent any provision of this Note conflicts with the express provisions of
the Indenture, the provisions of the Indenture shall govern and be controlling.
The Notes are obligations of the Company limited to $107 million in aggregate
principal amount.
5. Optional Redemption.
2
<PAGE>
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to May 15, 2003. On
or after May 15, 2003, the Company may redeem all or a part of the Notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003..................................................... 105.50%
2004..................................................... 102.75%
2005 and thereafter...................................... 100.00%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to May 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes issued
under this Indenture at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that: (1) at least 65% of the aggregate principal amount of
Notes issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and (2) the redemption must occur within 60 days of the date of
the closing of such Public Equity Offering.
6. Mandatory Redemption.
Except as set forth in Paragraph 7 below, the Company shall not be required
to make mandatory redemption or sinking fund payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 10 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
3
<PAGE>
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the then outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes voting as a single class. Without the
consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, or to allow any Guarantor to execute a supplemental indenture to
the Indenture and/or a Subsidiary Guarantee with respect to the Notes.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company or any of its Restricted Subsidiaries to comply with Section
4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or
any of its Significant Subsidiaries for 60 days after notice to the Company by
the Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with certain other agreements in the Indenture; (v)
default under certain other agreements relating to Indebtedness of the Company
or any of its Significant Subsidiaries which default results in the acceleration
of, or constitutes a payment default with respect to, such Indebtedness prior to
its express maturity; (vi) certain final judgments for the payment of money that
remain undischarged for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Material Subsidiaries;
and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor or any Person
acting on its behalf shall deny or disaffirm its obligations under such
Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is
continuing, the Trustee or the Holders
4
<PAGE>
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes will become due and payable without further action or
notice. Holders may not enforce the Indenture or the Notes except as provided in
the Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest,
premium or Liquidated Damages, if any, on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such, shall not
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Attention: Chief Financial Officer
5
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:_________________________________
(Insert assignee's legal name)
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint___________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:________________
Your Signature:____________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:___________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
6
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[_] Section 4.10 [_] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$____________________
Date:________________
Your Signature:_____________________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:_____________________________________
Signature Guarantee*:________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
7
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in at maturity of Signature of
Principal Amount Principal Amount this Global Note authorized officer of
at maturity of at maturity of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ------------------- ------------------------ ----------------------- --------------------------- -----------------------
<S> <C> <C> <C> <C>
</TABLE>
8
<PAGE>
EXHIBIT 4.03
- --------------------------------------------------------------------------------
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of May 17, 1999
by and among
G+G Retail, Inc.
and
U.S. Bancorp Investments, Inc.
CIBC World Markets Corp.
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of May 17, 1999, by and among G+G Retail, Inc., a Delaware corporation
(the "Company"), and U.S. Bancorp Investments Inc. and CIBC World Markets Corp.
(each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each
of whom has agreed to purchase the Company's 11% Series A Senior Notes due 2006
(the "Series A Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated May 16,
1999, (the "Purchase Agreement"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated May 17, 1999, between the
Company and U.S. Bank Trust National Association, as Trustee, relating to the
Series A Notes and the Series B Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Definitive Notes, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
1
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and in an offshore transaction
complying with Rule 903 of Regulation S under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Notice: As defined in Section 6(e) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 11% Series B Senior Notes due 2006 to be
issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(e) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.
2
<PAGE>
Transfer Restricted Securities: Each (A) Series A Note, until the earliest
to occur of (i) the date on which such Series A Note is exchanged in the
Exchange Offer for a Series B Note which is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (ii) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (iii) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act and each (B) Series B Note held by a Broker Dealer until the date on which
such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause the Exchange Offer Registration Statement to
be filed with the Commission as soon as practicable after the Closing Date, but
in no event later than 90 days after the Closing Date (such 90th day being the
"Filing Deadline"), (ii) use its reasonable best efforts to cause such Exchange
Offer Registration Statement to become effective at the earliest possible time,
but in no event later than 150 days after the Closing Date (such 150th day being
the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause it to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Series B Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting (i) registration of the Series B Notes to be offered in exchange
for the Series A Notes that are Transfer Restricted Securities and (ii) resales
of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series
A Notes that such Broker-Dealer acquired for its own account as a result of
market making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its Affiliates) as contemplated by
Section 3(c) below.
(b) The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Series B Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its reasonable best efforts to cause the Exchange Offer to
be Consummated on the earliest practicable date after the
3
<PAGE>
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter (such 30th day being the "Consummation
Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by Broker-
Dealers, the Company agrees to use its reasonable best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Section 6(a)
and (c) hereof and in conformity with the requirements of this Agreement, the
Act and the policies, rules and regulations of the Commission as announced from
time to time, for a period of one year from the Consummation Deadline or such
shorter period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold pursuant thereto. The Company
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company has complied with the procedures set forth in
Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted Securities
shall notify the Company within 20 Business Days following the Consummation
Deadline that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the Series
B Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or any of its Affiliates, then the Company shall:
(x) cause to be filed, on or prior to 90 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of
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clause (a)(i) above and (ii) the date on which the Company receives the notice
specified in clause (a)(ii) above, (such earlier date, the "Filing Deadline"), a
shelf registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities, and
(y) use its reasonable best efforts to cause such Shelf Registration
Statement to become effective on or prior to 150 days after the Filing Deadline
for the Shelf Registration Statement (such 150th day the "Effectiveness
Deadline").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company shall
use its reasonable best efforts to keep any Shelf Registration Statement
required by this Section 4(a) continuously effective, supplemented, amended and
current as required by and subject to the provisions of Sections 6(b) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i)) following the Closing Date, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Shelf Registration
Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (iv) subject to
Section 6(d), any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended
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purpose without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company hereby agrees to pay to each Holder
of Transfer Restricted Securities affected thereby liquidated damages in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.25 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company to pay liquidated damages with respect to securities shall survive until
such time as such obligations with respect to such securities shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company shall (x) comply with all applicable provisions of Section
6(c) below, (y) use its reasonable best efforts to effect such exchange and to
permit the resale of Series B Notes by Broker-Dealers that tendered in the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of its market making activities or other trading activities
(other than Series A Notes acquired directly from the Company or any of its
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company hereby agrees to seek a no-action
letter or other favorable decision from the Commission allowing the
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Company to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level. In connection with the foregoing,
the Company hereby agrees to take all such other actions as may be
requested by the Commission or otherwise required in connection with the
issuance of such decision, including without limitation (A) participating
in telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursuing a
resolution (which need not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
As a condition to its participation in the Exchange Offer, each Holder
using the Exchange Offer to participate in a distribution of the Series B
Notes shall acknowledge and agree that, if the resales are of Series B
Notes obtained by such Holder in exchange for Series A Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not, under
Commission policy as in effect on the date of this Agreement, rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co.,
Inc. (available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and (C)
any other undertaking or representation required by the
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Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall:
(i) comply with all the provisions of Section 6(c) below and use
its reasonable best efforts to effect such registration to permit the sale
of the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate
form under the Act, which form shall be available for the sale of the
Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes sold pursuant to the
Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to
the purchaser(s) of securities subject to the Shelf Registration Statement
in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use its reasonable best efforts to
cause such amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in
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<PAGE>
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect
to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act
or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company shall use its reasonable
best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(v) furnish to each Holder in connection with such exchange or
sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or Prospectus
(including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will be subject to
the review and comment of such Holders in connection with such sale, if
any, for a period of at least three Business Days, and the Company will
not file any such Registration Statement or Prospectus or any amendment or
supplement to any such Registration Statement or Prospectus (including all
such documents incorporated by reference) to which such Holders shall
reasonably object within three Business Days after the receipt thereof. A
Holder shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or
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supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omits to state any material fact necessary
to make the statements therein not misleading or fails to comply with the
applicable requirements of the Act;
(vi) upon the request of any Holder upon reasonable notice,
promptly prior to the filing of any document that is to be incorporated by
reference into a Registration Statement or Prospectus, provide copies of
such document to each Holder in connection with such exchange or sale, if
any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Holders
may reasonably request;
(vii) make available, at reasonable times, for inspection by each
Holder and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the Company
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, attorney or
accountant in connection with such Registration Statement or any post-
effective amendment thereto subsequent to the filing thereof and prior to
its effectiveness;
(viii) if requested by any Holders in connection with such exchange
or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such exchange or
sale without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
hereby consents to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection, the Company shall:
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(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its reasonable best efforts to cause to
be furnished) to each Holder, upon the effectiveness of the Shelf
Registration Statement and to each Broker-Dealer who holds Transfer
Restricted Securities that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other
trading activities (other than Series A Notes acquired directly from
the Company or any Affiliate of the Company) upon Consummation of
the Exchange Offer, as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company by (x) the President or any Vice President and (y)
a principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 6(dd), 9(a) and 9(b) of the Purchase Agreement and
such other similar matters as such Holders and/or such Broker-
Dealers may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in
paragraph (e) of Section 9 of the Purchase Agreement and such
other matters as are mutually agreed to by the Company and
such Holders and/or such Broker-Dealers, and in any event
including a statement to the effect that, while such counsel
does not opine upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements
contained in the Registration Statement and such counsel has
not made any independent check or verification thereof, it has
participated in conferences with officers and other
representatives of the Company and its representatives in
connection with the preparation of the Registration Statement
and the Prospectus contained in the Registration Statement,
and based upon these conferences and such counsel's review of
the documents referenced above (such counsel's determination
of materiality being based in part upon the opinions,
representations and statements of the officers and other
representatives of the Company), no facts have come to such
counsel's attention which lead it to believe that the
Registration Statement or the Prospectus contained in the
Registration Statement at the time it or any post-effective
amendment thereto became effective and, in the case of the
Exchange Offer Registration Statement, as of the date of the
Consummation of the Exchange Offer, contained or contains any
untrue statement of a material fact or omitted or omits to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it
being understood that such counsel expresses no opinion or
belief on the financial data, statements and related notes,
the financial statement schedules and other financial and
accounting and statistical data and the teen market data
included in the Registration Statement or the related
Prospectus or omitted therefrom); and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent
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accountants, in the customary form and covering matters of the
type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the
matters set forth in the comfort letters delivered pursuant to
Section 9(g) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders and/or Broker-Dealers
who hold Transfer Restricted Securities that were acquired for the
account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes
acquired directly from the Company or any Affiliate of the Company)
to evidence compliance with the matters covered in clause (A) above
and with any customary conditions contained in any agreement entered
into by the Company pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject
it to the service of process in suits or to taxation, in any jurisdiction
where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xiv) use its reasonable best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the Depository Trust
Company;
(xvi) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
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covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its reasonable best efforts to cause the Trustee
to execute, all documents that may be required to effect such changes and
all other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Notwithstanding Section 6(c)(i), if the Board of Directors of the
Company determines in good faith that it is in the best interest of the Company
not to disclose the existence of or facts surrounding any proposed or pending
material corporate transaction or other material development involving the
Company, the Company may allow the Shelf Registration Statement to fail to be
effective and usable as a result of such nondisclosure for up to 60 days during
the two-year period of effectiveness required by Section 4 hereof, provided that
the Company shall not allow the Exchange Offer Registration Statement to fail to
be effective and usable for a period in excess of 30 days during the one-year
period of effectiveness required by Section 3 hereof.
(e) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Notice"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Notice.
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SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company, and, subject to Section 7(b), all reasonable fees and disbursements
of counsel for the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Series B Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Series A Notes into in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins, unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder, its
directors, officers and each Person, if any, who controls such Holder (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from
and against any and all losses, claims, damages, liabilities, and judgments
(including without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder or any prospective purchaser of Series B Notes or registered Series A
Notes, or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Holders.
14
<PAGE>
(b) Each Holder of Transfer Restricted agrees, severally and not jointly,
to indemnify and hold harmless the Company, and its directors and officers, and
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) the Company, to the same extent as the
foregoing indemnity from the Company set forth in section (a) above, but only
with reference to information relating to such Holder furnished in writing to
the Company by such Holder expressly for use in any Registration Statement. In
no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense of such action, including the
employment of counsel reasonably satisfactory to the indemnified party and the
payment of all fees and expenses of such counsel, as incurred. Any indemnified
party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action, or employ counsel reasonably satisfactory to the
indemnified party, within a reasonable amount of time after notice of the
institution of such action by the indemnified party or (iii) the named parties
to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case as described in clause (i), (ii) or (iii) of the preceding
sentence, the indemnifying party shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all indemnified parties and all such fees and expenses
shall be reimbursed as they are incurred. Such single firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with the indemnifying party's written consent or (ii) effected without
its written consent only if the settlement is entered into more than 75 days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request and not contested its indemnification
obligations in good faith. No
15
<PAGE>
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to, or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in Section 8(a), any reasonable legal or other fees
or expenses incurred by such party in connection with investigating or defending
any action or claim.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses incurred by such indemnified party
in connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
16
<PAGE>
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure by the
Company to comply with its obligations under Sections 3 and 4 hereof may result
in material irreparable injury to the Initial Purchasers or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required (to the extent permissible under applicable law) to specifically
enforce the Company's obligations under Sections 3 and 4 hereof. The Company
further agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of
17
<PAGE>
a majority of the outstanding principal amount of Transfer Restricted Securities
subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder among the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
G+G Retail, Inc.
520 Eighth Avenue
New York, NY 10018
Telecopier No.: (212) 643-4319
Attention: Chief Financial Officer
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Telecopier: (212)836-8689
Attention: Mark Selinger, Esq.
and
Shack & Siegel
530 Fifth Avenue
16th Floor
New York, New York 10036
Telecopier No.: (212) 730-1964
Attention: Donald Shack, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
18
<PAGE>
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders; provided, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms hereof or of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------------
Name: Scott Galin
Title: President and Chief Operating
Officer
U.S. BANCORP INVESTMENTS, INC.
CIBC WORLD MARKETS CORP.
By: /s/ Jean Smith
----------------------------
Name: Jean Smith
Title: Managing Director
20
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: U.S. Bancorp Libra,
a division of U.S. Bancorp Investments, Inc.
11766 Wilshire Blvd.
Suite 870
Los Angles, California 90025
Attention: General Counsel
From: G+G Retail, Inc.
_____% Senior Notes due 2006
Date: ___, 1999
For your information only (NO ACTION REQUIRED):
Today, ______, 1999, we filed an A/B Exchange Registration Statement/a
Shelf Registration Statement with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
21
<PAGE>
EXHIBIT 5.01
[LETTER HEAD OF KAYE, SCHOLER, FIERMAN, HAYS AND HANDLER,LLP APPEARS HERE]
June 22, 1999
G+G Retail, Inc.
520 Eighth Avenue
New York, New York 10018
Ladies and Gentlemen:
We have acted as special counsel to G+G Retail, Inc. (the "Issuer") in
connection with its offer to exchange $1,000 principal amount of 11% Senior
Notes due 2006, Series B, of the Issuer (the "Exchange Notes"), for each $1,000
principal amount of outstanding unregistered 11% Senior Notes due 2006, Series
A, of the Issuer (the "Private Notes"), which Exchange Notes are the subject of
the Registration Statement on Form S-4, to which this opinion is an Exhibit,
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act") on the date hereof and as may be
amended and supplemented (the "Registration Statement").
In connection herewith, we have examined the Registration Statement as
filed on the date hereof, the Indenture, dated as of May 17, 1999, among the
Issuer and U.S. Bank Trust National Association, as trustee (the "Indenture"),
and the Private Notes, together with such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion. The Indenture and the Exchange
Notes are collectively referred to herein as the "Documents." In rendering the
opinions expressed below, we have assumed the genuineness of all signatures,
other than those of officers of the Company, the authenticity of all documents
submitted to us as originals, the conformity with the original of all documents
submitted to us as reproduced copies and the authenticity of all such latter
documents.
On the basis of the foregoing examination, we advise you that, upon
the (i) Exchange Notes being duly executed as provided in the Indenture and
delivered in exchange for the Private Notes, as described in the Registration
Statement, and assuming due authentication thereof by the trustee in accordance
with the terms of the Indenture, (ii) Registration Statement becoming effective
under the Act, and (iii) qualification of the Indenture under the Trust
<PAGE>
G+G Retail,Inc. June 22, 1999
Indenture Act of 1939, as amended, in our opinion the Exchange Notes will have
been duly authorized and will constitute valid and binding obligations of the
Issuer, subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and similar laws affecting creditors' rights generally
and general principles of equity (regardless of whether such principles are
considered in a proceeding in equity or at law).
The foregoing opinion is limited to the laws of the State of New York
and the General Corporation Law of the State of Delaware.
The foregoing opinions are subject to the qualification that the
enforceability of certain rights, remedies and waivers provided in the Documents
may be unavailable or limited by certain laws and judicial decisions. In respect
of such qualification, however, we are of the opinion that such laws and
judicial decisions do not, subject to the other exceptions and limitations
contained in this letter, make the remedies generally afforded by the Documents
inadequate to permit enforcement of the rights and obligations arising
thereunder.
We consent to the filing of this opinion with the Commission as an
Exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus included therein. Our opinion is
rendered solely for your information in connection with the foregoing, and may
not be relied upon by any other person or for any other purpose without our
prior written consent. In giving this opinion, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ Kaye, Scholer, Fierman, Hays & Handler, LLP
2
<PAGE>
EXHIBIT 10.01
111688
111088
103188
100588
100488
091688
---------------------------------------------------------------
---------------------------------------------------------------
HARTZ-83RD STREET ASSOCIATES
Landlord,
and
G & G SHOPS OF WOODBRIDGE, INC.
Tenant
--------------------
LEASE
--------------------
Premises:
8501 Westside Avenue
North Bergen, New Jersey
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
1. Definitions ....................................... 1
2. Demise and Term ................................... 7
3. Rent .............................................. 8
4. Use of Demised Premises ................ .......... 9
5. Preparation of Demised Premises ................... 9
6. Tax and Operating Expense Payments ................ 11
7. Common Areas ...................................... 12
8. Deleted ........................................... 13
9. Subordination ..................................... 13
10. Quiet Enjoyment ................................... 14
11. Assignment, Subletting and Mortgaging ............. 15
12. Compliance with Laws .............................. 18
13. Insurance and Indemnity ........................... 19
14. Rules and Regulations ............................. 23
15. Alterations and Signs ............................. 23
16. Landlord's and Tenant's Property .................. 25
17. Repairs and Maintenance ........................... 26
18. Public Utility Charges ............................ 28
19. Access, Changes and Name .......................... 29
20. Mechanics' Liens and Other Liens .................. 30
21. Non-Liability ..................................... 31
22. Damage or Destruction ............................. 32
(i)
<PAGE>
23. Eminent Domain .................................... 34
24. Surrender ......................................... 36
25. Conditions of Limitation .......................... 36
26. Re-Entry by Landlord .............................. 37
27. Damages ........................................... 38
28. Affirmative Waivers ............................... 40
29. No Waivers ........................................ 40
30. Curing Tenant's Defaults .......................... 40
31. Broker ............................................ 41
32. Notices ........................................... 41
33. Estoppel Certificates ............................. 42
34. Arbitration ....................................... 42
35. Memorandum of Lease ............................... 43
36. Compliance with ECRA .............................. 43
37. Miscellaneous ..................................... 44
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Site Plan (and designation of parking)
Exhibit B1 - Floor Plan of Demised Premises
Exhibit C - Work and Installations to Be Performed and Furnished in the Demised
Premises
Exhibit C1 - Floor Plan of Section A
Exhibit C2 - Landlord's Standard Design Criteria
Exhibit C3 - Lighting Layout - Section A
Exhibit D - Rules and Regulations
(ii)
<PAGE>
111688
111088
103188
100688
100488
091688
LEASE, dated November 28th, 1988, between HARTZ-83RD STREET ASSOCIATES, a
New Jersey partnership, having an office at 400 Plaza Drive (P. O. Box 1411),
Secaucus, New Jersey 07094 ("Landlord"), and G & G SHOPS OF WOODBRIDGE, INC.,
a New Jersey corporation, having an office at 520 Eighth Avenue, New York, New
York 10018 ("Tenant").
ARTICLE 1 - DEFINITIONS
1.01. As used in this Lease (including in all Exhibits and any Riders
attached hereto, all of which shall be deemed to be part of this Lease) the
following words and phrases shall have the meanings indicated:
A. Advance Rent: $37,319.13
B. Additional Charges: All amounts that become payable by Tenant to
Landlord hereunder other than the Fixed Rent.
C. Architect: Kenneth Carl Bonte, or as Landlord may designate.
D. Broker: None
E. Building: The building (including the addition to be constructed and
containing Section B of the Demised Premises as delineated on the attached
Exhibit B1) located on the Land in North Bergen, New Jersey and known as 8501
West Side Avenue.
F. Business Days: All days except Saturdays, Sundays, and days observed by
the federal or New Jersey government as legal holidays. Notwithstanding the
Business Days and Business Hours, Tenant shall have access to and use of the
Demised Premises and Common Areas on a twenty four (24) hour, three hundred
sixty five (365) day basis.
G. Business Hours: Generally customary daytime business hours, but not
before 8:00 A.M. or after 6:00 P.M.
H. Calendar Year: Each twelve-month period commencing on a January 1.
I. Commencement Date as to Section "A" (hereinafter defined): The earlier
of (a) the date on which both: (i) Section A shall be
-1-
<PAGE>
Ready for Occupancy, and (ii) actual possession of Section A shall have been
delivered to Tenant by notice to Tenant (and Tenant shall have access to the
Demised Premises), or (b) the date Tenant, or anyone claiming under or through
Tenant, first occupies Section A or any part thereof for any purpose other than
the performance of Tenant's Work.
J. Commencement Date as to Section "B" (hereinafter defined): The earlier
of (a) the date on which both: (i) Section B shall be Ready for Occupancy, and
(ii) actual possession of Section B shall have been delivered to Tenant by
notice to Tenant (and Tenant shall have access to the Demised Premises), or (b)
the date Tenant, or anyone claiming under or through Tenant, first occupies
Section B or any part thereof for any purpose other than the performance of
Tenant's Work.
K. Common Areas: All areas, spaces and improvements in the Building and on
the Land which Landlord makes available from time to time for the common use and
benefit of the tenants and occupants of the Building and which are not
exclusively available for use by a single tenant or occupant, including, without
limitation, parking areas, roads, walkways, sidewalks, landscaped and planted
areas, if any, community rooms, if any, the managing agent's office, if any, and
public rest rooms, if any.
L. Demised Premises: The portion of the Building that is outlined in
orange on the floor plan(s) attached hereto as Exhibit B1. The Demised Premises
contains or will contain approximately 164,840 square feet of Floor Space of
which 80,690 square feet are designated as Section "A" on Exhibit B1 and 84,150
square feet are designated as Section "B" on Exhibit B1. Landlord shall provide
Tenant with a certification of Landlord's architect as to the Floor Space of the
Demised Premises. The Demised Premises also include Tenant's parking spaces
which are as depicted in red on the attached site plan (Exhibit B).
M. Expiration Date: The date that is the day before the fifth (5th)
anniversary of the Commencement Date of Section B of the Demised Premises if the
Commencement Date of Section B of the Demised Premises is the first day of a
month, or the fifth (5th) anniversary of the last day of the month in which the
Commencement Date of Section B of the Demised Premises occurs if the
Commencement Date of Section B of the Demised Premises is not the first day of a
month. However, if the Term is extended by Tenant's effective exercise of
Tenant's right, if any, to extend the Term, the "Expiration Date" shall be
changed to the last day of the Latest Extended Period as to which Tenant shall
have effectively exercised its right to extend the Term. For the purposes of
this definition, the earlier termination of this Lease shall not affect the
"Expiration Date." Notwithstanding anything herein
-2-
<PAGE>
contained to the contrary, the initial five (5) year term of this Lease shall
not extend beyond the date which is seven (7) years from the Commencement Date
of Section A of the Demised Premises, which date shall be the "Expiration Date"
subject to Tenant's exercise of any option to extend the Lease Term.
N. Fixed Rent: An amount at the annual rate of Six and 00/100 Dollars
($6.00) per square foot from the Commencement Date of each of the respective
Sections of the Demised Premises until the Expiration Date multiplied by the
Floor Space of the Demised Premises.
O. Floor Space: As to the Demised Premises, the sum of the floor area
stated in square feet bounded by the exterior faces of the exterior walls, or by
the exterior or Common Areas face of any wall between the Premises and any
portion of the Common Areas, or by the center line of any wall between the
Premises and space leased or available to be leased to a tenant or occupant. Any
reference to the Floor Space is intended to refer to the Floor Space of the
entire area in question irrespective of the Person(s) who may be the owner(s) of
all or any part thereof. The Floor Space shall not include that area above the
mezzanine.
P. Guarantor: G & G Shops, Inc.
Q. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
R. Land: The land described on Exhibit A, upon which the Building is
located.
S. Landlord's Work: The materials and work to be furnished, installed and
performed by Landlord at its expense in accordance with the provisions of
Exhibit C. Landlord represents that Landlord's Work will be performed in a good
and workmanlike manner, free of defects in labor and materials, and in
accordance with all Legal and Insurance Requirements.
T. Legal Requirements: Laws and ordinances of all federal, state, county,
and municipal governments, and rules, regulations, orders and directives of all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public or quasi-public authorities having jurisdiction over
the Land and Building, whether now or hereafter in force, including, but not
limited to, those pertaining to environmental matters.
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U. Mortgage: A mortgage and/or a deed of trust.
V. Mortgagee: A holder of a mortgage or a beneficiary of a deed of trust.
W. Operating Expenses: The sum of the following: (1) the cost and expense
(whether or not within the contemplation of the parties) for the repair,
replacement, maintenance, policing, insurance and operation of the Demised
Premises and Land not otherwise the obligation of Landlord or Tenant pursuant to
this Lease and (2) the sum of (a) the Building's pro-rata share of the cost and
expense (whether or not within the contemplation of the parties) for the repair,
replacement, maintenance, policing and operation of the privately maintained
roads that, from time to time, service the Building and Land, and (b) the
Building's pro-rata share of the Real Estate Taxes attributable to said roads.
Landlord represents and warrants that all expenses hereunder shall be reasonably
commensurate to and in accordance with customary industry practice. The
"Operating Expenses" shall include, without limitation, the following: (i) the
cost for rent, casualty, liability, boiler and fidelity insurance, (ii) if an
independent managing agent is employed by Landlord, the fees payable to such
agent (provided the same are competitive with the fees payable to independent
managing agents of comparable facilities in Hudson County), and (iii) reasonable
legal, accounting and other professional fees pertaining to the operation,
management and maintenance of the Land and Building but not with respect to the
leasing, sale or finance of same. All items included in Operating Expenses shall
be determined in accordance with generally accepted accounting principles
consistently applied. Operating Expenses shall specifically exclude the
following: (a) leasing commissions; (b) legal and accounting fees (including
those attributable to disputes with tenants other than Tenant) to the extent not
related to the management and/or operation of the Building; (c) income and
franchise taxes; (d) debt service on any Mortgage; (e) any ground rents; (f)
advertising and promotional costs unless requested by Tenant in connection with
any retail operation; (g) costs which are specific to a particular tenant in the
Building but which are not expenses common to all tenants of the Building; (h)
insurance costs attributable to another tenant's use in the Building; (i) costs
of overtime usage (site lights, etc.) directly attributable to a particular
tenant of the Building not the Tenant; (j) costs attributable to repairs which
are directly attributable to the negligence of Landlord or as a result of
Landlord's breach of an obligation of the Lease; (k) costs for structural
repairs or replacements not otherwise Tenant's responsibility under the Lease;
(1) charges or expenses associated with re-lighting, repaving or restriping the
parking lot for a period of eighteen (18) months from the Commencement Date of
Section A of the Demised Premises. Landlord represents that there shall be no
duplication of charges hereunder.
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Landlord further represents that to the extent Landlord receives a rebate
regarding any charge hereunder, Tenant shall receive a pro-rata credit for any
amount previously paid by Tenant in connection with the charge the subject of
such rebate.
X. Permitted Uses: Warehouse distribution and ancillary offices, and
retail outlet (if permitted by law).
Y. Person: A natural person or persons, a partnership, a corporation, or
any other form of business or legal association or entity.
Z. Ready for Occupancy: The condition of the Demised Premises when for the
first time the Landlord's Work shall have been substantially completed (as
certified to Tenant by Landlord's architect), the Demised Premises broom clean
and free of debris, the utilities and HVAC connected and in good working order,
a temporary or permanent Certificate of Occupancy issued permitting use of the
Demised Premises for the Permitted Uses, and Tenant shall have access to the
Demised Premises, the loading docks and entrances. The Landlord's Work shall be
deemed substantially completed notwithstanding the fact that minor or
insubstantial details of construction, mechanical adjustment or decoration
remain to be performed, the noncompletion of which does not interfere with the
completion of Tenant's Work or with Tenant's use of the Demised Premises.
Landlord hereby agrees to complete any such minor or insubstantial details as
soon as is possible or feasible under the existing circumstances.
AA. Real Estate Taxes: The real estate taxes, assessments and special
assessments, sewer rents, water charges and all other similar charges and
impositions imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities, and any reasonable
expenses incurred by Landlord in contesting such taxes or assessments and/or the
assessed value of the Building and Land, which expenses shall be allocated to
the period of time to which such expenses relate. If at any time during the Term
the methods of taxation prevailing on the date hereof shall be altered so that
in lieu of or as a substitute for (but in the nature of a real estate tax), the
whole or any part of such real estate taxes, assessments and special assessments
now imposed on real estate there shall be levied, assessed or imposed (a) a tax,
assessment, levy, imposition, license fee or charge wholly or partially as a
capital levy or otherwise on the rents received therefrom, or (b) any other such
additional or substitute tax, assessment, levy, imposition or charge, then all
such taxes, assessments, levies, impositions, fees or charges or the part
thereof so measured or based shall be deemed to be included within the term
"Real Estate Taxes" for the purposes hereof. Real Estate Taxes shall not include
income, transfer, franchise or
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business corporation taxes, no fines or penalties, or taxes imposed on adjacent
parcels of land.
BB. Rent: The Fixed Rent and the Additional Charges.
CC. Rules and Regulations: The reasonable rules and regulations that may
be promulgated by Landlord from time to time, which may be reasonably changed by
Landlord from time to time. The Rules and Regulations now in effect are attached
hereto as Exhibit D. Landlord represents that the Rules and Regulations will
only be changed and modified upon reasonable notice to Tenant (unless in the
event of an emergency) and that same shall not be enforced discriminately as to
Tenant vis-a-vis the other tenants of the Building.
DD. Security Deposit: None
EE. Successor Landlord: As defined in Section 9.03.
FF. Superior Lease: Any lease to which this Lease is, at the time referred
to, subject and subordinate.
GG. Superior Lessor: The lessor of a Superior Lease or its successor in
interest, at the time referred to.
HH. Superior Mortgage: Any Mortgage to which this Lease is, at the time
referred to, subject and subordinate.
II. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the time
referred to.
JJ. Tenant's Fraction: 17.7% provided, however, when the Commencement Date
with regard to that portion of the Building in which Section B of the Demised
Premises is located has occurred, then Tenant's Fraction shall be 36.7%. If the
size of the Demised Premises or the Building shall be changed from the initial
size thereof, due to any taking, any construction, addition or alteration work,
or due to verification by Landlord's architect or otherwise, the Tenant's
Fraction shall be changed to the fraction the numerator of which shall be the
Floor Space of the Demised Premises and the denominator of which shall be the
Floor Space of the Building. Upon Tenant's request Landlord shall provide Tenant
with a certification of Landlord's architect as to Tenant's Fraction.
(Notwithstanding anything herein contained to the contrary, to the extent there
is a reduction in the Floor Space of the Building as a result of casualty,
condemnation, or act of Landlord (including, but not limited to an act of
Landlord in accordance with Section 5.04 of the Lease), such that the ratio of
the Floor Space of the Demised Premises to the Floor Space of the Building
increases, Landlord represents and agrees that the denominator for determining
the Tenant's Fraction (i.e. Floor Space of the Building)
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shall be adjusted such that Tenant shall only be responsible to pay for those
elements of Real Estate Taxes and Operating Expenses directly attributable to
Tenant's use.)
KK. Tenant's Property: As defined in Section 16.02.
LL. Tenant's Work: The facilities, materials and work which may be
undertaken by or for the account of Tenant (other than the Landlord's Work) to
equip, decorate and furnish the Demised Premises for Tenant's occupancy
substantially in accordance with the provisions of Exhibit C.
MM. Term: The period commencing on the Commencement Date and ending at
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
NN. Unavoidable Delays: A delay arising from or as a result of a strike,
lockout, or labor difficulty which Landlord has no knowledge of at the time of
the execution of this Lease, explosion, sabotage, accident, riot or civil
commotion, act of war, fire or other catastrophe, Legal Requirement not in
effect on the date of the execution of this Lease, or an act of the other party
and any cause beyond the reasonable control of that party, provided that the
party asserting such Unavoidable Delay has exercised its best efforts to
minimize such delay.
ARTICLE 2 - DEMISE AND TERM
2.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises, for the Term. This Lease is subject to (a) any
and all existing encumbrances, conditions, rights, covenants, easements,
restrictions and rights of way, of record, and other matters of record
applicable zoning and building laws, regulations and codes, and such matters as
may be disclosed by an inspection or survey, and (b) easements now or hereafter
created by landlord in, under, over, across and upon a strip of land twenty feet
(20') in width running along all lot lines of the Building for sewer, water,
electric, gas and other utility lines and services now or hereafter installed;
provided, however, Landlord represents, covenants and warrants to Tenant that
the Demised Premises may be used and occupied for the purposes set forth herein;
and that the foregoing shall in no manner interfere with Tenant's use and quiet
enjoyment of the Premises. Promptly following the Commencement Date, the parties
hereto shall enter into an agreement in form and substance satisfactory to
Landlord and Tenant setting forth the Commencement Date and confirming the Fixed
Rent payable.
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2.02.Landlord hereby represents that the Demised Premises are presently
encumbered by only one mortgage by and between Hartz 83rd Street Associates, as
mortgagor, and The Northwestern Mutual Life Insurance Company, as mortgagee. The
Landlord has no knowledge of any existing or pending assessment affecting the
Land or Building except as otherwise provided in a certain policy of Title
Insurance Commitment number 819-069225, issued by Commonwealth Land Title
Insurance Company, a copy of which was provided to Tenant prior to execution of
this Lease; provided, however, that the foregoing will not affect Landlord's
ability to construct the Demised Premises.
ARTICLE 3 - RENT
3.01. Tenant shall pay the Fixed Rent in equal monthly installments in
advance on the first day of each and every calendar month during the Term
(except that Tenant shall pay, upon the execution and delivery of this Lease by
Tenant, the Advance Rent, to be applied against the first installment or
installments of Fixed Rent becoming due under this Lease). If the Commencement
Date occurs on a day other than the first day of a calendar month, the Fixed
Rent for the partial calendar month at the commencement of the Term shall be
prorated, based upon the actual number of days of the month.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord at its office, or such other place, or to Landlord's agent, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when
due without notice or demand therefor (unless otherwise provided for in this
Lease) and without any abatement, deduction or setoff for any reason whatsoever,
except as may be expressly provided in this Lease. If Tenant makes any payment
to Landlord by check, same shall be by check of Tenant and Landlord shall not be
required to accept the check of any other Person, and any check received by
Landlord shall be deemed received subject to collection.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives Tenant's
right, if any, to designate the items to which any payments made by Tenant are
to be credited, and Landlord may apply any payments made by Tenant to such items
as Landlord sees fit, irrespective of and
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notwithstanding any designation or request by Tenant as to the items to which
any such payments shall be credited.
3.05. Any payment due Landlord under this Lease which is not paid on or
before five (5) days after Tenant receives written notice that same was due but
is not paid, shall, from the due date, until such payment is received by
Landlord, bear interest at the prime rate of Chemical Bank of New York then in
effect plus 2% (the "Late Payment Rate")
ARTICLE - 4 USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the Permitted
Uses, and Tenant shall not use or permit or suffer the use of the Demised
Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business in the Demised Premises or any
part thereof, Tenant shall duly procure and thereafter maintain such license or
permit and submit the same to Landlord for inspection. Tenant shall at all times
comply with the terms and conditions of each such license or permit. Tenant
shall not at any time use or occupy, or suffer or permit anyone to use or occupy
the Demised Premises, or do or permit anything to be done in the Demised
Premises, in any manner which (a) violates the Certificate of Occupancy for the
Demised Premises or for the Building; (b) causes or is liable to cause injury to
the Building or any equipment, facilities or systems therein; (c) constitutes a
violation of the Legal Requirements or Insurance Requirements of which Tenant
has notice; (d) impairs the character, reputation or appearance of the Building;
(e) unreasonably impairs the proper and economic maintenance, operation and
repair of the Building and/or its equipment, facilities or systems; or (f)
unreasonably annoys or inconveniences other tenants or occupants of the
Building. Landlord hereby represents that, to the best of its knowledge,
Tenant's Permitted Uses are in conformance with all local and municipal rules,
regulations and ordinances.
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.01. The Demised Premises shall be completed and prepared for Tenant's
occupancy in the manner described in, and subject to the provisions of, Exhibit
C. Tenant shall occupy each of Section A and Section B of Demised Premises
promptly after each Section, independently, is Ready for Occupancy and
possession thereof is delivered to Tenant by Landlord giving to Tenant a notice
to such effect as well as access to the Demised Premises. Except as expressly
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provided to the contrary in this Lease, the taking of possession by Tenant of
the Section A or Section B of the Demised Premises, as the case may be, shall be
prima facie evidence as against Tenant that the Demised Premises and the
Building were in good and satisfactory condition at the time such possession was
taken. Except as expressly provided to the contrary in this Lease, Tenant is
leasing Section A of the Demised Premises "as is" on the date hereof, subject to
reasonable wear and tear. With regard to both Section A and Section B of the
Demised Premises, Landlord hereby agrees to keep and maintain (as defined in
Article 17.01), for the Term of this Lease, any structural defects in the
Demised Premises and the roof provided Tenant gives Landlord written notice of
such structural defect or damage to the roof and further provided that such
structural defect or damage to the roof is not the result of Tenant's negligence
or misuse of the Demised Premises or the roof. Landlord further warrants to
Tenant Landlord's Work for a period of one (1) year from the date said
Landlord's Work is substantially completed; Landlord hereby agrees to assign to
Tenant the warranties, if any, obtained by Landlord in connection with
Landlord's Work after said one (1) year period.
5.02. If the substantial completion of the Landlord's Work shall be
delayed due to (a) any act or omission of Tenant or any of its employees, agents
or contractors (after notice from Landlord) (including, without limitation, [i]
any delays due to changes in or additions to the Landlord's Work, or [ii] any
delays by Tenant in the submission of plans, drawings, specifications or other
information or in approving any working drawings or estimates or in giving any
authorizations or approvals), or (b) any additional time needed for the
completion of the Landlord's Work by the inclusion in the Landlord's Work of any
long lead time items selected by Tenant and with respect to which Tenant refuses
to select a substitute item which is more readily available and of which delay
Tenant is advised by Landlord prior to the order of such item, then the Demised
Premises shall be deemed Ready for Occupancy on the date when they would have
been ready but for such delay(s). Subject to structural defects, the Demised
Premises shall be conclusively presumed to be in satisfactory condition on the
Commencement Date except for the items with respect to which Tenant gives
Landlord notice within thirty (30) days after the Commencement Date specifying
such items with reasonable particularity.
5.03. Landlord represents and warrants that the roof will be delivered
free of leaks.
5.04. Landlord reserves the right, at any time and from time to time, to
increase, reduce or change the number, type, size, location, elevation, nature
and use of any of the Common Areas and the Building, including, without
limitation, the right to move and/or remove same, provided same shall not block
or interfere with Tenant's means of
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ingress or egress to and from the Demised Premises except to a de minimis
extent, or adversely affect or interfere with Tenant's business operations, use
of, or access to the Demised Premises, Common Areas, or designated parking.
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
6.01. Throughout the Term, Tenant agrees to pay to Landlord as an
Additional Charge hereunder within fifteen (15) days in advance of the final
date for which such is due without interest or penalty, Tenant's Fraction of the
Real Estate Taxes. If any assessment is payable in annual installments or in a
lump sum and Tenant does not elect to reimburse Landlord for such assessment in
a lump sum, there shall be added to the amount of the Real Estate Taxes payable
for the Calendar Year in which such assessment is payable and such subsequent
Calendar Year only that amount of such assessment, together with such interest
thereon, as would have been payable to the municipality in said Calendar Year if
Landlord had elected to pay said assessment in annual installments. Upon
request, Landlord shall submit to Tenant copies of all bills covering Real
Estate Taxes together with an invoice showing the calculation of Tenant's share
of such Real Estate Taxes.
6.02. Real Estate Taxes, whether or not a lien upon the Premises shall be
apportioned between Landlord and Tenant at the beginning and end of the Term; it
being intended that Tenant shall pay only that portion of the Real Estate Taxes
as is allocable to the Premises for the Term.
6.03. Tenant shall pay to Landlord Tenant's Fraction of the Operating
Expenses within twenty (20) days after Landlord submits to Tenant an invoice
(with details of the calculation) for Tenant's Fraction of the Operating
Expenses. Upon request, Landlord shall submit to Tenant copies of all bills used
to calculate the Operating Expenses. Operating Expenses shall be paid on a
monthly basis in advance of the due date.
6.04. Each such statement or invoice given by Landlord pursuant to Section
6.01 or Section 6.03 shall be conclusive and binding upon Tenant unless within
ninety (90) days after the receipt of such statement Tenant shall notify
Landlord that it disputes the correctness of the statement, specifying the
particular respects in which the statement is claimed to be incorrect. If such
dispute is not settled by agreement, either party may submit the dispute to
arbitration as provided in Article 34. Pending the determination of such dispute
by agreement or arbitration as aforesaid, Tenant shall, within twenty (20) days
after receipt of such statement, pay the
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Additional Charges in accordance with Landlord's statement, without prejudice to
Tenant's position. If the dispute shall be determined in Tenant's favor,
Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment
resulting from compliance with Landlord's statement.
6.05. Landlord hereby grants Tenant the right, upon reasonable written
notice to Landlord, and at Tenant's sole cost and expense, to inspect Landlord's
books and records as same relate to Tenant's Operating Expenses and Real Estate
Taxes. Any such inspection shall occur at Landlord's normal place of business
and during Landlord's normal business hours.
6.06. In the event Landlord receives a rebate in the Real Estate Taxes,
Tenant shall be entitled to its pro-rata portion thereof provided Tenant has so
paid to Landlord its portion of the Real Estate Taxes which are the subject of
any such rebate.
6.07. Tenant shall not be responsible for any increase in Real Estate
Taxes which is attributable to any improvement to the Building made by Landlord
or any other tenant of the Building, which improvement does not otherwise impact
on Tenant's use or occupation of the Demised Premises.
ARTICLE 7 - COMMON AREAS
7.01. Subject to the provisions of Section 5.04 and Article 17, Landlord
will operate, manage, equip, light, repair and maintain, or cause to be
operated, managed, equipped, lighted, repaired and maintained, the Common Areas
for their intended purposes. Landlord reserves the right, at any time and from
time to time, to construct within the Common Areas kiosks and to install vending
machines, telephone booths, benches and the like, provided same shall not block
or interfere with Tenant's means of ingress or egress to and from the Demised
Premises.
7.02. Tenant and its subtenants and concessionaires, and their respective
officers, employees, agents, suppliers, customers and invitees, shall have the
non-exclusive right, in common with Landlord and all others to whom Landlord has
granted or may hereafter grant such right, but subject to the Rules and
Regulations, to use the Common Areas. Landlord reserves the right, at any time
and from time to time, to close temporarily all or any portions of the Common
Areas when any such closing is necessary or desirable (a) to make repairs or
changes or to effect construction within the Building and Common Areas (but not
the Demised Premises unless elsewhere in this Lease provided), (b) to prevent
the acquisition of public rights in such areas, or (c) to protect or preserve
natural persons or property. Landlord may do such other acts in and to the
Common Areas as in its
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judgment may be desirable to improve or maintain same. Landlord shall use its
best efforts not to materially interfere with Tenant's business operation and
use of the Demised Premises in connection with the above rights granted to
Landlord.
7.03. Tenant agrees that it, any subtenant or licensee and their
respective officers, employees, contractors and agents will park their
automobiles and other vehicles only where and as permitted by this Lease.
ARTICLE 8 - (DELETED)
ARTICLE 9 - SUBORDINATION
9.01. Subject to the provisions of Section 9.05, this Lease, and all
rights of Tenant hereunder, are and shall be subject and subordinate to all
ground leases and underlying leases of the Land and/or the Building now or
hereafter existing and to all Mortgages which may now or hereafter affect the
Land and/or Building and/or any of such leases, whether or not such Mortgages or
leases shall also cover other lands and/or buildings, to each and every advance
made or hereafter to be made under such Mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such Mortgages and
spreaders and consolidations of such Mortgages. The provisions of this Section
9.01 shall be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord, the lessor under any such
lease or the Mortgagee of any such Mortgage or any of their respective
successors in interest may reasonably request to evidence such subordination and
non-disturbance.
9.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the period to which Landlord would be entitled
under this Lease or otherwise, after similar notice, to effect such remedy),
provided such Superior Mortgagee or Superior Lessor shall with due diligence
give Tenant
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notice of intention to, and commence and continue to, remedy such act or
omission.
9.03. If any Superior Lessor or Superior Mortgagee shall succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action or delivery of a new lease or deed, then at the request of such party so
succeeding to Landlord's rights ("Successor Landlord") and upon such Successor
Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn
to and recognize such Successor Landlord as Tenant's landlord under this Lease
and shall promptly execute and deliver any instrument that such Successor
Landlord may reasonably request to evidence such attornment (provided such
Successor Landlord assumes all Landlord's obligations under this Lease). Upon
such attornment this Lease shall continue in full force and effect as a direct
lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease except that the
Successor Landlord (so long as any Successor Landlord is not related to
Landlord) shall not (a) be liable for any previous act or omission of Landlord
under this Lease; (b) be subject to any offset, not expressly provided for in
this Lease, which theretofore shall have accrued to Tenant against Landlord; or
(c) be bound by any previous prepayment of more than one month's Fixed Rent or
Additional Charges (unless required pursuant to this Lease), unless such
modification or prepayment shall have been expressly approved in writing by the
Superior Lessor of the Superior Lease or the Mortgagee of the Superior Mortgage
through or by reason of which the Successor Landlord shall have succeeded to the
rights of Landlord under this Lease.
9.04. If any then present or prospective Superior Mortgagee shall require
any modification(s) of this Lease, Tenant shall promptly execute and deliver to
Landlord such instruments effecting such modification(s) as Landlord shall
reasonably request, provided that such modification(s) do not adversely affect
in any material respect any of Tenant's rights under this Lease, decrease
Landlord's obligations under this Lease or increase Tenant's obligations under
this Lease.
9.05. Landlord hereby agrees to provide Tenant with a Non-Disturbance
Agreement from all present and future Superior Mortgagees, wherein such
Mortgagees agree not to disturb the occupancy of Tenant under the Lease so long
as Tenant is not in default beyond the applicable grace period.
ARTICLE 10 - QUIET ENJOYMENT
10.01. So long as this Lease is in effect, Tenant shall peaceably and
quietly have, hold and enjoy the Demised Premises without hindrance, ejection or
molestation.
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ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING
11.01. Except as otherwise provided herein, Tenant shall not, whether
voluntarily, involuntarily, or by operation of law or otherwise, (a) assign or
otherwise transfer this Lease, or offer or advertise to do so, (b) sublet the
Demised Premises or any part thereof, or offer or advertise to do so, or allow
the same to be used, occupied or utilized by anyone other than Tenant, or (c)
mortgage, pledge, encumber or otherwise hypothecate this Lease in any manner
whatsoever, without in each instance obtaining the prior written consent of
Landlord. Consent by Landlord shall not be required if a corporate tenant
assigns this Lease to its parent corporation or to its wholly owned subsidiary
or Affiliate, subject, however, to the further provisions of Articles 11.04 and
11.05 and prior notice to Landlord. "Affiliate" as that term is referred to
hereinabove shall be defined as a person or entity directly controlling,
controlled by or under common control with Tenant or any other Affiliate of
Tenant. Notwithstanding anything herein contained to the contrary, consent by
Landlord shall also not be required in the event (A) Tenant sells substantially
all of its stock to a third party (which third party's principal asset is not
this Lease) provided that (a) Tenant provides Landlord with written notice of
such a sale; and (b) (i) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (1) the net worth of Tenant immediately prior to such merger,
consolidation or transfer, or (2) the net worth of the original Tenant on the
date of this Lease, and (ii) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord (except as prohibited by law) at least ten
(10) days prior to the effective date of any such transaction and (c) the
provisions of Section 11.04 are complied with by Tenant; or (B) Tenant desires
to sublet less than thirty five (35%) percent of the Floor Space of the Demised
Premises provided that Landlord has notice of such sublease.
11.02. Subject to the provisions of Section 11.01, if at any time (a) the
original Tenant named herein, (b) the then Tenant, (c) any Guarantor, or (d) any
Person owning a majority of the voting stock of, or directly or indirectly
controlling the then Tenant shall be a corporation or partnership, any transfer
of voting stock or partnership interest resulting in the person(s) who shall
have owned a majority of such corporation's shares of voting stock or the
general partners' interest in such partnership, as the case may be, immediately
before such transfer, ceasing to own a majority of such shares of voting stock
or general partner's interest, as the case may be, except as the result of
transfers by inheritance, shall be deemed to be an assignment of this Lease as
to which Landlord's consent shall have been required, and in any such event
Tenant shall notify Landlord. The provisions of this Section 11.02 shall not be
applicable to any corporation all the outstanding voting stock of
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which is listed on a national securities exchange (as defined in the Securities
Exchange Act of 1934, as amended) or is traded in the over-the-counter market
with quotations reported by the National Association of Securities Dealers
through its automated system for reporting quotations and shall not apply to
transactions with a corporation or other person into or with which the then
Tenant is merged or consolidated or to which substantially all of the then
Tenant's assets or stock are transferred or to any corporation which controls or
is controlled by the then Tenant or is under common control with the then
Tenant, provided that in any of such events (i) the successor to Tenant has a
net worth computed in accordance with generally accepted accounting principles
at least equal to the greater of (1) the net worth of Tenant immediately prior
to such merger, consolidation or transfer, or (2) the net worth of the original
Tenant on the date of this Lease, and (ii) proof satisfactory to Landlord of
such net worth shall have been delivered to Landlord at least ten (10) days
prior to the effective date of any such transaction. For the purposes of this
Section, the words "voting stock" shall refer to shares of stock regularly
entitled to vote for the election of directors of the corporation. Landlord
shall have the right at any time and from time to time during the Term to
inspect the stock record books of the corporation to which the provisions of
this Section 11.02 apply, and Tenant will produce the same on request of
Landlord.
11.03. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default by
Tenant, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant. In either event, Landlord may apply the net amount
collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section
11.01 or Section 11.02, or the acceptance of the assignee, subtenant or occupant
as tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.04. In the event of permitted assignment or transfer, whether made with
Landlord's consent pursuant to Section 11.01 or without
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Landlord's consent if permitted by Sections 11.01 and 11.02, shall be made only
if, and shall not be effective until (unless same would be unlawful, i.e. a
violation of a Securities and Exchange [Commission regulation]), the assignee
shall execute, acknowledge and deliver to Landlord an agreement in form and
substance reasonably satisfactory to Landlord whereby the assignee shall assume
Tenant's obligations under this Lease and whereby the assignee shall agree that
all of the provisions in this Article 11 shall, notwithstanding such assignment
or transfer, continue to be binding upon it in respect to all future assignments
and transfers. Notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent by Landlord from an assignee, transferee, or any other party, the original
Tenant shall remain fully liable for the payment of the Rent and for Tenant's
other obligations under this Lease.
11.05. The liability of the original Tenant and any other Person who was
responsible for Tenant's obligations under this Lease shall not be discharged,
by any agreement made by Landlord extending the time of performance of, or any
waiver or failure of Landlord to enforce, any of this Lease.
11.06. The listing of any name other than that of Tenant, whether on the
doors of the Demised Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Demised Premises,
nor shall it be deemed to be the consent of Landlord to any assignment or
transfer of this Lease or to any sublease of the Demised Premises or to the use
or occupancy thereof by others.
11.07. Without limiting any of the provisions of Article 25, if pursuant
to the Federal Bankruptcy Code (or any similar law hereafter enacted having the
same general purpose), Tenant is permitted to assign this Lease notwithstanding
the restrictions contained in this Lease, adequate assurance of future
performance by an assignee expressly permitted under such Code shall be deemed
to mean the deposit of cash security in an amount equal to the sum of three (3)
months Fixed Rent plus an amount equal to the Additional Charges for the
Calendar Year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord for the balance of the Term,
without interest, as security for the full performance of all of Tenant's
obligations under this Lease.
11.08. Where Landlord's consent for a subletting or assignment is required
and if Tenant shall propose to assign or in any manner transfer this Lease or
any interest therein, or sublet the Demised Premises or any part or parts
thereof, or grant any concession or license or otherwise permit occupancy of all
or any part of the Demised Premises by any person, Tenant shall give notice
thereof to
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Landlord, together with a copy of the proposed instrument or proposed document
setting forth the terms of the deal that is to accomplish same and such
financial and other information pertaining to the proposed assignee, transferee,
subtenant, concessionaire or licensee as Landlord shall reasonably require, and
Landlord shall as an alternative to Landlord's right to give consent (unless
Landlord's consent is not required), terminate this Lease by notice given to
Tenant within thirty (30) days after receipt of said proposed instrument and
financial and other information, and upon the date specified in such notice,
which date shall be not less than thirty (30) days and not more than sixty (60)
days after the giving of said notice, this Lease shall terminate. (Provided,
however, to the extent that the portion or portions of the Demised Premises
sought to be sublet by Tenant are, in the sole discretion and determination of
Landlord, usable, rentable and with sufficient access, then Landlord, in the
event it elects to terminate as provided hereunder, shall only terminate the
Lease and recapture that portion of the Floor Space which is the subject of the
proposed sublease). If Landlord does not so terminate this Lease, and (if
Landlord consents to the subject transaction) if Tenant does not consummate the
subject transaction within sixty (60) days after the last day on which Landlord
might have so terminated this Lease as a result of such transaction, Tenant
shall again be required to comply with the provisions of this Section 11.08, in
connection with any such transaction as if the notice by Tenant referred to
above in this Section 11.08 had not been given. In the event Tenant enters into
a sublease permitted under this Section 11.08, Tenant hereby agrees to pay
Landlord, as Additional Rent, an amount equal to fifty percent (50%) of the
difference between the rent Tenant receives from any permitted sublessee of the
Demised Premises (less the following expenses expended in connection with same:
real estate brokerage commission, reasonable legal fees and reasonable
renovation costs) and the amount Tenant is required to pay Landlord as Fixed
Rent under this Lease; same to be paid by Tenant to Landlord on a monthly basis
throughout the Term.
ARTICLE 12 - COMPLIANCE WITH LAWS
12.01. Except as otherwise in this Lease provided, including but not
limited to any obligation of Landlord to comply with Legal Requirements, Tenant
shall comply with all Legal Requirements which shall, in respect of the Demised
Premises or the use and occupation thereof, or in respect of the abatement of
any nuisance created by Tenant in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
costs, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 12.01.
However, Tenant need not comply
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with any such law or requirement of any public authority so long as Tenant shall
be contesting the validity thereof, or the applicability thereof to the Demised
Premises, in accordance with Section 12.02.
12.02. Tenant may contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated, by reason of non-compliance or otherwise by reason of such contest; and
(b) such non-compliance or contest shall not constitute or result in any
violation of any Superior Lease or Superior Mortgage, or if any such Superior
Lease and/or Superior Mortgage shall permit such non-compliance or contest on
condition of the taking of action or furnishing of security by Landlord, such
action shall be taken and Tenant shall keep Landlord advised as to the status of
such proceedings. Without limiting the application of the above, Landlord shall
be deemed subject to prosecution for a crime if Landlord, or its managing agent,
or any officer, director, partner, shareholder or employee of Landlord or its
managing agent, as an individual, is charged with a crime of any kind or degree
whatsoever, whether by service of a summons or otherwise, unless such charge is
withdrawn before Landlord or its managing agent, or such officer, director,
partner, shareholder or employee of Landlord or its managing agent (as the case
may be) is required to plead or answer thereto.
12.03. Notwithstanding anything herein contained to the contrary Tenant
shall not be responsible to make any structural changes to the Building, the
Demised Premises, or the roof necessitated by the Legal Requirements unless said
structural change is imposed as a result of Tenant's specific use, occupancy, or
business operation in the Demised Premises.
ARTICLE 13 - INSURANCE AND INDEMNITY
13.01. Landlord shall maintain or cause to be maintained All Risk
insurance in respect of the Land, Building and other improvements on the Land
normally covered by such insurance (except for the property Tenant is required
to cover with insurance under Section 13.02 and similar property of other
tenants and occupants of the Building or buildings and other improvements which
are on land neither owned by nor leased to Landlord) for the benefit of
Landlord, any Superior Lessors, any Superior Mortgagees and any other parties
Landlord may at any time and from time to time designate, as their interests may
appear, but not for the benefit of Tenant, and shall maintain rent insurance as
required by any Superior Lessor or any Superior Mortgagee. The All Risk
insurance will be in the amounts
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required by any Superior Lessor or any Superior Mortgagee but not less than the
amount sufficient to avoid the effect of the co-insurance provisions of the
applicable policy or policies. Landlord may also maintain any other forms and
types of insurance which Landlord shall deem reasonable in respect to the
Building and Land. Landlord shall have the right to provide any insurance
maintained or caused to be maintained by it under blanket policies provided said
insurance is customarily maintained for similar type properties owned or
operated by Landlord.
13.02. Tenant shall maintain the following insurance: (a) comprehensive
general public liability insurance in respect of the Demised Premises and the
conduct and operation of business therein, with Landlord as an additional named
insured, and at Landlord's request with any Superior Lessors as additional named
insured(s), with limits of not less than $3,000,000 for bodily injury or death
to any one person and $5,000,000 for bodily injury or death to any number of
persons in any one occurrence, and $500,000 for property damage, including water
damage and sprinkler leakage legal liability, (b) All Risk insurance in respect
of Tenant's stock in trade, fixtures, furniture, furnishings, removable floor
coverings, equipment, signs and all other property of Tenant in the Demised
Premises in any amounts required by any Superior Lessor or any Superior
Mortgagee but not less than 80% of the full insurable value of the property
covered and not less than the amount sufficient to avoid the effect of the
co-insurance provisions of the applicable policy or policies, and (c) any other
insurance required for compliance with the Insurance Requirements. Landlord may,
at any time and from time to time (but upon reasonable prior notice), require
that the limits for the comprehensive general public liability insurance to be
maintained by Tenant be increased to the limits that new Tenants in the Building
are required by Landlord to maintain for similar uses. Tenant shall deliver to
Landlord and any additional named insured(s) certificates for such fully
paid-for policies on or before the Commencement Date. Tenant shall procure and
pay for renewals of such insurance from time to time before the expiration
thereof, and Tenant shall deliver to Landlord and any additional insured(s)
certificates therefor at least thirty (30) days before the expiration of any
existing policy. All such policies shall be issued by companies of recognized
responsibility licensed to do business in New Jersey, and all such policies
shall contain a provision whereby the same cannot be cancelled unless Landlord
and any additional insured(s) are given at least twenty (20) days' prior written
notice of such cancellation.
13.03. Tenant shall not do, permit or suffer to be done any act, matter,
thing or failure to act in respect of the Demised Premises or use or occupy the
Demised Premises or conduct or operate Tenant's business in any manner so as to
cause any insurance company or companies issuing the fire insurance or any other
insurance then in
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effect in respect to the Land and Building or any part thereof shall become void
or suspended or whereby any premiums in respect of insurance maintained by
Landlord shall be higher than those which would normally have been in effect for
the occupancy contemplated under the Permitted Uses. In case of a breach of the
provisions of this Section 13.03, in addition to all other rights and remedies
of Landlord hereunder, Tenant shall (a) indemnify Landlord and the Superior
Lessors and hold Landlord and the Superior Lessors harmless from and against any
loss which would have been covered by insurance which shall have become void or
suspended because of such breach by Tenant and (b) pay to Landlord any and all
increases of premiums on any insurance, including, without limitation, rent
insurance, resulting from any such breach.
13.04. Tenant shall indemnify and hold harmless Landlord and all Superior
Lessors and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any and all claims
arising from or in connection with (a) the conduct or management of the Demised
Premises or of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in the Demised Premises during
the Term; (b) any act, omission or negligence of Tenant or any of its subtenants
or licensees or its or their partners, joint ventures, directors, officers,
agents, employees or contractors during the Term or during the period of time,
if any, prior to the Commencement Date that Tenant may have been given access to
the Demised Premises; (c) any accident, injury or damage whatever (unless caused
solely by Landlord's negligence) occurring in the Demised Premises during the
Term; and (d) any breach or default by Tenant in the full and prompt payment and
performance of Tenant's obligations under this Lease; together with all costs,
expenses and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon, including, without limitation, all
attorneys' fees and expenses. In case any action or proceeding is brought
against Landlord and/or any Superior Lessor and/or its or their partners, joint
venturers, directors, officers, agents and/or employees by reason of any such
claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist
and defend such action or proceeding by counsel reasonably satisfactory to
Landlord.
13.05. Landlord shall indemnify and hold harmless Tenant and all Superior
Lessors and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any and all claims
arising from or in connection with (a) the conduct or management of that portion
of the Building and/or Common Areas for which Landlord is obligated to maintain
in accordance with this Lease ("Landlord's Area") or any work or thing
whatsoever done, or any condition created (other than by Tenant its employees,
agents or contractors) in the Landlord's Area during the Term or
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during the period of time, if any, prior to the Commencement Date that Landlord
may have had access to the Landlord's Area; (b) any act, omission or negligence
of Landlord or any of its licensees or its or their partners, joint venturers,
directors, officers, agents, employees or contractors; (c) any accident, injury
or damage whatever (unless caused solely by Tenant's negligence) occurring in
the Landlord's Area; and (d) any breach or default by Landlord in the
performance of Landlord's obligations under this Lease; together with all costs,
expenses and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon, including, without limitation, all
attorneys' fees and expenses. In case any action or proceeding is brought
against Tenant, its partners, joint venturers, directors, officers, agents
and/or employees by reason of any such claim, Landlord, upon notice from Tenant,
shall resist and defend such action or proceeding by counsel reasonably
satisfactory to Tenant.
13.06. Neither party shall be liable or responsible for, and each party
hereby releases the other from, all liability and responsibility to the other
and any person claiming by, through or under the other, by way of subrogation or
otherwise, for any injury, loss or damage to any person or property in or around
the Demised Premises or to the other's business covered by insurance carried or
required to be carried hereunder irrespective of the cause of such injury, loss
or damage, and each party shall require its insurers to include in all of such
party's insurance policies which could give rise to a right of subrogation
against the other a clause or endorsement whereby the insurer waives any rights
of subrogation against the other or permits the insured, prior to any loss, to
agree with a third party to waive any claim it may have against said third party
without invalidating the coverage under the insurance policy.
13.07. Notwithstanding anything herein contained to the contrary, Tenant
shall be permitted to self-insure for the insurance required to be carried under
Section 13.02(b) so long as all of the following conditions are met:
(i) Tenant shall deliver to Landlord on an annual basis a written
certification stating that Tenant is self-insured to the limits
required hereunder, or the amounts, if any, of excess coverage
insured by a third party carrier;
(ii) Landlord shall be entitled to all the rights and benefits under such
self-insurance as would have been available to Landlord had Tenant
insured with a third party carrier;
(iii) Tenant shall deliver to Landlord certificates for coverage in excess
of the self-insured limits; and
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(iv) There shall not have been a material adverse change in Tenant's
financial condition since the date hereof.
In the event Tenant ceases to self-insure, Tenant shall so notify Landlord at
least sixty (60) days in advance of the termination of self-insurance and Tenant
shall obtain the policies required pursuant to this Article and deliver
insurance certificates to Landlord at least thirty (30) days in advance of the
termination of self-insurance.
ARTICLE 14 - RULES AND REGULATIONS
14.01. Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations and such reasonable changes therein
(whether by modification, elimination or addition) as Landlord at any time or
times hereafter may make and communicate to Tenant, which in Landlord's
reasonable judgment, shall be necessary for the reputation, safety, care or
appearance of the Land and Building, or the preservation of good order therein,
or the operation or maintenance of the Building or its equipment and fixtures,
or the Common Areas, and which do not affect the conduct of Tenant's business in
the Demised Premises; provided, however, that in case of any conflict or
inconsistency between the provisions of this Lease and any of the Rules and
Regulations, the provisions of this Lease shall control. Nothing in this Lease
contained shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations against any other tenant or any employees or
agents of any other tenant, and Landlord shall not be liable to Tenant for
violation of the Rules and Regulations by any other tenant or its employees,
agents, invitees or licensees.
ARTICLE 15 - ALTERATIONS AND SIGNS
15.01. Tenant shall not make any structural alterations or additions to
the Demised Premises or modification to the Building systems, or make any holes
or cuts in the walls, ceilings, roofs, or floors thereof, or change the exterior
color or architectural treatment of the Demised Premises, without on each
occasion first obtaining the consent of Landlord which consent shall not be
unreasonably withheld or delayed. Tenant shall submit to Landlord plans and
specifications for such work at the time Landlord's consent is sought. Tenant
shall pay to Landlord upon demand the reasonable out-of-pocket cost and expense
of Landlord in (a) reviewing said plans and specifications and (b) inspecting
the alterations to determine whether the same are being performed in accordance
with the approved plans and specifications and all Legal Requirements and
Insurance Requirements, including, without limitation, the fees of any architect
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or engineer employed by Landlord for such purpose. Before proceeding with any
permitted alteration which will cost more than Two Hundred Fifty Thousand and
00/100 Dollars ($250,000.00) (exclusive of the costs of decorating work and
items constituting Tenant's Property), as estimated by a reputable contractor
designated by Landlord, Tenant shall obtain and deliver to Landlord such
security as shall be reasonably satisfactory to Landlord. Tenant shall fully and
promptly comply with and observe the Rules and Regulations then in force in
respect of the making of alterations. Any review or approval by Landlord of any
plans and/or specifications with respect to any alterations is solely for
Landlord's benefit, and without any representation or warranty whatsoever to
Tenant in respect to the adequacy, correctness or efficiency thereof or
otherwise, provided, however, to the extent Tenant obtains the consent or
approval of Landlord in connection with any such alteration, Tenant can rely on
such approval for "consent" purposes as required hereunder. The provisions of
this Section 15.01 shall not apply to Landlord's Work or any of the initial
improvements performed by Tenant in connection with the fit-up of Demised
Premises (so long as Landlord is on notice of same). Tenant shall have the right
to install racking and/or shelving in the Demised Premises, provided however,
Tenant shall comply with the provisions of Section 15.02 in connection with such
racking and/or shelving and provided Tenant repairs all holes and other damage
to the Demised Premises attributable to said racking and/or shelving on or prior
to the expiration or other termination of this Lease.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance therewith and with all applicable Legal Requirements and
Insurance Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the better of (a) the original installations of the Building, or
(b) the then standards for the Building established by Landlord which standards
shall be uniformly applied to all tenants in circumstances similar to the
Tenant. Alterations shall be performed by contractors first reasonably approved
by Landlord; provided, however, that any alterations in or to the mechanical,
electrical, sanitary, heating, ventilating, air conditioning or other systems of
the Building shall be performed only by the contractor(s) designated by Landlord
and whose costs shall be reasonable and competitive for any such alteration.
Alterations shall be made in such manner as not to unreasonably interfere with
or delay and as not to impose any additional out of pocket expense upon Landlord
in the construction, maintenance, repair or operation of the Building; and if
any such additional expense shall be incurred by Landlord as a result of
Tenant's making of any alterations, Tenant shall pay any such additional expense
within thirty (30) days after presentation of
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itemized bills therefor. Throughout the making of alterations, Tenant shall
carry, or cause to be carried, workmen's compensation insurance in statutory
limits and general liability insurance, with completed operation endorsement,
for any occurrence in or about the Building, under which Landlord and its
managing agent and any Superior Lessor whose name and address shall previously
have been furnished to Tenant shall be named as parties insured, in such limits
as Landlord may reasonably require, with insurers reasonably satisfactory to
Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence
that such insurance is in effect at or before the commencement of alterations
and, on request, at reasonable intervals thereafter during the making of
alterations.
15.03. Tenant shall not place any signs on the roof, exterior walls or
grounds of the Demised Premises without first obtaining Landlord's written
consent thereto. In placing any signs on or about the Demised Premises, Tenant
shall comply with the Legal Requirements and obtain all required permits and/or
licenses at its expense.
ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY
16.01. All fixtures, equipment, improvements and appurtenances attached to
or built into the Demised Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant, shall be and remain a part of the
Demised Premises, shall be deemed to be the property of Landlord and shall not
be removed by Tenant, except as provided in Section 16.02. Further, any
carpeting or other personal property in the Demised Premises on the Commencement
Date, unless installed and paid for by Tenant, shall be and shall remain
Landlord's property and shall not be removed by Tenant.
16.02. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of the Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Demised Premises, the
Building or the Common Areas resulting from the installation and/or removal
thereof. Except as otherwise provided herein, any equipment or other property
which shall not be deemed to have been installed by or for the account of Tenant
without expense to Landlord, shall not be considered as the Tenant's Property
and shall be deemed the property of Landlord.
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16.03. At or before the Expiration Date or the date of any earlier
termination of this Lease, or within thirty (30) days after such an earlier
termination date, Tenant shall remove from the Demised Premises all of the
Tenant's Property and Tenant shall repair any damage to the Demised Premises,
the Building and the Common Areas resulting from any installation and/or removal
of the Tenant's Property. Any items of the Tenant's Property which shall remain
in the Demised Premises after the Expiration Date or after a period of twenty
(20) days following an earlier termination date, may, at the option of Landlord,
be deemed to have been abandoned, and in such case such items may be retained by
Landlord as its property or disposed of by Landlord, without accountability, in
such manner as Landlord shall determine at Tenant's Expense.
ARTICLE 17 - REPAIRS AND MAINTENANCE
17.01. Tenant shall, throughout the Term, take good care of the Demised
Premises, the fixtures and appurtenances therein, and shall not do, suffer, or
permit any waste with respect thereto. Tenant shall be responsible for all
repairs, interior and exterior, structural and nonstructural, in and to the
Demised Premises, and the Building (including the facilities, and systems
thereof) and the Common Areas the need for which arises out of (a) the
performance or existence of the Tenant's Work or alterations, (b) the
installation, use or operation of the Tenant's Property in the Demised Premises,
(c) the moving of the Tenant's Property in or out of the Building, or (d) any
act not reasonably contemplated by the Permitted Uses, omission not reasonably
contemplated by the Permitted Uses, misuse or neglect of Tenant or any of its
subtenants or its or their employees, agents, contractors or invitees. In
addition, Tenant shall keep and maintain all interior portions of the Demised
Premises including, without limitation; all building equipment, windows, doors,
loading bay doors and shelters, plumbing and electrical systems, heating,
ventilating and air conditioning ("HVAC") systems in a clean and orderly
condition. The phrase "keep and maintain" as used herein includes repairs,
replacement and/or restoration as appropriate. Tenant shall not permit or suffer
the over-loading of the floors of the Premises beyond Two Hundred Fifty (250)
pounds per square foot. Tenant shall promptly replace all scratched, damaged or
broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make all repairs in or to the Demised Premises for which Tenant is responsible,
and any repairs required to be made by Tenant to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other systems of the
Building shall be performed
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only by contractor(s) designated by Landlord (and whose rates shall be
reasonable and competitive).
17.02. Landlord shall be responsible for all repairs, maintenance and
replacement in and to the Building (including all structural components of the
Building, i.e. structural walls, foundation and load bearing columns, facilities
and systems thereof), except for those repairs and maintenance for which Tenant
is responsible pursuant to any of the provisions of this Lease.
17.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's doing any repairs, maintenance, or changes which Landlord is required
or permitted by this Lease, or required by Law, to make in or to any portion of
the Building.
17.04. Landlord shall also be responsible for the repair, maintenance and
replacement of the roof for the Term and Tenant shall pay Landlord's cost for
the repair, replacement and maintenance of the roof as an element of Tenant's
Operating Expenses. Landlord hereby estimates that the annual cost for
Landlord's repair, replacement and maintenance of the roof above the Demised
Premises shall be approximately three cents ($.03) per square foot multiplied by
the Floor Space of the Demised Premises. Tenant understands and agrees that this
figure is merely a good faith estimate and shall not obligate Landlord in any
manner. Tenant shall pay Landlord, an amount for such repair, replacement, and
maintenance which is the actual annual cost to Landlord for such maintenance,
repair and replacement of the roof provided, however, in no event shall Tenant
be responsible for Landlord's cost for the repair, replacement or maintenance of
the roof in excess of the four cents ($.04) per square foot as increased, on an
annual basis throughout the Term, by one hundred percent (100%) of the yearly
change in the Consumer Price Index. "Consumer Price Index," as that term is used
herein shall mean The Consumer Price Index for All Urban Consumers, All Items,
New York, New York-Northeastern New Jersey, published by the Bureau of Labor
Statistics of the United States Department of Labor or substitute index properly
adjusted.
17.05. Notwithstanding the foregoing, if Landlord has not commenced repair
or maintenance work for which Landlord is responsible within thirty (30) days
after written notice (or such shorter period in emergencies or as a result of an
Unavoidable Delay) from Tenant, then Tenant shall have the right to make such
repairs and Landlord shall reimburse Tenant the reasonable cost thereof within
thirty (30) days after receipt of a bill therefor from Tenant.
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17.06. Notwithstanding the foregoing, Tenant shall not be required to do
any structural work or any other work which under the terms of this Lease is the
responsibility of Landlord.
17.07. Landlord shall make the repairs provided for herein with due
diligence and due care in a good and workmanlike manner in compliance with all
applicable Legal Requirements, Insurance Requirements and shall use all
reasonable efforts to cause minimal interference with Tenant's use of the
Demised Premises during the making of such repairs. Landlord shall promptly
restore any damage to any portion of the Demised Premises resulting from any
acts, faults, default or negligence of Landlord, its agents, servants, employees
or contractors in connection with such repair.
ARTICLE 18 - PUBLIC UTILITY CHARGES
18.01. Tenant shall purchase the electric energy required by it in the
Demised Premises at its own expense on a direct-metered basis from the public
utility servicing the Building, and Landlord shall permit the risers, conduits
and feeders in the Building, to the extent available, suitable and safely
capable, to be used for the purpose of transmitting such electric energy to the
Demised Premises. Landlord shall not be liable for any failure, inadequacy or
defect in the character or supply of electric current furnished to the Demised
Premises except for actual damage suffered by Tenant by reason of any such
failure, inadequacy or defect caused by the negligence of Landlord. If Landlord
is permitted by law to provide electric energy to the Demised Premises by
re-registering meters or otherwise and to collect any charges for electric
energy, Landlord shall have the right to do so, in which event Tenant shall pay
to Landlord upon receipt of bills therefor charges for electric energy provided
the rates for such electric energy shall not be more than the rates Tenant would
be charged for electric energy if furnished directly to Tenant by the public
utility which would otherwise have furnished electric energy. (The cost of any
conversion as provided hereinabove shall be borne by Landlord.)
18.02. Tenant's use of electric energy in the Demised Premises shall not
at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. In order to insure that
such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld), connect any
fixtures, appliances or equipment to the Building's electric distribution system
or make any alteration or addition to the electric system of the Demised
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Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant to Landlord on demand.
18.03. Tenant shall have the right to use all existing wires, feeders,
lines, conduits and all other utility equipment existing in the Demised Premises
without charge for the provision of utility service to the Demised Premises.
18.04. Tenant shall have the right, upon reasonable notice to Landlord
from time-to-time during the Term to inspect and test all meters measuring
utility service to the Demised Premises for accuracy.
18.05. Landlord shall install the heating, ventilating and
air-conditioning systems ("HVAC") serving the Demised Premises in accordance
with Exhibit C-2, the Landlord's Design Criteria.
18.06. Landlord hereby represents that the electric capacity of the
Demised Premises is 300 Amps - 265/460 Volts.
ARTICLE 19 - ACCESS, CHANGES AND NAME
19.01. Except for the space within the inside surfaces of all walls, hung
ceilings (if any), floors, windows and doors bounding the Demised Premises, all
of the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities and the use thereof, as well
as access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved to Landlord. Landlord also
reserves the right, to install, erect, use and maintain pipes, ducts and
conduits in and through the Demised Premises, provided such are properly
enclosed, and are below the floors, in the walls, or above hung ceilings.
19.02. Landlord and its agents shall have the right to enter and/or pass
through the Demised Premises at reasonable times and on reasonable advance
notice (except in the event of an emergency when no notice is required) (a) to
examine the Demised Premises and to show them to actual and prospective Superior
Lessors, Superior Mortgagees, or prospective purchasers of the Building, and (b)
to make such repairs, alterations, additions and improvements in or to the
Demised Premises and/or in or to the Building or its facilities and equipment as
Landlord is required or desires to make. Landlord shall be allowed to take all
materials into and upon the Demised Premises that may be
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required in connection therewith, without any liability to Tenant and without
any reduction of Tenant's obligations hereunder provided, however, Landlord
agrees to store said materials in an area mutually agreed upon by Landlord and
Tenant and provided same is for a reasonable period of time. During the period
of nine (9) months prior to the Expiration Date, Landlord and its agents may
exhibit the Demised Premises to prospective tenants (provided said exhibition is
upon prior notice and during regular Business Hours). Landlord agrees to use its
best efforts to minimize any interference with Tenant's business operation in
connection with the rights granted to Landlord hereunder.
19.03. If at any time any windows of the Demised Premises are temporarily
darkened or obstructed by reason of any repairs, improvements, maintenance
and/or cleaning in or about the Building, or if any part of the Building or the
Common Areas, other than the Demised Premises, is temporarily or permanently
closed or inoperable, the same shall not be deemed a constructive eviction and
shall not result in any reduction or diminution of Tenant's obligations under
this Lease.
19.04. (Deleted)
19.05. Landlord reserves the right, at any time and from time to time, to
make such changes, alterations, additions and improvements in or to the Building
but not the Demised Premises and the fixtures and equipment thereof as Landlord
shall deem necessary or desirable, subject to the other terms and conditions of
this Lease.
19.06. Landlord may adopt any name for the Building. Landlord reserves the
right to change the name and/or address of the Building at any time.
ARTICLE 20 - MECHANICS' LIENS AND OTHER LIENS
20.01. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to subject
Landlord's interest or estate to any liability under any mechanic's or other
lien law. If any mechanic's or other lien or any notice of intention to file a
lien is filed against the Land, or any part thereof, or the Demised Premises, or
any part thereof, for any work, labor, service or materials claimed to have been
performed or furnished for or on behalf of Tenant or anyone holding any part of
the Demised Premises through or under Tenant, Tenant shall cause the same to be
cancelled and discharged of record by payment, bond or order of a court of
competent jurisdiction within twenty (20) days after notice by Landlord to
Tenant.
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ARTICLE 21 - NON-LIABILITY
21.01. Neither Landlord nor any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other Person, or to its or their
property, irrespective of the cause of such injury, damage or loss, unless
caused by or resulting from the negligence of Landlord, its agents, servants or
employees in the operation or maintenance of the Land or Building. Further,
neither Landlord nor any partner, joint venturer, director, officer, agent,
servant or employee of Landlord shall be liable (a) for any such damage caused
by other tenants or Persons in, upon or about the Land or Building, or caused by
operations in construction of any private, public or quasi-public work; or (b)
even if negligent, for consequential damages arising out of any loss of use of
the Demised Premises or any equipment or facilities therein by Tenant or any
Person claiming through or under Tenant.
21.02. Notwithstanding any provision to the contrary, Tenant shall look
solely to the interest, estate and equity in the property of Landlord in and to
the Land and Building (or the proceeds received by Landlord on a sale of such
estate and property including the proceeds of any financing or refinancing
thereof) in the event of any claim against Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant or Tenant's
use of the Demised Premises or the Common Areas, and Tenant agrees that the
liability of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas shall be limited to such interest, estate and equity in the
property of Landlord (or the proceeds received by Landlord on a sale of such
estate and property including the proceeds of any financing or refinancing
thereof). No other properties or assets of Landlord or any partner, joint
venturer, director, officer, agent, servant or employee of Landlord shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of any judgement (or other judicial process) or for the satisfaction of any
other remedy of Tenant arising out of, or in connection with, this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas and if Tenant shall acquire a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
acknowledging and delivering to Landlord an instrument to that effect prepared
by Landlord's attorneys. Tenant hereby waives the right of specific performance
and any other remedy allowed in equity if specific performance or such other
remedy could result in any liability of Landlord for the payment of money to
Tenant, or to any court or governmental authority (by way of fines or otherwise)
for Landlord's
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failure or refusal to observe a judicial decree or determination, or to any
third party.
ARTICLE 22 - DAMAGE OR DESTRUCTION
22.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as in this Article 22 hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property) with reasonable dispatch after
notice to it of the damage or destruction.
22.02. Subject to the provisions of Section 22.05, if all or part of the
Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised Premises,
for the period from the date of the damage or destruction to (a) the date the
damage to the Demised Premises shall be substantially repaired, or (b) if the
Building and not the Demised Premises is so damaged or destroyed, the date on
which the Demised Premises shall be made tenantable (provided Tenant has access
to the Demised Premises and the condition of the balance of the Building [and
parking] does not affect, in Tenant's reasonable business judgment, Tenant's
ability to conduct it's business); provided, however, should Tenant reoccupy a
portion of the Demised Premises during the period the repair or restoration work
is taking place and prior to the date that the Demised Premises are
substantially repaired or made tenantable the Rent allocable to such reoccupied
portion, based upon the proportion which the area of the reoccupied portion of
the Demised Premises bears to the total area of the Demised Premises, shall be
payable by Tenant from the date of such occupancy.
22.03. (A) If (a) the Demised Premises shall be totally damaged or
destroyed by fire or other casualty, or (b) the Demised Premises shall be so
damaged or destroyed by fire or other casualty that its repair or restoration
requires the expenditure, as estimated by a reputable contractor or architect
designated by Landlord, of more than fifty percent (50%) [or twenty percent
[20%] if such casualty occurs during the last two [2] years of the Term (unless
Tenant exercises any option to extend as provided in this Lease, in which event
the fifty percent (50%) figure shall apply)] of the full insurable value of the
Demised Premises immediately prior to the casualty, then in either such case
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the fire or other casualty.
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(B) If during the last two (2) years of the Term, the Demised
Premises shall be so damaged or destroyed by fire or other casualty that its
repair or restoration requires the expenditure, as estimated by a reputable
contractor or architect designated by Landlord, of more than twenty percent
(20%) of the full insurable value of the Demised Premises immediately prior to
the casualty, then Tenant may terminate this Lease by giving Landlord notice to
such effect within ninety (90) days after the date of the fire or other
casualty.
(C) Notwithstanding anything herein contained to the contrary, in
the event Landlord is obligated to restore the Demised Premises in accordance
with this Article 22, Landlord shall advise Tenant, by written notice to be
given within thirty (30) days of any casualty, whether Landlord shall be able to
restore the Demised Premises to a tenantable condition within twelve (12) months
from the date of such casualty. In the event Landlord advises Tenant that it is
unable to restore the Demised Premises within twelve (12) months of such
casualty, Tenant shall have the option to terminate this Lease, by written
notice to Landlord to that effect, which termination shall be effective upon
Landlord's receipt of Tenant's notice of termination. To the extent that (i)
Landlord advises Tenant that it shall restore the Demised Premises as provided
hereinabove, and (ii) the Demised Premises are not restored to a tenantable
condition within said twelve (12) month period from the date of any casualty
(subject to Unavoidable Delays), then Tenant shall have the option to terminate
this Lease by written notice to Landlord to that effect which termination shall
be effective upon Landlord's receipt of Tenant's notice as provided hereunder.
Tenant must exercise its option hereunder within ten (10) days of the date which
is the twelve (12) month anniversary of any such casualty; to the extent Tenant
fails to exercise said option within the time constraints provided herein, it
shall be deemed to have waived such option.
22.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 22.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as to not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Business Hours on Business Days.
22.05. Notwithstanding any of the foregoing provisions of this Article 24,
if by reason of some act or omission on the part of Tenant or any of its
subtenants or its or their employees, agents or
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contractors, Landlord or any Superior Lessor or any Superior Mortgagee shall be
unable to collect all of the insurance proceeds (including, without limitation,
rent insurance proceeds) applicable to damage or destruction of the Demised
Premises or the Building by fire or other casualty, then, without prejudice to
any other remedies which may be available against Tenant, there shall be no
abatement or reduction of the Rent. Further, nothing contained in this Article
22 shall relieve Tenant from any liability that may exist as a result of any
damage or destruction by fire or other casualty.
22.06. Landlord will not carry insurance of any kind on the Tenant's
Property, and, except as provided by law or by reason of Landlord's breach of
any of its obligations hereunder, shall not be obligated to repair any damage to
or replace the Tenant's Property.
22.07. The provisions of this Article 22 shall be deemed an express
agreement governing any case of damage or destruction of the Demised Premises
and/or Building by fire or other casualty, and any law providing for such a
contingency in the absence of an express agreement, now or hereafter in force,
shall have no application in such case.
ARTICLE 23 - EMINENT DOMAIN
23.01 If the whole of the Demised Premises shall be taken by any public or
quasi-public authority under the power of condemnation, eminent domain or
expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If twenty percent (20%) or less of the Floor
Space of the Demised Premises shall be so taken or conveyed, this Lease shall
terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority. If more than twenty percent (20%)
of the Floor Space of the Demised Premises shall be so taken or conveyed, this
Lease shall terminate only in respect of the part so taken or conveyed as of the
day possession shall be taken by such authority, but either party shall have the
right to terminate this Lease upon notice given to the other party within 30
days after such taking possession. If so much of the parking facilities shall be
so taken or conveyed that the number of parking spaces necessary, in Tenant's
reasonable business judgment, for the continued operation of the Tenant's
business operation shall not be available, Tenant may, by notice to Landlord,
terminate this Lease which termination shall be effective as of the day
possession shall be taken. If this Lease shall continue in effect as to any
portion of the Demised Premises not so taken or conveyed, the Rent shall be
computed as of the day possession shall be taken on the basis of the remaining
Floor Space of the Demised Premises. Except as specifically provided herein, in
the event of any such taking or conveyance there shall be no reduction in Rent.
If this Lease shall continue in effect, Landlord shall, at its
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expense, but shall be obligated only to the extent of the net award or other
compensation (after deducting all expenses in connection with obtaining same)
available to Landlord for the improvements taken or conveyed (excluding any
award or other compensation for land or for the unexpired portion of the term of
any Superior Lease), make all necessary alterations so as to constitute the
remaining Building a complete architectural and tenantable unit, except for the
Tenants' property, and Tenant shall make all alterations or replacements to the
Tenant's Property and decorations in the Demised Premises. All awards and
compensation for any taking or conveyance, whether for the whole or a part of
the Land or Building, the Demised Premised or otherwise, shall be property of
Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and
interest in and to any and all such awards and compensation, including, without
limitation, any award or compensation for the value of the unexpired portion of
the Term. Tenant shall be entitled to claim, prove and receive in the
condemnation proceeding such award or compensation as may be allowed for the
Tenant's property, or other expenses to the extent permitted by law.
23.02. If the temporary use or occupancy of all or any part of the Demised
Premises shall be taken during the Term, Tenant shall be entitled, except as
hereinafter set forth, to receive that portion of the award or payment for such
taking which represents compensation for the use and occupancy of the Demised
Premises, for the taking of the Tenant's Property and for moving expenses, and
Landlord shall be entitled to receive that portion which represents
reimbursement for the cost of restoration of the Demised Premises. This Lease
shall be and remain unaffected by such taking and Tenant shall continue
responsible for all of its obligations hereunder insofar as such obligations are
not affected by such taking and shall continue to pay the Rent in full when due.
If the period of temporary use or occupancy shall extend beyond the Expiration
Date, that part of the award or payment which represents compensation for the
use and occupancy of the Demised Premises (or a part thereof) shall be divided
between Landlord and Tenant so that Tenant shall receive (except as otherwise
provided below) so much thereof as represents compensation for the period up to
and including the Expiration Date and Landlord shall receive so much thereof as
represents compensation for the period after the Expiration Date. All monies to
be paid to Tenant as, or as part of, an award or payment for temporary use and
occupancy for a period beyond the date to which the Rent has been paid shall be
received, held and applied by the first Superior Mortgagee (or if there is no
Superior Mortgagee, by Landlord as a trust fund) for payment of the Rent
becoming due hereunder.
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ARTICLE 24 - SURRENDER
24.01. On the Expiration Date, or upon any earlier termination of this
Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall
quit and surrender the Demised Premises to Landlord "broom-clean" and in
reasonably good order, condition and repair, except for ordinary wear and tear
and such damage or destruction as Landlord is required to repair or restore
under this Lease, and Tenant shall remove all of Tenant's property therefrom
except as otherwise expressly provided in this Lease.
24.02. If Tenant remains in possession of the Demised Premises after the
expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises as a tenant from month to month at the sufferance of Landlord subject
to all of the provisions of this Lease, except that the monthly Fixed Rent shall
be twice the Fixed Rent in effect during the last month of the Term.
24.03. No act or thing done by Landlord or its agents shall be deemed an
acceptance of a surrender of the Demised Premises, and no agreement to accept
such surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 25 - CONDITIONS OF LIMITATION
25.01. This Lease is subject to the limitation that whenever Tenant or any
Guarantor (a) shall make an assignment for the benefit of creditors, or (b)
shall commence a voluntary case or have entered against it an order for relief
under any chapter of the Federal Bankruptcy Code (Title 11 of the United States
Code) or any similar order or decree under any federal or state law, now in
existence, or hereafter enacted having the same general purpose, and such order
or decree, shall have not been stayed or vacated within ninety (90) days after
entry, or (c) shall cause, suffer, permit or consent to the appointment of a
receiver, trustee, administrator, conservator, sequestrator, liquidator or
similar official in any federal, state or foreign judicial or nonjudicial
proceeding, to hold, administer and/or liquidate all or substantially all of its
assets, and such appointment shall not have been revoked, terminated, stayed or
vacated and such official discharged of his duties within ninety (90) days of
his appointment and (in each such case), at the same time, Tenant fails to
fulfill any of its obligations under this Lease, then Landlord, at any time
after the occurrence of any such event, may give Tenant a notice of intention to
end the Term at the expiration of five (5) days from the date of service of such
notice of intention, and upon the expiration of said five (5) day period,
whether or not the Term shall theretofore have commenced, this Lease shall
terminate with the same effect as if that day were the expiration date of this
Lease, but Tenant shall remain liable for damages as provided in Article 27.
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25.02. This Lease is subject to the further limitations that: (a) if
Tenant shall default in the payment of any Rent, and such default shall continue
for ten (10) days after notice or (b) if Tenant shall, whether by action or
inaction, be in default of any of its obligations under this Lease (other than a
default in the payment of Rent) and such default shall continue and not be
remedied within twenty (20) days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a default which cannot with due
diligence be cured within a period of twenty (20) days and the continuance of
which for the period required for cure will not subject Landlord or any Superior
Lessor for prosecution for a crime (as more particularly described in the last
sentence of Section 12.02) or termination of any Superior Lease or foreclosure
of any Superior Mortgage, if Tenant shall not, (i) within said twenty (20) day
period advise Landlord of Tenant's intention to take all steps necessary to
remedy such default, (ii) duly commence within said twenty (20) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
default, and (iii) complete such remedy within a reasonable time after the date
of said notice by Landlord, or (c) if any event shall occur or any contingency
shall arise whereby this Lease would, by operation of law or otherwise, devolve
upon or pass to any person, firm or corporation other than Tenant, except as
expressly permitted by Article 11, then in any of said cases Landlord may give
to Tenant a notice of intention to end the Term at the expiration of five (5)
days from the date of the service of such notice of intention, and upon the
expiration of said five (5) days, whether or not the Term shall theretofore have
commenced, this Lease shall terminate with the same effect as if that day were
the expiration date of this Lease, but Tenant shall remain liable for damages as
provided in Article 27.
ARTICLE 26 - RE-ENTRY BY LANDLORD
26.01. If Tenant shall default in the payment of any Rent, and such
default shall continue for ten (10) days after notice, or if this Lease shall
terminate as provided in Article 25, Landlord or Landlord's agents and employees
may immediately or at any time thereafter re-enter the Demised Premises, or any
part thereof, either by summary dispossess proceedings or by any suitable action
or proceeding at law without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any Person therefrom, to
the end that Landlord may have, hold and enjoy the Demised Premises. The word
"re-enter," as used herein, is not restricted to its technical legal meaning. If
this Lease is terminated under the provisions of Article 25, or if Landlord
shall re-enter the Demised Premises under the provisions of this Article 26, or
in the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceedings or action or any
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provision of law by reason of default hereunder on the part of Tenant, Tenant
shall thereupon pay to Landlord the Rent payable up to the time of such
termination of this Lease, or of such recovery of possession of the Demised
Premises by Landlord, as the case may be, and shall also pay to Landlord damages
as provided in Article 27.
26.02. In the event of a breach or threatened breach by Landlord or Tenant
as the case may be, of any of its obligations under this Lease, Landlord or
Tenant, as the case may be, shall also have the right of injunction. The special
remedies to which Landlord or Tenant, as the case may be, may resort hereunder
are cumulative and are not intended to be exclusive of any other remedies to
which Landlord or Tenant, as the case may be, may lawfully be entitled at any
time and Landlord or Tenant, as the case may be, may invoke any remedy allowed
at law or in equity as if specific remedies were not provided for herein.
26.03. If this Lease shall terminate under the provisions of Article 25,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article 26, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to, retain all monies, if any, paid by Tenant to Landlord, whether as
Advance Rent, security or otherwise, but such monies shall be credited by
Landlord against any Rent or other sum due from Tenant at the time of such
termination or re-entry or, at Landlord's option, against any damages payable by
Tenant under Article 27 or pursuant to law.
ARTICLE 27 - DAMAGES
27.01. If this Lease is terminated under the provisions of Article 25, or
if Landlord shall re-enter the Demised Premises under the provisions of Article
26, or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other legal proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Tenant
shall pay as Additional Charges to Landlord as a condition precedent to the
dismissal of any summary dispossess or other proceeding or action as liquidated
damages:
sums equal to the Fixed Rent and the Additional Charges which would
have been payable by Tenant had this Lease not so terminated, or had
Landlord not so re-entered the Demised Premises, payable upon the
due dates therefor specified herein following such termination or
such re-entry and until the Expiration Date, provided, however, that
if Landlord shall relet the Demised Premises during said period,
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Landlord shall credit Tenant with the net rents received by Landlord
from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from
such reletting the expenses incurred or paid by Landlord in
terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the reasonable expenses of
reletting, including, without limitation, altering and preparing the
Demised Premises for new tenants, brokers' commissions, legal fees,
and all other expenses properly chargeable against the Demised
Premises and the rental therefrom, it being understood that any such
reletting may be for a period shorter or longer than the period
ending on the Expiration Date; but in no event shall Tenant be
entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder, nor shall Tenant be
entitled in any suit for the collection of damages pursuant to this
Section to a credit in respect of any rents from a reletting, except
to the extent that such net rents are actually received by Landlord.
If the Demised Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square
foot basis shall be made of the rent received from such reletting
and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting. Landlord shall not be liable in any way
whatsoever for its failure or refusal to relet the Demised Premises or any part
thereof, or if the Demised Premises or any part thereof are relet, for its
failure to collect the rent under such reletting, and no such refusal or failure
to relet or failure to collect rent shall release or affect Tenant's liability
for damages or otherwise under this Lease.
27.02. Suit or suits for the recovery of such damages or, any installments
thereof, may be brought by Landlord at any time and from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 25, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant.
27.03. (Deleted)
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27.04. In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under this Article 27, if any Rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) days after demand that such
amount was not paid when due, the same shall bear interest at the Late Payment
Rate or the maximum rate permitted by law, whichever is less, from the due date
thereof until paid, and the amounts of such interest shall be Additional Charges
hereunder.
ARTICLE 28 - AFFIRMATIVE WAIVERS
28.01. (Deleted)
28.02. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including, without limitation, any
claim for injury or damage, and any emergency and other statutory remedy with
respect thereto.
ARTICLE 29 - NO WAIVERS
29.01. The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 30 - CURING TENANT'S DEFAULTS
30.01. If either Landlord or Tenant shall default in the performance of
any of their respective obligations under this Lease, the non-defaulting party,
without thereby waiving such default, may (but shall not be obligated to)
perform the same for the account and at the expense of the defaulting party,
without notice in a case of emergency, and in any other case only if such
default continues after the expiration of thirty (30) days from the date the
non-defaulting party gives the defaulting party notice of the default. Bills for
any expenses incurred by the non-defaulting party in connection with any such
performance by it for the account of the defaulting party, and
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bills for all costs, expenses and disbursements of every kind and nature
whatsoever, including reasonable attorneys' fees and expenses, involved in
collecting or endeavoring to collect the Rent or any part thereof or enforcing
or endeavoring to enforce any rights against the defaulting party or the
defaulting parties' obligations hereunder, under or in connection with this
Lease or pursuant to law, including any such cost, expense and disbursement
involved in instituting and prosecuting summary proceedings or in recovering
possession of the Demised Premises after default by the defaulting party or upon
the expiration of the Term or sooner termination of this Lease, and interest on
all sums advanced by the non-defaulting party under this Article at the rate of
four percent (4%) per month or the maximum rate permitted by law, whichever is
less, may be sent by the non-defaulting party to the defaulting party monthly,
or immediately, at the non-defaulting party's option, and such amounts shall be
due and payable in accordance with the terms of such bills.
ARTICLE 31 - BROKER
31.01. Tenant and Landlord represent that no broker except the Broker was
instrumental in bringing about or consummating this Lease and that neither
Landlord nor Tenant had conversations or negotiations with any broker except the
Broker concerning the leasing of the Demised Premises. Tenant and Landlord
agrees to indemnify and hold harmless the other against and from any claims for
any brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, attorneys' fees and expenses, arising
out of any conversations or negotiations had by Tenant or Landlord with any
broker other than the Broker. Landlord shall pay any brokerage commissions due
the Broker pursuant to a separate agreement between Landlord and the Broker.
ARTICLE 32 - NOTICES
32.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered or sent by United States
registered or certified mail, return receipt requested, addressed to the other
party at the address hereinabove set forth as to Landlord, to the attention of
General Counsel with a concurrent Notice to the attention of Controller, and as
to Tenant, to the attention of Scott Galin, Senior Vice President with a
concurrent copy to the attention of the President and to the Guarantor,
Attention: Scott Galin, Senior Vice President at 520 Fifth Avenue, New York, New
York and shall be deemed to have been given, rendered or
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made on the third (3rd) day after the day so mailed, unless mailed outside the
State of New Jersey, in which case it shall be deemed to have been given,
rendered or made on the fourth (4th) business day after the day so mailed.
Either party may, by notice as aforesaid, designate a different address or
addresses for notices, statements, demands, consents, approvals or other
communications intended for it. Notice shall be deemed sufficient if directed
from the office of an attorney designated by the party giving notice to transmit
such notice provided said attorney includes in its notice a statement regarding
its authority to give any such notice.
ARTICLE 33 - ESTOPPEL CERTIFICATES
33.01. Each party shall, at any time and from time to time, as requested
by the other party, upon not less than twenty (20) days' prior notice, execute
and deliver to the requesting party a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge, and
stating whether or not, to the best knowledge of the party giving the statement,
any event has occurred which with the giving of notice or passage of time, or
both, would constitute such a default of the requesting party, and, if so,
specifying each such event; any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom such party may be dealing,
regardless of independent investigation. Tenant and Landlord shall include in
any such statement such other information concerning this Lease as the other may
reasonably request.
ARTICLE 34 - ARBITRATION
34.01. Landlord and Tenant may at any time request arbitration, of any
matter in dispute but only where arbitration is expressly provided for in this
Lease. The party requesting arbitration shall do so by giving notice to that
effect to the other party, specifying in said notice the nature of the dispute,
and said dispute shall be determined in Newark, New Jersey, by a single
arbitrator, in accordance with the rules then obtaining of the American
Arbitration Association (or any organization which is the successor thereto).
The award in such arbitration may be enforced on the application of either party
by the order or judgment of a court of competent jurisdiction.
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The fees and expenses of any arbitration shall be borne by the parties equally,
but each party shall bear the expense of its own attorneys and experts and the
additional expenses of presenting its own proof. If Tenant gives notice
requesting arbitration as provided in this Article, Tenant shall simultaneously
serve a duplicate of the notice on each Superior Mortgagee and Superior Lessor
whose name and address shall previously have been furnished to Tenant, and such
Superior Mortgagees and Superior Lessor shall have the right to participate in
such arbitration.
ARTICLE 35 - MEMORANDUM OF LEASE
35.01. Tenant shall not record this Lease. However, at the request of
Landlord or Tenant, Tenant or Landlord, as the case may be, shall promptly
execute, acknowledge and deliver to Landlord a memorandum of lease in respect of
this Lease sufficient for recording. Such memorandum shall not be deemed to
change or otherwise affect any of the obligations or provisions of this Lease.
Whichever party records such memorandum of Lease shall pay all recording costs
and expenses, including any taxes that are due upon such recording.
ARTICLE 36 - COMPLIANCE WITH ECRA
36.01. Landlord, to the best of its knowledge, warrants and represents to
Tenant that the Demised Premises are in full compliance with all applicable
present environmental laws, rules, requirements, orders, directives, ordinances
and regulations of the United States of America or any state, city or municipal
government or lawful authority having jurisdiction, affecting the Demised
Premises including but not limited to the New Jersey Environmental Cleanup
Responsibility Act, (the "Environmental Laws"). Landlord shall defend, indemnify
and save Tenant, its officers, directors, agents and employees, harmless from
and against all claims, obligations, demands, actions, proceedings and
judgements, loss, damage, liability and expense (including reasonable attorney's
fees and expenses) which the Tenant may sustain as a result of or on account of
non-compliance of the Leased Premises with the Environmental Laws as the result
of conditions existing on the Leased Premises (a) prior to the Commencement Date
and (b) which were caused by Landlord or by third parties other than Landlord or
Tenant either before or after the Commencement Date (except to the extent caused
by Tenant, its agents, invitees, employees or subcontractors).
36.02. Except as provided in Article 36.01. above, and except for any
violations of Legal Requirements existing prior to the date hereof or caused by
acts or omissions of Landlord, from and after the date of this Lease, Tenant
shall at Tenant's own cost and expense, timely comply with all applicable,
rules, requirements, orders,
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directives, ordinances and regulations arising from Tenant's use and occupancy
of the Demised Premises, including but not limited to the Environmental Laws of
the United States of America or of the state, county and city governments, or of
any other municipal, governmental or lawful authority whatsoever, having
jurisdiction affecting the Demised Premises and of all their departments,
bureaus or officials (all of the foregoing being hereinafter called
"Environmental Legal Requirements"), the Insurance Requirements as the same
shall be in force and shall relate to all or part of the Demised Premises, and
shall indemnify, defend, save and hold harmless Landlord, its directors,
officers, agents and employees from and against any and all claims, demands,
losses and liabilities (including reasonably attorneys' fees) resulting from or
with respect to any violation of the Environmental Legal Requirements or any
environmental impairment created during the Term of this Lease by Tenant, its
agents, invitees, employees or subcontractors, and Tenant shall, at its own
expense, complete the clean-up of such environmental impairment. Tenant's
obligation to comply with Article 36.02. shall be limited to restoration and/or
maintenance of the Demised Premises to their condition at the Commencement Date.
36.03. The provisions of this Article 36 shall survive the expiration or
termination of this Lease.
36.04. The parties hereto specifically agree that the indemnities of
Landlord and Tenant contained herein shall not extend to loss of business, lost
rentals, or consequential damages.
ARTICLE 37 - MISCELLANEOUS
37.01. Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement(s) which may be made between the parties concurrently with the
execution and delivery of this Lease. All understandings and agreements
heretofore had between the parties are merged in this Lease and any other
written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation. Neither party has relied upon any statement or
representation not embodied in this Lease or in any other written agreement(s)
made concurrently herewith.
37.02. No agreement shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
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37.03. (Deleted)
37.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights in any
successor or assignee of Tenant and (b) the provisions of this Section 37.04
shall not be construed as modifying the conditions of limitation contained in
Article 25.
37.05. Except for Tenant's obligations to pay Rent, the time for Landlord
or Tenant, as the case may be, to perform any of its respective obligations
hereunder shall be extended if and to the extent that the performance thereof
shall be prevented due to any Unavoidable Delays.
37.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration of the Term or
earlier termination of this Lease.
37.07. (a) If Tenant shall request Landlord's consent and Landlord shall
fail or refuse to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent, it being intended that Tenant's
sole remedy shall be an action for specific performance or injunction, and that
such remedy shall be available only in those cases where Landlord has expressly
agreed in writing not to unreasonably withhold its consent or where as a matter
of law Landlord may not unreasonably withhold its consent. Notwithstanding the
foregoing, the provisions of this Section 37.07 shall not apply in any instance
in which there has been a final judicial determination of a court of competent
jurisdiction that Landlord has withheld or delayed its consent arbitrarily,
maliciously or in bad faith to any consent which is not to be unreasonably
withheld or delayed under this Lease.
(b) If Tenant desires to determine any dispute between Landlord and
Tenant as to the reasonableness of Landlord's decision to refuse to consent or
approve any item as to which Landlord has specifically agreed that its consent
or approval shall not be unreasonably withheld, such dispute shall be settled
and finally determined by arbitration in the City of New York in accordance with
the following provisions of this Section. Within ten (10) Business Days next
following the giving of any notice by Tenant stating that it wishes such dispute
to be so determined, Landlord and Tenant shall each give notice to the other
setting forth the name and address of an arbitrator designated by the party
giving such notice. If the two arbitrators shall fail to agree upon the
designation of a third arbitrator within five (5) Business Days after the
designation of the
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second arbitrator then either party may apply to the Chairman of the Management
Division of the Real Estate Board of New York, Inc. for the designation of such
arbitrator and if he is unable or refuses to act within ten (10) Business Days
then either party may apply to the Supreme Court in New York County or to any
other court having jurisdiction for the designation of such arbitrator. The
three arbitrators shall conduct such hearings as they deem appropriate, making
their determination in writing and giving notice to Landlord and Tenant of their
determination as soon as practicable, and if possible, within five (5) Business
Days after the designation of the third arbitrator; the concurrence of or, in
the event no two of the arbitrators shall render a concurrent determination,
then the determination of the third arbitrator designated, shall be binding upon
Landlord and Tenant. Judgment upon any decision rendered in any arbitration held
pursuant to this subsection 37.07(b) shall be final and binding upon Landlord
and Tenant, whether or not a judgment shall be entered in any court. Each party
shall pay its own counsel fees and expenses, if any, in connection with any
arbitration under this subsection 37.07(b), including the expenses and fees of
any arbitrator selected by it in accordance with the provisions of this
Subsection 37.07(b), and the parties shall share all other expenses and fees of
any such arbitration. The arbitrators shall be bound by the provisions of this
Lease, and shall not add to, subtract from or otherwise modify such provisions.
The sole function of the arbitrators shall be to determine whether Landlord has
acted reasonably and to require Landlord to grant such consent or approval or to
take such action, and they may not award damages or grant any other monetary
award or relief in the proceeding.
37.08. Tenant shall not exercise its rights under Article 15 or any other
provision of this Lease in a manner which would violate Landlord's union
contracts (of which Tenant has notice) or create any work stoppage, picketing
labor disruption or dispute or any interference with the business of Landlord or
any tenant or occupant of the Building.
37.09. Tenant shall give prompt notice (after discovery) to Landlord of
(a) any occurrence in or about the Demised Premises for which Landlord might be
liable, (b) any fire or other casualty in the Demised Premises, (c) any damage
to or defect in the Demised Premises, including the fixtures and equipment
thereof, for the repair of which Landlord might be responsible, and (d) any
damage to or defect in any part of the Building's sanitary, electrical, heating,
ventilating, air-conditioning, elevator or other systems located in passing
through the Demised Premises or any part thereof.
37.10. This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey. If any provision of this Lease shall be
invalid or unenforceable, the remainder of this
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Lease shall not be affected and shall be enforced to the extent permitted by
law. The table of contents, captions, headings and titles in this Lease are
solely for convenience of reference and shall not affect its interpretation.
This Lease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Lease to be drafted. If
any words or phrases in this Lease shall have been stricken out or otherwise
eliminated, whether or not any other words or phrases have been added, this
Lease shall be construed as if the words or phrases so stricken out or otherwise
eliminated were never included in this Lease and no implication or inference
shall be drawn from the fact that said words or phrases were so stricken out or
otherwise eliminated. Each covenant, agreement, obligation or other provision of
this Lease on Tenant's part to be performed, shall be deemed and construed as a
separate and independent covenant of Tenant, not dependent on any other
provision of this Lease. All terms and words used in this Lease, regardless of
the number or gender in which they are used, shall be deemed to include any
other number and any other gender as the context may require.
37.11. Upon request of Landlord, Tenant shall annually furnish to Landlord
a copy of its then most current balance sheet certified by its Chief Financial
Officer which shall be employed by Landlord for purposes of financing the
Premises and not distributed otherwise without prior authorization of Tenant.
Any material adverse change of Tenant's financial condition shall be furnished
to Landlord in writing forthwith and without request by Landlord for same.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as
of the day and year first above written.
HARTZ-83RD STREET ASSOCIATES
("Landlord")
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
("a general partner")
By: /s/ Irwin A. Horowitz
-----------------------------
Irwin A. Horowitz
Vice President
[Corporate Seal]
G & G SHOPS OF WOODBRIDGE, INC.
("Tenant")
By: /s/ Scott Galin
--------------------------------
Scott Galin
Vice President
[Corporate Seal]
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RIDER TO LEASE DATED NOVEMBER 28th, 1988 BETWEEN HARTZ-83RD STREET
ASSOCIATES, AS LANDLORD AND G & G SHOPS OF WOODBRIDGE, INC., AS TENANT.
- --------------------------------------------------------------------------------
R1. If any of the provisions of this Rider shall conflict with any of the
provisions, printed or typewritten, of this Lease, such conflict shall resolve
in every instance in favor of the provisions of this Rider.
R2. Provided this Lease is in full force and effect, Tenant shall have the
option to extend the Term of this lease of the Demised Premises, from the date
upon which this Lease would otherwise expire for three (3) extended periods of
five (5) years each ("First Extended Period", "Second Extended Period" and
"Third Extended Period"), upon the following terms and conditions:
1. If Tenant elects to exercise said options, it shall do so by giving
notice of such election to Landlord on or before the date which is nine (9)
months prior to the beginning of each of the First Extended Period, Second
Extended Period and Third Extended Period for which the Term is to be extended
by the exercise of such options. Tenant agrees that it shall have forever waived
its right to exercise any such option if it shall fail for any reason whatsoever
to give such notice to Landlord by the time provided herein for the giving of
such notice, whether such failure is inadvertent or intentional, time being of
the essence as to the exercise of such options.
2. If Tenant elects to exercise said options, the Term shall be
automatically extended for the First Extended Period, Second Extended Period and
Third Extended Period covered by the option so exercised without execution of an
extension or renewal lease. However, within ten (10) days after request of
either party following the effective exercise of any such options, Landlord and
Tenant shall execute, acknowledge and deliver to each other duplicate originals
of an instrument in recordable form confirming that such option was effectively
exercised.
3. The First Extended Period, Second Extended Period and Third Extended
Period shall be upon the same terms and conditions as are in effect immediately
preceding the commencement of such First Extended Period, Second Extended Period
and Third Extended Period; provided, however, that Tenant shall have no right or
option to extend the Term for any period of time beyond the expiration of the
Third Extended Period provided further, that in the Fixed Rent in the First
Extended Period, Second Extended Period and Third Extended Period shall be as
follows:
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(a) The Fixed Rent during the First Extended Period shall be at the
rate of Six and 90/100 Dollars ($6.90) per square foot of Floor Space per annum.
The Fixed Rent during the Second Extended Period shall be at the rate of Seven
and 94/100 Dollars ($7.94) per square foot of Floor Space per annum. The Fixed
Rent during the Third Extended Period shall be at Ninety Percent (90%) of Fair
Market Value. Fair Market Value shall be determined by mutual agreement of the
parties. If the parties are unable to agree on the Fair Market Value, the
parties shall choose a licensed real Estate Appraiser who shall determine the
Fair Market Value. The cost of said Real Estate Appraiser shall be borne equally
by the parties. If the parties are unable to agree on a licensed Real Estate
Appraiser, each party shall select one Appraiser to appraise the Fair Market
Value. If the difference between the two appraisals is 20% or less of the lower
appraisal then the Fair Market Value shall be the average of the two appraisals.
If the difference between the two appraisals is greater than 20% of the lower
appraisal, the two Appraisers shall select a third licensed Real Estate
Appraiser to appraise the Fair Market Value. The Fair Market Value shall in such
case be the average of the three appraisals. The cost of the third appraisal
shall be borne equally by the parties. Anything to the contrary contained herein
notwithstanding, the Fixed Rent for any extended period shall not be less than
the Fixed Rent for the previous year of the Term. Any appraisal to be performed
hereunder shall consider the Building and Demised Premises as "unimproved" by
Tenant's Work, if any.
4. Any termination, expiration, cancellation or surrender of this Lease
shall terminate any right or option for the Extended Period not yet exercised.
5. The option provided herein to extend the Term of the Lease may not be
severed from the Lease or separately sold, assigned or otherwise transferred.
R3. Notwithstanding anything herein contained to the contrary, Tenant
shall be entitled to a six (6) month abatement of Fixed Rent relative to Section
"A" of the Demised Premises upon Commencement of the Lease relative to said
Section "A".
R4. Landlord hereby represents the following:
(i) At the time of the execution of the Lease, it is the owner of
the Land and Building;
(ii) It has complete authority to enter into and perform the
transaction contemplated by this Lease;
(iii) The Building or Demised Premises are not constructed of any
materials containing asbestos.
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R5. Landlord hereby agrees to provide Tenant, upon Tenant's written
request, with information concerning the date or dates upon which the Lease of
other tenants of the Building shall terminate, as well as information concerning
whether said tenant(s) have exercised an option to extend their term, if any.
HARTZ-83RD STREET ASSOCIATES
("Landlord")
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
("a general partner")
BY: /s/ Irwin A. Horowitz
--------------------------------
Irwin A. Horowitz
Vice President
G & G SHOPS OF WOODBRIDGE, INC.
("Tenant")
BY: /s/ Scott Galin
----------------------------------
Scott Galin
Senior, Vice President
- R3 -
<PAGE>
EXHIBIT "A"
DESCRIPTION OF LAND
8501 WEST SIDE AVENUE
NORTH BERGEN
Subject to a Utility and Access Easement described as follows:
Beginning at the point of beginning of the original description and running:
thence
Deed description of a parcel of land situate near the northern side of 83rd
Street in the Township of North Bergen, Hudson County, New Jersey.
Beginning at a point on curve on the westerly side of lands N/F New York
Susquehanna and Western Railroad, said point being northern on a curve to the
left having a radius of 2831.79 feet an arc length of 962.70 feet along said
westerly side of land N/F New York Susquehanna and Western Railroad from its
intersection with the northern side of 83rd Street (60' wide) and running:
thence
1. N 62 degrees 58' 30" W 727.21 feet to a point; thence
2. N 14 degrees 27' 00" W 680.73 feet to a point; thence
3. N 62 degrees 58' 30" W 185.89 feet to a point; thence
4. S 82 degrees 09' 00" W 702.43 feet to a point on the westerly side of
lands N/F New York Susquehanna and Western Railroad; thence
5. S 14 degrees 27' 00" E 706.00 feet along the westerly side of lands N/F
New York Susquehanna and Western Railroad to a point of curvature; thence
6. Along a curve to the left having a radius of 2831.79 feet and arc length
of 497.82 feet still along the westerly side of the lands N/F New York
Susquehanna and Western Railroad to the point of beginning:
Containing 13.683 Acres.
Being part of Plot 4A1.4 Block 474
Subject to a 30' wide Parcel Reserved for Future Roadway Right of Way described
as follows:
Beginning at the point of beginning of the original description and running:
thence
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<PAGE>
Description of Land
8501 West Side Avenue
North Bergen, New Jersey
Page 2
1. N 62 degrees 58' 30" W 35.22 feet to a point on curve; thence
2. Northerly along a curve to the left having a radius of 2801.79 feet an arc
length of 474.00 feet to a point of tangency; thence
3. N 14 degrees 27' 00" W 709.47 feet to a point; thence
4. N 82 degrees 09' 00" E 30.20 feet to a point; thence
5. S 14 degrees 27' 00" E 706.00 feet to a point of curvature; thence
6. Along a curve to the right having a radius of 2831.79 feet an arc length
of 497.82 to the point of beginning:
Subject to a Utility and Access Easement described as follows:
Beginning at the point of beginning of the original description and running:
thence
1. N 62 degrees 58' 30" W 727.71 feet to a point; thence
2. N 14 degrees 27' 00" W 53.39 feet to a point; thence
3. S 62 degrees 58' 30" E 506.71 feet to a point of curvature; thence
4. Along a curve to the left having a radius of 100.00 feet an arc length of
72.39 feet to a point of tangency; thence
5. N 75 degrees 33' 00" E 124.38 feet to a point of curve; thence
6. Southerly along a curve to the right having a radius of 2831.79 feet an
arc length of 176.22 feet to the point of beginning:
Subject to and together with a 30' wide and 15' wide drainage easement along the
second thru fourth courses of the original description.
Subject to all easements, rights of ways and agreements of record.
A-2
<PAGE>
EXHIBIT "B"
Graphic of Site Plan
(and designation of parking)
B-1
<PAGE>
EXHIBIT "B1"
Graphic of Floor Plan of Demised Premises
B1-1
<PAGE>
EXHIBIT "C"
WORKLETTER
G & G SHOPS OF WOODBRIDGE, INC.
1. Reference is made to Section "A" of the Demised Premises; Landlord agrees,
at its cost and expense, to construct the office space within Section A as
well, as build out the warehouse area of Section A in accordance with the
attached floor plan (Exhibit C-1) and in conformance with the attached
Design Criteria (Exhibit C-2) and Tenant's Plans delivered to Landlord in
accordance with Paragraph 4(a) hereinbelow.
2. Reference is made to Section "B" of the Demised Premises; Landlord agrees,
at its cost and expense, to construct the addition depicted as Section B
in accordance with the attached site plan (Exhibit B) and in conformance
with the attached Design Criteria (Exhibit C-2) and Tenant's plans
delivered to Landlord in accordance with Paragraph 5(a) hereinbelow.
3. Tenant hereby represents that it has accepted and approved Exhibit B, C-1,
and C-2 contemporaneously with the execution of this Lease.
4. (a) Tenant shall be obligated to provide Landlord with an "approved"
architectural layout of the Office Space (detailing with specificity, the
location of all plumbing, mechanical and electrical fixtures as well as
the required electrical capacity) within thirty (30) days from the date of
the execution of the Lease.
(b) Provided Landlord is in receipt of said approved architectural
drawings within said thirty (30) day period, Landlord agrees to complete
the Office Space within one hundred fifty (150) days from the date of the
execution of this Lease.
(c) In the event Tenant fails to provide Landlord with said architectural
drawings within thirty (30) days from the execution of this Lease, then
the one hundred fifty (150) day period, (for completion of the Office
Space), shall be extended one (1) day for each one (1) day of delay in
Tenant's approval of the architectural drawings; provided, however,
Landlord shall be entitled to commence the Lease as to Section A of the
Demised Premises on the date on which Section A would have been completed
but not for Tenant's delay in the approval in the architectural drawings.
C-1
<PAGE>
5. (a) Tenant hereby further agrees to provide Landlord with approved
criteria concerning Tenant's lighting, electrical, plumbing, mechanical,
and other systems, as well as the specific location of Tenant's loading
docks, as each relates to Section B of the Demised Premises, within one
hundred twenty (120) days from the date of execution of this Lease. (Said
information shall hereinafter be collectively referred to as "Section B
Criteria").
(b) Provided Landlord is in receipt of said Section B Criteria within said
one hundred twenty (120) day period, Landlord agrees to use its best
efforts (but shall not be subject to any penalty or damages for failure)
to complete Section B within eleven (11) months from the date of the
execution of this Lease.
(c) In the event Tenant fails to provide Landlord with the Section B
Criteria within one hundred twenty (120) days from the execution date of
this Lease, then the eleven (11) month period (for best efforts to
complete Section B) shall be extended one (1) day for each (1) day of
delay in Tenant's approval of the Section B Criteria; provided, however,
Landlord shall be entitled to commence the Lease as to Section B of the
Demised Premises on the date on which Section B would have been completed
but not for Tenant's delay in the approval in the Section B Criteria.
(d) In the event Landlord has not completed Section B on or prior to the
date which is the sixteenth month anniversary of the execution of the
Lease (subject to the provisions of Section 5(c) hereinabove) then Tenant
shall have the right, by written notice to Landlord, to request that
Landlord advise Tenant if Section B will be completed on or prior to the
date which is the twenty fourth (24th) month anniversary ("24 Month
Anniversary") of the execution of the Lease. If Landlord responds
negatively (i.e., that Section B will not be completed), the following
applies:
(i) Tenant shall have the right to terminate the Lease by written
notice to Landlord to that effect. In such event, the Lease and
Tenant's obligations thereunder (including Tenant's obligations with
respect to Section A) shall terminate eight (8) months from the date
of such notice; or
(ii) Tenant shall have the right to continue with its Lease
obligations by written notice to the Landlord to that effect. In
such event Tenant shall receive a one (1) day abatement in Fixed
Rent relative to Section B for each day after the sixteenth (16th)
month anniversary of the execution of the Lease that
C-2
<PAGE>
Section B is not completed. Said abatement of Fixed Rent shall
continue to the earlier of (A) the date Section B is completed or
(B) the date which is the twenty fourth (24th) month anniversary of
the execution of the Lease (regardless of whether Section B is
completed on such date).
(iii) Tenant shall not be able to exercise its right to terminate
under Section 5(d)(i) unless it provides Landlord with written
request concerning Landlord's ability to complete Section B on or
prior to the 24 Month Anniversary and only to the extent that Tenant
receives written notice from Landlord that Landlord cannot complete
Section B of the Demised Premises on or prior to the 24 Month
Anniversary.
(e) In the event Tenant exercises its option to terminate the Lease in
accordance with Section 5(d)(i) hereinabove, Landlord shall pay to Tenant
as provided hereinbelow an amount equal to the reasonable cost incurred by
Tenant to remove, move and/or replace and install its equipment and
inventory from Section A of the Demised Premises to another site,
hereinafter referred to as the "Move Out Costs". Tenant's consultant has
delivered a letter to Landlord to the effect that Tenant's approximate
Move Out Costs shall be in an amount equal to One Million Two Hundred
Thousand and 00/100 Dollars ($1,200,000.00) as is more fully detailed in
said letter (attached) from Ken Bonning, Vice President, Garr Consulting
Group, to Scott Galin, Senior Vice President, G&G/Rave and dated October
24, 1988. Landlord agrees to pay Tenant an amount not to exceed One
Million Two Hundred Thousand and 00/100 Dollars ($1,200,000.00) in
accordance with the terms and conditions provided herein. Landlord agrees
to pay Tenant the amount of Five Hundred Thousand Dollars and 00/100
($500,000.00) on account of said Move Out Costs within ninety (90) days of
the date of Landlord's receipt of Tenant's notice of intention to
terminate the Lease in accordance with Section 5(d)(i). The remaining
balance in full satisfaction of Landlord's obligations to pay Tenant's
Move Out Costs shall be paid within fifteen (15) days of Tenant's vacation
of the Building and subject to Landlord's receipt of the necessary back-up
materials and calculations of Tenant detailing the remaining balance of
said Move Out Costs. (Any dispute as to the nature and extent of Tenant's
Move Out Costs shall be subject to arbitration as provided in this Lease).
Landlord shall be entitled to a complete accounting from Tenant regarding
said Move Out Costs as well as any other information reasonably requested
by Landlord relative to same.
C-3
<PAGE>
(f) Tenant shall have the right at any time between the 16th and 24th
Month Anniversary of the execution of the Lease to request information
from Landlord concerning completion of Section B. The fact that Tenant may
have previously exercised its right not to terminate in accordance with
Section 5(d)(ii) shall not preclude Tenant from exercising, at a later
date and after written request to Landlord, its right to terminate the
Lease in accordance with Section 5(d)(i). In the event Tenant does so
terminate the Lease after having previously advised Landlord that it
intends to continue its Lease obligations in accordance with Section
5(d)(ii), then any entitlement to an abatement of Fixed Rent which may
have accrued shall thereby be rendered null and void, and Tenant's remedy
shall be as provided in Section 5(e). Notwithstanding Tenant's exercise of
its right to terminate as provided hereinabove, the eight month period
referred to in Section 5(d)(i) shall not commence until Landlord receives
written notice of Tenant's exercise of its right to terminate.
6. If, in the alternative, Tenant provides Landlord with written request, as
provided in Section 5(d) and Landlord responds in the affirmative, (i.e.,
that Section B will be completed on or prior to the 24 Month Anniversary)
Tenant shall be obligated to continue with its Lease obligations as to
both Section A and Section B and the provisions of Section 5(d)(ii)
concerning an abatement of Fixed Rent shall apply.
7. In the event Section B of the Demised Premises are not completed by the
twenty-four (24) month anniversary of the execution of the Lease,
Tenant shall have one final option to proceed in accordance with
Article 5(d), 5(e) and 5(f) to terminate this Lease. Said option must
be exercised on the date which is the twenty four (24) month
anniversary of the execution of the Lease. If not so exercised, Tenant
shall have forever waived such right and the Lease and the parties
obligations thereunder shall proceed in accordance with Section
5(d)(ii).
8. All dates, deadlines, or other time constraints imposed herein shall be
extended as reasonably necessary to accommodate any Unavoidable Delays,
provided that, Landlord shall give Tenant notice of any Unavoidable Delay
within a reasonable time period after Landlord has knowledge of such
Unavoidable Delay.
9. At any time after the date of this Lease, Tenant shall have the right to
undertake work to be performed by Tenant in connection with readying the
Demised Premises for its occupancy, provided (i) Tenant complies with the
terms and conditions of this Lease, (ii) does not violate any of Landlord
union contracts and (iii) does not interfere with Landlord's completion
of Landlord's Work.
C-4
<PAGE>
10. Landlord shall also perform the following work in Section A of the Demised
Premises at its cost and expense:
a. Install insulation in the ceiling in the offices closest to the
warehouse;
b. Install a security mesh (cyclone fence or its equal) to separate the
warehouse from the mechanical and electrical rooms;
c. Remove two (2) existing sheetrock walls;
d. Remove two (2) cyclone fences; same to be re-installed by Landlord
at the completion of Tenant's Work;
e. Install a canopy over the main entrance to the Demised Premises and
over the entrance to the main warehouse personnel door.
f. Install one double glass entry door to the offices and one personnel
door (the personnel door in a location to be mutually agreed upon by
Landlord and Tenant);
g. Install a sidewalk along front of Demised Premises to the main
warehouse personnel door.
11. Landlord hereby consents to the installation by Tenant, at Tenant's sole
cost and expense, of additional HVAC units in order to accommodate
Tenant's computer facility. In connection with such installation, Tenant
shall: (i) provide Landlord with prior written notice of any such
installation; (ii) deliver to Landlord detailed plans and specifications
regarding such installation; and (iii) be responsible for all repairs and
damage (including structural repair or damage), resulting from such
installation.
C-5
<PAGE>
EXHIBIT C1
Graphic of Floor Plan of Section A
C1-1
<PAGE>
EXHIBIT C2
Graphic of Landlord's Standard Design Criteria
C2-1
<PAGE>
EXHIBIT C3
Graphic of Lighting Layout - Section A
C3-1
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. The rights of each tenant in the entrances and corridors servicing the
Building are limited to ingress and egress from such Tenant's premises for the
tenant and its employees, licensees and invitees, and no tenant shall use, or
permit the use of, the entrances, corridors, escalators or elevators for any
other purpose. Fire exits and stairways are for emergency use only, and they
shall not be used for any other purpose by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of, any of the sidewalks, entrances, corridors,
elevators, fire exits or stairways of the Building. Landlord reserves the right
to control and operate the public portions of the Building and the public
facilities as well as facilities furnished for the common use of the tenants, in
such manner as it deems best for the benefit of the tenants generally.
2. Any person whose presence in the Building at any time shall, in the
judgment of Landlord, be prejudicial to the safety, character or reputation of
the Building or of its tenants may be denied access to the Building or may be
ejected therefrom. During any invasion, riot, public excitement or other
commotion, Landlord may prevent all access to the Building by closing the doors
or otherwise for the safety of the tenants and protection of property in the
Building.
3. Except as otherwise provided in this Lease, no awnings or other
projections shall be attached to the outside walls of the Building. No curtains,
blinds, shades or screens shall be attached to or hung in, or be used in
connection with, any window or door of the premises of any tenant, without the
prior written consent of Landlord. Such curtains, blinds, shades or screens must
be of a quality, type, design and color, and attached in the manner approved by
Landlord.
4. Except as otherwise provided in this Lease, no lettering, sign,
advertisement, notice or object shall be displayed in or on the windows or
doors, or on the outside of any tenant's premises, or at any point inside any
tenant's premises where the same might be visible outside of such premises,
without the prior written consent of Landlord. In the event of the violation of
the foregoing by any tenant, Landlord may remove the same without any liability,
and may charge the expense incurred in such removal to the tenant violating this
rule. Interior signs, elevator cab designations and lettering on doors and the
Building directory shall, if and when approved by Landlord, be inscribed,
painted or affixed for each tenant by Landlord at the expense of such tenant,
and shall be of a size, color and style acceptable to landlord.
D-1
<PAGE>
5. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or on the
peripheral air conditioning enclosures, if any.
6. No showcase or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules.
7. Except as otherwise provided in this Lease, linoleum, tile or other
floor covering shall be laid in a tenant's premises only in a manner first
approved in writing by Landlord which approval shall not be unreasonably
withheld or delayed.
8. Except as otherwise provided in this Lease, no tenant shall mark,
paint, drill into, or in any way deface any part of its premises or the
Building. No boring, cutting or stringing of wires shall be permitted, except
with the prior written consent of Landlord which consent shall not be
unreasonably withheld or delayed, and as Landlord may reasonably direct.
9. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted in the premises of
any tenant which would impair or interfere with the use or enjoyment by any
other tenant of any other space in the Building.
10. No tenant, nor any tenant's contractors, employees, agents, visitors
or licensees, shall at any time bring into or keep upon the premises or the
Building any inflammable, combustible, explosive or otherwise dangerous fluid,
chemical or substance.
11. Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or this Lease. Landlord
may require any person leaving the Building with any package or other object or
matter to submit a pass, listing such package or object or matter, from the
tenant from whose premises the package or object or matter is being removed, but
the establishment and enlargement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of such tenant. Landlord shall in no way be liable
to any tenant for damages or loss arising from the admission, exclusion or
ejection of any person to or from the premises or the Building under the
provisions of this RULE or of RULE 2 hereof.
D-2
<PAGE>
12. No tenant shall occupy or permit any portion of its premises to be
occupied as an office for the possession, storage, manufacture or sale of
liquor, narcotics, dope, tobacco in any form, or as a barber, beauty or manicure
shop, or as a school.
13. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in Landlord's judgment, tends to impair
the reputation of the Building or its desirability as a building for others, and
upon written notice from Landlord, such tenant shall refrain from and
discontinue such advertising or identifying sign.
14. Landlord, its contractors, and their respective employees, shall have
the right to use, without charge therefor all light, power and water in the
premises of any tenant while cleaning or making repairs or alterations in the
premises of such tenant.
15. No premises of any tenant shall be used for lodging or sleeping or for
any immoral or illegal purpose.
16. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
17. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building's services or the proper and
economic heating, cleaning or other servicing of the Building or the premises,
or the use or enjoyment by any other tenant of any other premises nor shall
there be installed by any tenant any ventilating, air-conditioning, electrical
or other equipment of any kind which, in the judgment of Landlord, might cause
any such impairment or interference.
18. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purposes for which they were designed or constructed, and no sweepings, rubbish,
rags, acids or other foreign substances shall be deposited therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenants who, or
whose servants, employees, agents, visitors or licensees shall have, caused the
same. Any cuspidors or containers or receptacles used as such in the premises of
any tenant or for garbage or similar refuse, shall be emptied, cared for and
cleaned by and at the expense of such tenant.
19. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building when, in
D-3
<PAGE>
its reasonable judgment, it deems it necessary, desirable or proper for its best
interest and for the best interests of the tenants, and no alteration or waiver
of any rule or regulation in favor of one tenant shall operate as an alteration
or waiver in favor of any other tenant. Landlord shall not be responsible to any
tenant for the non-observance or violation by any other tenant of any of the
rules and regulations at any time prescribed for the Building provided Landlord
uses reasonable efforts to insure that tenants comply with the Rules and
Regulations.
Any conflict between these Rules and Regulations and the Lease to which they
are attached shall be resolved in favor of the provisions contained in the
Lease.
D-4
<PAGE>
EXHIBIT 10.02
LEASE ADDENDUM
THIS LEASE ADDENDUM, is made this 10th day of April, 1990, between
HARTZ 83RD STREET ASSOCIATES, a New Jersey partnership, having an office at 400
Plaza Drive, P.O. Box 1411, Secaucus, New Jersey 07094 (hereinafter referred to
as "Landlord") and G & G SHOPS OF WOODBRIDGE, INC., a New Jersey corporation
having an office at 8501 Westside Avenue, North Bergen, New Jersey (hereinafter
referred to as ("Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated November 28, 1988, (the
"Lease") Landlord leased to Tenant and Tenant hired from Landlord 164,840 total
square feet located at 8501 Westside Avenue in North Bergen, New Jersey
(hereinafter the "Demised Premises"); and
WHEREAS, Landlord wishes to grant and Tenant wishes to receive a
revocable license to use a certain area of land owned by Landlord.
NOW, THEREFORE, for and in consideration of the Lease, the mutual
covenants herein contained and the consideration set forth herein, the parties
agree as follows:
1. Tenant shall have the right to use the area outlined in red on
Exhibit "A" attached hereto and made a part hereof. Tenant shall be permitted,
at its sole cost and expense, to erect a fence and gate in the outlined area.
Tenant shall, at its own cost and expense obtain any consents, approvals and
permits necessary to effect such construction and shall comply with Legal
Requirements.
-1-
<PAGE>
2. Upon thirty (30) days' notice from Landlord, Tenant shall remove
the fence and gate and shall permit access over and through the outlined area.
3. Tenant shall maintain the same insurance coverage required to be
maintained by Tenant pursuant to Article 13 of the Lease on the outlined area
and Tenant's use thereof.
4. Words capitalized herein shall have the meanings ascribed to them
in the Lease.
5. Except as provided herein, all of the terms and conditions of the
Lease dated November 28, 1988 as amended above are in full force and effect and
are confirmed as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Lease
Modification Agreement to be duly executed as of the day and year first above
written.
ATTEST: HARTZ 83RD STREET ASSOCIATES
("Landlord")
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
("General Partner")
/s/ Sirena G. Terr BY: /s/ Irwin A. Horowitz
- ------------------------- ----------------------------------
Sirena G. Terr Irwin A. Horowitz
Ass't Secretary Vice President
ATTEST: G & G SHOPS OF WOODBRIDGE, INC.
("Tenant")
/s/ Deborah McGrane BY: /s/ Scott D. Galin
- ------------------------- --------------------------------------
Deborah McGrane Name: Scott D. Galin
Ass't Secretary Title: Sr. Vice President
-2-
<PAGE>
Exhibit "A"
Graphic of Land Granted
to Tenant by a Revocable Lease
<PAGE>
EXHIBIT 10.03
SECOND LEASE MODIFICATION AGREEMENT
THIS SECOND LEASE MODIFICATION AGREEMENT, made this 24th day of February,
1994, between HARTZ 83RD STREET ASSOCIATES, a New Jersey partnership, having an
office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred to
as "Landlord") and G & G SHOPS OF WOODBRIDGE, INC., a New Jersey corporation
having an office at 8501 West Side Avenue, North Bergen, New Jersey (hereinafter
referred to as "Tenant").
W I T N E S S E T H :
---------------------
WHEREAS, by Agreement of Lease dated November 28, 1988, as amended by
Lease Addendum dated April 10, 1990 (collectively the "Lease") Landlord leased
to Tenant and Tenant hired from LandLord 165,450 square feet of floor space
located at 8501 West Side Avenue in North Bergen, New Jersey (hereinafter the
"Demised Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an
extention of the term of the Demised Premises, and amend the Lease accordingly;
NOW, THEREFORE, for and in consideration set forth herein, the parties
agree as follows:
1. Article 1.01 M (Expiration Date) of the Lease is hereby replaced
to provide that the Expiration Date with respect to the Demised Premises shall
be August 31, 1999. However, if the Term is extended by Tenant's effective
exercise of Tenant's right, if any; to extend the Term, the "Expiration Date"
shall be changed to the last day off the latest Extended Period as to which
Tenant shall have effectively exercised its right to extend the Term. For the
purposes of this definition, the earlier termination of this Lease shall not
affect the "Expiration Date."
2. Article 1.10 N (Fixed Rent) of the Lease is hereby amended and
shall be reduced from Six and 00/100 Dollars ($6.00) per square foot per annum
to Five and 00/100 Dollars ($5.00) per square foot per annum, effective July 1,
1994 and shall remain at this rent rate until August 31, 1999.
3. Tenant shall have one (1) option to extend the Term of the Lease
for a period of five (5) years commencing on September 1, 1999 (the "First
Extended Period") at an annual Fixed Rent of Six and 00/100 Dollars per square
foot multiplied by the Floor Space of the Demised Premises, provided that Tenant
shall provide Landlord with notice of its intention to extend the Term prior to
August 31, 1998, time being off the essence. Tenant shall have a second option
to extend the Term of the Lease for an additional period of five (5) years
commencing on September 1, 2004 (the
1
<PAGE>
"Second Extended Period") at an annual Fixed Rent of ninety percent (90%) of the
Fair Market Value (as determined pursuant to Section R2.3 (a) of the Rider to
Lease), provided that Tenant shall provide Landlord with notice of its intention
to extend the Term prior to August 31, 2003, time being of the essence. Except
as modified in this paragraph 3, the provisions contained in paragraph R2 of the
Rider to the Lease shall govern with respect to Tenant's option to renew for the
Extended Period.
4. Tenant shall have an option to terminate the Lease effective as
of August 3l, 1997 (the "Termination Date"). Such Option to terminate shall be
conditioned on Tenant providing Landlord with prior notice of same no later than
August 31, 1996, time being of the essence, and Tenant shall be responsible to
pay a termination fee equal to three (3) months' Fixed Rent on the Termination
Date.
5. Except as provided herein, all of the terms and conditions of the
Lease dated November 28, l988, as amended on April 10, 1990 and as amended above
are in full force and effect and are confirmed as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Second Lease
Modification Agreement to be duly executed as of the day and year first above
written.
HARTZ-83RD STREET ASSOCIATES
("Landlord")
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
("General Partner")
By: /s/ Irwin A. Horowitz
------------------------------------
Irwin A. Horowitz
Executive Vice President
G & G SHOPS OF WOODBRIDGE, INC.
("Tenant")
By: /s/ Scott D. Galin
---------------------------------
Scott D. Galin
Senior Vice President
ACCEPTED AND AGREED:
G & G SHOPS, INC.
("Guarantor")
By: /s/ Scott D. Galin
----------------------------
Scott D. Galin
Senior Vice President
2
<PAGE>
EXHIBIT 10.04
[LOGO AND LETTERHEAD OF AID ASSOCIATION FOR LUTHERANS APPEARS HERE]
CERTIFIED MAIL -
--------------
RETURN RECEIPT REQUESTED
------------------------
G & G Shops of Woodbridge, Inc.
520 Fifth Avenue
New York, NY 10018
Attn: Scott Galin
Executive Vice President
Subject: 11/28/88 Lease with HG Property, Inc.
("Lease")
West Side Avenue, North Bergen, NJ
To Whom It May Concern:
Recently, the owner of your building borrowed money from Aid Association for
Lutherans ("AAL"). The loan was secured by a deed of trust/mortgage on the
property. As part of that transaction, the landlord's interest in your Lease was
assigned to AAL by an assignment of rents and leases ("Assignment").
This transfer will not change the manner in which you are making your rental
payments. Unless you are otherwise notified in writing by AAL, continue to make
your rental payments as you are currently doing now.
However, your attention is particularly called to the following matters:
1. The Assignment specifically provides that, unless approved in
writing by AAL, no cancellation, surrender, or modification may be
made of the Lease, no rentals shall be paid other than as now
provided in the Lease, and rent may not be collected in advance for
more than one month.
2. Although the Assignment is absolute in nature, there is a license
back to the landlord, and the landlord remains solely liable to you
under the Lease. AAL does not assume any duty, liability, or
obligation under the Lease or any extension or renewal of the Lease
either by virtue of the Assignment or by any subsequent receipt or
collection of rentals under the Assignment.
3. Upon receipt of written notice from AAL, you will make your monthly
payments as directed in such notice.
4. All notices required under the terms of the Lease shall also be sent
to AAL at 4321 North Ballard Road, Appleton, WI 54919, Attention:
Investment Department.
Sincerely, HG Property, Inc., a
New Jersey corporation
/s/ Kenneth E. Podell
By: /s/ Richard J. Milder
Kenneth E. Podell --------------------------
Associate General Counsel Richard J. Milder
Law Department Assistant Secretary
Nov. 20, 1995
- -------
cc G & G Shops, Inc., 520 Fifth Avenue, New York, NY 10018, Attn: Scott Galin
520 Eighth Avenue, New York, NY 10018, Attn: President
<PAGE>
EXHIBIT 10.05
ASSIGNMENT AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS, that the Sellers (the "Assignors"
hereunder), pursuant to the terms of that certain Asset Purchase Agreement,
dated July 6, 1998, by and among the Sellers and Purchaser, as amended by the
Order of the Bankruptcy Court dated August 24, 1998 and by an Amendment dated as
of August 24, 1998 (the "Agreement"), for and in consideration of Ten Dollars
($10.00) and other good and valuable consideration from G+G Retail, Inc., a
Delaware corporation ("Assignee"), the receipt and sufficiency of which are
hereby acknowledged by Assignors, do hereby assign, transfer, sell and convey
unto Assignee, its successors and assigns, all of Assignors' right, title and
interest in, to and under the Assigned Contracts described on Exhibit A attached
hereto and incorporated herein by reference, together with all renewal options,
if any, options to purchase and all other rights privileges and benefits
belonging to or held by Assignors under the Assigned Contracts.
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
forever, subject, however, to all terms, conditions and provisions in the
Assigned Contracts.
In consideration for the foregoing assignment, Assignee hereby accepts the
foregoing assignment and agrees to assume, perform and be bound by all of the
duties, obligations and liabilities of Assignors under the Assigned Contracts
arising on and after the date hereof.
Assignors further agree to execute and deliver to Assignee such further
instruments of transfer and assignment as Assignee may from time to time
reasonably request in order to transfer and assign to and vest in Assignee all
of the rights, privileges and property hereby transferred and assigned or
intended so to be.
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed to be effective as of the 28th day of August, 1998.
G & G SHOPS, INC.
By: /s/ Gerald M. Chaney
-----------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
PSL, INC.
By: /s/ Gerald M. Chaney
-----------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
-2-
<PAGE>
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G & G Island Corporation
G & G Shops of Brooklyn, Inc.
G & G Shops of Maryland, Inc.
G & G Shops of Mid-Island Corp.
G & G Shops of Nanuet, Inc.
G & G Shops of New England, Inc.
G & G Shops of New York, Inc.
G & G Shops of North Carolina, Inc.
G & G Shops of Pennsylvania, Inc.
G & G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
By: /s/ Gerald M. Chaney
-----------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President, Chief
Administrative Officer and Chief
Financial Officer
-3-
<PAGE>
157 De Diego Corporation
61 Dr. Veve Corporation
Caribe Apparel Corporation
Christina El Senorial Corp.
Cumbres Apparel Corp.
Dayson's Cupey Corp.
Dayson's of Ponce, Inc.
El Canton Apparel Corp.
Franklin 198 Corp.
Franklin 203 Corp.
Franklin 203 Corp.
Franklin 221 Corp.
Franklin 253 Corp.
Marianne Estrella Corp.
Noya Carolina Corp.
N. Calimano MPA Corp.
Progresso-Corchado Corp.
Rave Apparel of Bayamon Corporation
Rave Apparel Corporation of Humacao
Whitney Stores, Inc.
By: /s/ Gerald M. Chaney
----------------------------------------
Name: Gerald M. Chaney
Title: Executive Vice President, Chief
Administrative Officer and Chief
Financial Officer
-4-
<PAGE>
G+G RETAIL, INC.
By: /s/ Jonathan Berger
-----------------------------
Name: Jonathan Berger
Title: Vice President
-5-
<PAGE>
Exhibit A
Leases
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Home
Office 520 Eighth Avenue New York NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
Warehouse 8501 West Side Avenue North Bergen NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5001 Gallery I Philadelphia PA G & G Shops of Pennsylvania, Inc.
- -----------------------------------------------------------------------------------------------------------
5003 Gallery II Philadelphia PA G & G Shops of Pennsylvania, Inc.
- -----------------------------------------------------------------------------------------------------------
5006 Chapel Square Mall New Haven CT G & G Shops of New England, Inc.
- -----------------------------------------------------------------------------------------------------------
5007 Manhattan Mall New York City NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5008 Greens Acres Mall Valley Stream NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5009 Pyramid mall Ithaca NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5010 Nanuet mall Nanuet NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5012 Kings Plaza Brooklyn NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5014 Roosevelt Field Center Garden City NY G & G Shops of Mid Island, Inc.
- -----------------------------------------------------------------------------------------------------------
5015 The Source #J04 Westbury NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5016 Broadway Mall Hicksville NY G & G Shops of Mid Island, Inc.
- -----------------------------------------------------------------------------------------------------------
5017 Willowbrook Mall Wayne NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5018 Rockaway Town Mall Rockaway NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5019 Menlo Park Mall Edison NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5021 Echelon Mall Voorhees NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5022 Gwinnett Place Duluth GA G & G Shops of North Carolina, Inc.
- -----------------------------------------------------------------------------------------------------------
5023 Freehold Raceway Freehold NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5025 Walden Galleria Buffalo NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5026 Mall at Hamilton Mayslanding NJ G & G Shops of Woodbridge, Inc.
- -----------------------------------------------------------------------------------------------------------
5027 Southshore Mall Bay Shore NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5028 Smith Haven Mall Lakegrove NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5029 Oakdale Mall Johnson City NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5030 Staten Island Mall Staten Island NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
5031 Sunrise Mall Masssapequa NY G & G Shops, Inc.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
Leases
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5032 Paramus Park Mall Paramus NJ G & G Shops of Woodbridge, Inc.
- ----------------------------------------------------------------------------------------------------------
5033 Greenbriar Mall Atlanta GA G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5034 Huntington Square Mall East Northport NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5035 Monmouth S.C. Eatontown NJ G & G Shops of Woodbridge, Inc.
- ----------------------------------------------------------------------------------------------------------
5036 Queens Center Elmhurst NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5037 Rockingham Park Salem NH G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5040 Tampa Bayy Center Tampa FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5041 Orange Park Mall Orange Park FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5042 University Mall Pensacola FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5043 Berkshire Mall Lanesborough MA G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5044 Macon Mall Macon GA G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5045 Peach Tree Mall Columbus GA G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5046 1627-21 Opelika Road Auburn AL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5047 Bay Harbor Mall Lawrence NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5048 Albany Mall Albany GA G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5049 Woodbridge I Woodbridge NJ G & G Shops of Woodbridge, Inc.
- ----------------------------------------------------------------------------------------------------------
5050 Main Place Mall Buffalo NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5051 Boulevard Mall Amherst NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5052 Summitt Park Mall Niagara Falls NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5053 Frederick Town Mall Frederick MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5056 Forest Village Park Forestville MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5057 Valley Mall Hagerstown MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5058 Ocean County mall Toms River NJ G & G Shops of Woodbridge, Inc.
- ----------------------------------------------------------------------------------------------------------
5059 Parmatown S.C. Parma OH G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
Leases
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5060 Galleria Mall White Plains NY G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5061 Mondawin Mall Baltimore MD G & G Shops of Maryland, Inc.
- -------------------------------------------------------------------------------------------------------------
5062 Assembly Square Somerville MA G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5064 Liberty Tree Mall Canvers MA G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5065 Broward Mall Plantation FL G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5066 Whitman Plaza Philadelphia PA G & G Shops of Pennsylvania. Inc.
- -------------------------------------------------------------------------------------------------------------
5067 Georgia Square Athens GA G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5071 Trumbell Shopping Park Trumbell CT G & G Shops of New England, Inc.
- -------------------------------------------------------------------------------------------------------------
5073 Eastland Mall Charlotte NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5074 Monroeville Mall Monroeville PA G & G Shops of Pennsylvania, Inc.
- -------------------------------------------------------------------------------------------------------------
5075 Seminole Town Center Sanford FL G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5080 Oak Hollow Mall Highpoint NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5082 Arsenal Market Place Watertown MA G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5084 Twin River Mall Newbern NC Whitney Stores, Inc.
- -------------------------------------------------------------------------------------------------------------
5085 Crabtree Valley Mall Raleigh NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5088 Clear Meadow Mall East Meadow NY G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5089 Hanes Mall Winston Salem NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5092 Ohio Valley mall Saint Clairsville OH G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5097 Four Seasons Greensboro NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5102 Greece Town Mall Rochester NY G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5103 South Square Mall Durham NC G & G Shops of North Carolina, Inc.
- -------------------------------------------------------------------------------------------------------------
5105 Southlake Mall Merrillville IN G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5106 Great Lakes Mall Mentor OH G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
5112 Randall Park Mall North Randall OH G & G Shops, Inc.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE>
Leases
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5115 Auburn Mall Auburn ME G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5116 Tell Twelve Center Southfield MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5117 Bell Promenade Marrero LA G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5118 Westalnd Mall Westland MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5119 Fairlane Town Center Dearborn MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5120 Southland Center Taylor MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5121 Oakland Mall Troy MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5122 Estland S.C. Harper Woods MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5123 Twelve Oaks Center Novi MI G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5125 Western Hill Mall Fairfield AL G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5126 East Town Mall Knoxville TN G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5127 Madison Square Huntsville AL G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5128 South Dekalb Mall Decatur GA G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5129 Meadowbrook Mall Bridgeport WV G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5130 Kentuck Oaks Paducah KY G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5132 Northgate Mall Lafayette LA G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5134 Eastwood Mall Niles OH G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
5136 Rooselvelt Mall Philadelphia PA G & G Shops of Pennsylvania, Inc.
- ------------------------------------------------------------------------------------------------------------
5137 Raleigh Springs Mall Memphis TN G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5138 Park City Center Lancaster PA G & G Shops of Pennsylvania, Inc.
- ------------------------------------------------------------------------------------------------------------
5140 Aventura Mall Miami FL G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5141 Coral Square Mall Coral Springs FL G & G Shops of North Carolina, Inc.
- ------------------------------------------------------------------------------------------------------------
5145 Cherry Hill II Cherry Hill NJ G & G Shops of Woodbridge, Inc.
- ------------------------------------------------------------------------------------------------------------
5149 Yorktown Mall Lombard IL G & G Shops, Inc.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE>
Leases
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5150 Reistertown Plaza Baltimore MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5151 Southland Mall Memphis TN G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5152 Glenbrook Square Fort Wayne IN G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5153 Laurel Center Laurel MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5154 Salem Mall Dayton OH G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5155 Midway Mall Elyria OH G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5157 Lafayette Square Indianapolis IN G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5158 Enfield Mall Enfield CT G & G Shops of New England, Inc.
- ----------------------------------------------------------------------------------------------------------
5159 Gulfview Square Port Richey FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5161 Prince Georges Place Hyattsville MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5162 Oakwood Plaza Hollywood FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5163 Cloverleaf Mall Richmond VA G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5165 Cutler Ridge Mall Miami FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5166 Gadsden Mall Gadsden AL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5169 East Point Mall Baltimore MD G & G Shops of Maryland, Inc.
- ----------------------------------------------------------------------------------------------------------
5170 Tallahassee Mall Tallahassee FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5171 Hanover Mall Hanover MA G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5173 Midtown Plaza Rochester NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5175 Brandon Towne Center Brandon FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5176 Southern Park Mall Youngstown OH G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5177 Miami International Miami FL G & G Shops of North Carolina, Inc.
- ----------------------------------------------------------------------------------------------------------
5181 Eastern Hill Williamsville NY G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
5182 The Brickyard Chicago IL G & G Shops, Inc.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE>
Leases
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5183 Universal City Warren MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5184 Springdale Mall Mobile AL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5185 Altamonte Mall Space Altamonte Springs FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5187 Valley View Mall Roanoke VA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5189 North Riverside Mall North Riverside IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5190 Lincoln Mall Matteson IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5191 Hickory Hollow Atioch TN G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5192 Kendall Mall Bay Miami FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5193 Belair Mall Mobile AL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5195 North Shore Square Slidell LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5198 Wonderland Mall Livonia MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5199 Macomb Mall Roseville MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5203 Towne Center at Cobb Kennesaw GA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5205 Esplanade Mall Kenner LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5206 Connecticut Post Milford CT G & G Shops of New England, Inc.
- --------------------------------------------------------------------------------------------------------------
5207 Bald Hill Plaza Warwick RI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5208 Indian River Mall Vero Beach FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5209 Florida Mall Orlando FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5211 Millcreek Mall Erie PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5212 Eagle Ridge Mall Lake Wales FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5214 Dedham Mall Dedham MA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5215 Greetree Mall Clarksville IN G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5217 Pecanland Mall Monroe LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5218 Boynton Beach Boynton FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-6
<PAGE>
Leases
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5219 Dayton Mall Dayton OH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5220 Volusia Mall Daytona FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5221 Concord Mall Wilmington DE G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5222 Briarcliff Mall Myrtle Beach SC G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5227 Lansing Mall Lansing MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5228 Coastland Mall Naples FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5232 Eastfield Mall Springfield MA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5234 Salisbury Mall Salisbury NC G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5235 Southland Mall Houma LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5236 Lincoln Mall London RI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5237 Westland Mall Hialeah FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5239 Courtland Center Burton MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5240 Wiregrass Commons Houston AL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5241 Pheasant Lane Nashau NH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5242 Alexandria Mall Alexandria LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5244 Ford City Mall Chicago IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5245 Mall at Millcreek Secaucus NJ G & G Shops of Woodbridge, Inc.
- --------------------------------------------------------------------------------------------------------------
5247 Danbury Fair Mall Danburry CT G & G Shops of New England, Inc.
- --------------------------------------------------------------------------------------------------------------
5249 Chapel Hill Mall Akron OH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5252 Northlake Mall Tucker GA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5253 Searstown Shop. Ctr. Leominster MA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5254 Penrose Plaza Philadelphia PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5255 Govenors Square Clarksville TN G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5256 Halem Irving Norridge IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE>
Leases
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5257 Logan Valley Altoona PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5258 Plaza in Lake Forest New Orleans LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5262 Westgate Mall Spartanburg SC G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5264 Marley Station Glen Burnie MD G & G Shops of Maryland, Inc.
- --------------------------------------------------------------------------------------------------------------
5265 Salmon Run Watertown NY G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5266 Marketplace Mall Rochester NY G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5269 Lincolnwood Town Center Lincolnwood IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5270 Mall of New Hampshire Manchester NH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5273 Oakland Pointe Pontiac MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5274 Mayfair S.C. Philadelphia PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5275 Chicago Ridge Mall Chicago Ridge IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5277 Century III West Mifflin PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5278 Mall of Louisiana Baton Rouge LA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5279 Eastgate Mall Cincinnati OH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5282 Champlain Centre Plattsburg NY G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5284 Regency Square Jacksonville FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5285 Military Crossing Norfolk VA G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5286 Square One Mall Saugus MA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5287 One Olney Plaza Philadelphia PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5288 Waterworks Pittsburgh PA G & G Shops of Pennsylvania, Inc.
- --------------------------------------------------------------------------------------------------------------
5290 Brass Mill Ctr. Waterbury CT G & G Shops of New England, Inc.
- --------------------------------------------------------------------------------------------------------------
5291 Northgate Mall Durham NC G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5292 Grand Traverse Mall Traverse City MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5294 Oviedo Crossing Oviedo FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE>
Leases
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Store Mall City State Seller
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5295 East Town Mall Madison WI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5296 Wheaton Plaza Wheaton MD G & G Shops of Maryland, Inc.
- --------------------------------------------------------------------------------------------------------------
5297 Northgate Mall Cincinnati OH G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5300 Regency Mall Racine WI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5301 Treasure Coast Jensen Beach FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5303 Rivergate Mall Goodlettsville TN G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5304 Fashion Sq. Mall Saginaw MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5306 The Sands Oceanside NY G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5309 Greendale Mall Worcester MA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5310 Lakeland Square Lakeland FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5311 Meriden Square Meridan CT G & G Shops of New England, Inc.
- --------------------------------------------------------------------------------------------------------------
5312 Frenchtown Square Monroe MI G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5314 Kitsap Mall Silverdale WA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5315 Bellis Fair Mall Billingham WA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5318 Towson Towne Center Towson MD G & G Shops of Maryland, Inc.
- --------------------------------------------------------------------------------------------------------------
5319 Clearwater Mall Clearwater FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5320 University Square Tampa FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5322 Bridgewater Commons Bridgewater NJ G & G Shops of Woodbridge, Inc.
- --------------------------------------------------------------------------------------------------------------
5324 Columbia Mall Kennewick WA G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5326 Omni International Miami FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5327 Tyrone Square St. Petersburg FL G & G Shops of North Carolina, Inc.
- --------------------------------------------------------------------------------------------------------------
5329 Clackmas Towne Center Portland OR G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5332 St. Clair Square Fairview IL G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
5333 Riverside Mall Utica NY G & G Shops, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-9
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5337 So. County Center St. Louis MO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5338 St. Louis Center St. Louis MO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5340 Harford Mall Bel Air MD G & G Shops of Maryland, Inc.
- ---------------------------------------------------------------------------------------------------
5341 South Mall Allentown PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5343 College Hill Normol IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5344 Bradlees S.C. Yonkers NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5345 Cape Cod Mall Hyannis MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5348 Everett Mall Everett WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5349 Hudson Valley Mall Kingston NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5350 McCain Mall North Little Rock AR G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5351 University Mall Little Rock AR G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5352 Sunset Mall Holbrook NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5353 Stroud Mall Stroudsburg PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5354 Chesterfield Mall Richmond VA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5355 Eastland Mall Columbus OH G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5356 Westland Mall Columbus OH G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5357 Northland Mall Columbus OH G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5360 South Park Mall Colonial Heights VA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5361 Tacoma Mall Tacoma WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5362 Lakewood Mall Tacoma WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5367 Coliseum Mall Hampton VA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5369 Meadow Glen Mall Medford MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5370 Port Charlotte Center Port Charlotte FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5371 Emerald Square North Attleborough MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-10
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5372 Mall of Amricas Miami FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5373 Louis Joliet Mall Joliet IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5375 Randhurst Mall Mt. Prospect IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5376 Huntington Mall Barboursville WV G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5378 Irondequoit Mall Rochester NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5379 Stratford Square Mall Bloomingdale IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5380 Cascade Mall Burlington WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5382 Tower City Cleveland OH G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5383 Montgomery Mall Montgomery AL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5384 Silver Lakes Mall Coeur D'Alene ID G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5387 Lakeside Mall Metairie LA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5388 Dartmouth Mall North Dartmouth MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5389 Independence Mall Kingston MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5394 Southport S.C. Shirley NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5395 Chesterfield Mall St. Louis MO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5399 Buckland Hills Mall Manchester CT G & G Shops of New England, Inc.
- ---------------------------------------------------------------------------------------------------
5401 Northwest Plaza Saint Ann MO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5402 Golden Ring Mall Baltimore MD G & G Shops of Maryland, Inc.
- ---------------------------------------------------------------------------------------------------
5406 Center at Salisbury Salisbury MD G & G Shops of Maryland, Inc.
- ---------------------------------------------------------------------------------------------------
5407 Steeplegate Mall Concord NH G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5408 Northfield Square Bourbonnais IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5409 Maple Hill Mall Kalamazoo MI G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5410 Morgantown Mall Morgantown WV G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5412 Augusta Mall Augusta GA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-11
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5414 Savannah Mall Savannah GA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5417 Birchwood Mall Fort Gratiot MI G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5418 Carousel Center Syracuse NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5419 Countryside Mall Clearwater FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5420 Mid Rivers Mall Saint Peters MO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5422 Evergreen Mall Evergreen IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5424 Edgewood Town Center Edgewood PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5425 The Avenues Jacksonville FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5426 Lloyd Center Space Portland OR G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5428 Galleria at Cyrstal Run Middletown NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5429 Washington Square Mall Indianapolis IN G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5431 Paddock Mall Ocala FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5432 Desoto Square Bradenton FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5433 The Brickyard Mall Chicago IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5434 Northtown Mall Spokane WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5435 Coolsprings Galleria Franklin TN G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5436 Westmoreland Mall Greensburg PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5437 Melbourne Square Mall Melbourne FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5438 Virginia Center Commons Glen Allen VA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5440 Crossroad S.C. Omaha NE G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5442 South Center Seattle WA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5443 The Florida Mall Orlando FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5445 Willow Woods Shoppes Wantaugh NY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5446 Orlando Fashion Center Orlando FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-12
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5447 Westchester Mall Miami FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5448 Lakeshore Mall Sebring FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5450 Silver City Galleria Taunton MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5451 Granite Run Mall Media PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5452 Springhill Mall West Dundee IL G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5453 Montgomery Mall North Wales PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5454 Mall at 163rd Street North Miami FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5455 Westgate Mall Brockton MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5457 Sarasota Square Sarasota FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5458 Holyoke Mall Holyoke MA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5459 Oakwood Mall Gretna LA G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5460 Pembroke Lakes Mall Pembroke Pines FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5462 The Mall at Johnson City Johnson City TN G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5463 Mall at Barnes Crossing Tupelo MS G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5464 Beltway Plaza Greenbelt MD G & G Shops of Maryland, Inc.
- ---------------------------------------------------------------------------------------------------
5465 Jefferson mall Louisville KY G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5466 Palm Beach Mall West Palm Beach FL G & G Shops of North Carolina, Inc.
- ---------------------------------------------------------------------------------------------------
5468 Crossroad Mall Boulder CO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5469 Buckingham Square Aurora CO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5472 Greeley Mall Greeley CO G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5477 Mall at Steam Town Scranton PA G & G Shops of Pennsylvania, Inc.
- ---------------------------------------------------------------------------------------------------
5600 Carousel mall San Bernardino CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5601 Victor Valley mall Victorville CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5602 Panorama mall Panorama City CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-13
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5603 Fallbrook Mall Canoga Park CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5604 Northridge Center Mall Salinas CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5605 Mall at Northgate San Farael CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5606 Montebello Town Center Montebello CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5608 Lakewood Center Mall Lakewood CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5609 Valley Plaza Bakersfield CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5610 Buena Park Buena Park CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5611 Bayshore Mall Eureka CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5612 Sierra Vista Mall Copvos CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5614 East Hills Mall Bakersfield CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5615 Vallco Fashion Park Cupertino CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5617 County East Mall Antioch CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5620 Chico Mall Chico CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5622 Westminster Mall Westminster CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5623 Plaza Camino Real Carlsbad CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5625 Southbay Pavilion @ Carson Carson CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5627 Mall at Yuba City Yuba CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5628 Chula Vista Center Chula Vista CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5629 Baldwin Hills Los Angeles CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5631 Arden Fair Sacramento CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5633 Fresno fashion Fair Fresno CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5634 Paradise Valley Mall Phoenix AZ G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5635 Westridge Mall Phoenix AZ G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5636 Metro Center Phoenix AZ G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-14
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5638 Superstition Springs Mesa AZ G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5639 Antelope Valley Palmdale CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5640 Stonewood Mall Downey CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5641 Coddingtown Mall Santa Rosa CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5642 Galleria at Tyler Riverside CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5644 Plaza West Covina West Covina CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5645 Mission Valley Center San Diego CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5646 Buenaventura Mall Ventura CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5647 Plaza Bonita National City CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5648 Manchester S.C. Fresno CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5650 Park Lane Mall Reno NV G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5651 Valencia Town Center Valencia CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5653 Vintage Faire Modesto CA G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5681 Pearlridge Phase II Aiea HI G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5700 Ingram Park mall San Antonio TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5702 Windsor Park Mall San Antonio TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5703 Sunland Park Mall El Paso TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5704 Cielo Vista Mall El Paso TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5705 Valle Vista Mall Harlingen TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5706 Amigo Land Mall Brownsville TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5707 Sunrise Mall Brownsville TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5708 Plaza Mall Mcallen TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5710 Bassett Center El Paso TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5711 Greenspoint Mall Houston TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-15
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5712 Parkdale Mall Beaumont TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5714 Barton Creek Mall Austin TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5715 Lakeline Mall Austin TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5716 Sharpstown Mall Houston TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5717 Valley View Mall Dallas TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5718 South Park Mall San Antonio TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5719 South Plains Mall Lubbock TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5724 North East Mall Hurst TX G & G Shops, Inc.
- ---------------------------------------------------------------------------------------------------
5800 Plaza Las Americas Hato Rey PR Dayson's Cupey Corp.
- ---------------------------------------------------------------------------------------------------
5801 Ponce Mall Ponce PR Dayson's of Ponce, Inc.
- ---------------------------------------------------------------------------------------------------
5802 Mayaguez Mall Mayaguez PR Franklin 198 Corp.
- ---------------------------------------------------------------------------------------------------
5803 Santa Rosa Mall Bayamon PR Rave Apparel Corp of Bayamon
- ---------------------------------------------------------------------------------------------------
5804 Oriental Plaza Humacao PR Rave Apparel Corp of Humacao
- ---------------------------------------------------------------------------------------------------
5805 Plaza Palma Real Humacao PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5806 Plaza Del Carmen Caguas PR Caribe Apparel Corporation
- ---------------------------------------------------------------------------------------------------
5807 El Senoral Mall Rio Piedras PR Christina El Senorial Corp.
- ---------------------------------------------------------------------------------------------------
5808 Once De Diego Street Cayey PR Marianne Estrella Corp.
- ---------------------------------------------------------------------------------------------------
5810 Plaza Del Oeste San German PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5811 Plaza Carolina Carolina PR Noya Carolina Corp.
- ---------------------------------------------------------------------------------------------------
5814 #6 Progresso Street Aquadilla PR Progresso-Corchado, Corp.
- ---------------------------------------------------------------------------------------------------
5815 Ponce De Leon Street Santruce PR Cumbres Apparel Corp.
- ---------------------------------------------------------------------------------------------------
5816 44 Noya and Hernandez Humacao PR Noya Carolina Corp.
- ---------------------------------------------------------------------------------------------------
5817 25 North Calimano Street Guayama PR N. Calimano MDA Corp.
- ---------------------------------------------------------------------------------------------------
5818 De Diego St. #83/84 Rio Piedras PR Marianne Estrella Corp.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-16
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5819 Barcelo Street Barranquitas PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5820 Baymon Oeste Hato Tejas PR Dayson's of Ponce, Inc.
- ---------------------------------------------------------------------------------------------------
5822 De Diego Street Rio Piedras PR El Canton Apparel Corp.
- ---------------------------------------------------------------------------------------------------
5823 Sunny Isles Center St. Croix VI G & G Island Corp.
- ---------------------------------------------------------------------------------------------------
5825 Guatier Benitez Caguas PR El Canton Apparel Corp.
- ---------------------------------------------------------------------------------------------------
5826 Dorado S.C Dorado PR Caribe Apparel Corporation
- ---------------------------------------------------------------------------------------------------
5828 Caparra Heights Guaynabo PR Franklin 203 Corp.
- ---------------------------------------------------------------------------------------------------
5829 Plaza Rio Hondo Bayamon PR Marianne Estrella Corp.
- ---------------------------------------------------------------------------------------------------
5831 Post Street Mayaguez PR Marianne Estrella Corp.
- ---------------------------------------------------------------------------------------------------
5833 Vega Baja Vega Baja PR 157 De Diego Corporation
- ---------------------------------------------------------------------------------------------------
5834 De Diego Street #204 Arecibo PR 157 De Diego Corporation
- ---------------------------------------------------------------------------------------------------
5835 Calle Ruis Belvis San Sebastian PR Marianne Estrella Corp.
- ---------------------------------------------------------------------------------------------------
5836 Atocha Mall Ponce PR Franklin 203 Corp.
- ---------------------------------------------------------------------------------------------------
5837 Bayamon S.C. Baymon PR Noya Carolina Corp.
- ---------------------------------------------------------------------------------------------------
5838 Plaza Guayama Guayama PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5839 Plaza Juana Diaz Juana Diaz PR Noya Carolina Corp.
- ---------------------------------------------------------------------------------------------------
5840 El Canton Mall Bayamon PR Franklin 221 Corp.
- ---------------------------------------------------------------------------------------------------
5841 Plaza Carolina Carolina PR El Canton Apparel Corp.
- ---------------------------------------------------------------------------------------------------
5842 Plaza Centro Caguas PR Franklin 221 Corp.
- ---------------------------------------------------------------------------------------------------
5843 Fajardo Consumer Mall Fajardo PR Franklin 203 Corp.
- ---------------------------------------------------------------------------------------------------
5844 53 McKinley Street Manati PR Franklin 223 Corp.
- ---------------------------------------------------------------------------------------------------
5846 Yauco Plaza Yauco PR Rave Apparel Corp of Humacao
- ---------------------------------------------------------------------------------------------------
5847 Plaza Del Caribe Ponce PR Dayson's of Ponce, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE>
Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Store Mall City State Seller
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5848 Plaza Del Norte #116 Hatillo PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5850 Aguadilla Mall #9 Aquadilla PR 61 Dr. Veve Corporation
- ---------------------------------------------------------------------------------------------------
5851 Tutu Park St. Thomas VI G & G Island Corp.
- ---------------------------------------------------------------------------------------------------
5902 South Hills Pittsburgh PA G & G Shops of New York, Inc.
- ---------------------------------------------------------------------------------------------------
5905 Dadeland Mall Miami FL G & G Shops of New York, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
A-18
<PAGE>
Additional
Leases
- --------------------------------------------------------------------------------
Store Mall City State Seller
- ----- ---- ---- ----- ------
- --------------------------------------------------------------------------------
5923 Edison Mall Fort Myers FL G & G Shops of North
Carolina, Inc.
- --------------------------------------------------------------------------------
5720 Vista Ridge Lewisville TX G & G Shops, Inc.
Mall
- --------------------------------------------------------------------------------
5723 Mall del Laredo TX G & G Shops, Inc.
Norte
- --------------------------------------------------------------------------------
5726 San Jacinto Baytown TX G & G Shops, Inc.
Mall
- --------------------------------------------------------------------------------
5722 Midland Park Midland TX G & G Shops, Inc.
Mall
- --------------------------------------------------------------------------------
5721 Padre Corpus TX G & G Shops, Inc.
Staples Mall Christi
- --------------------------------------------------------------------------------
8678 Springfield Springfield VA G & G Shops, Inc.
Mall
- --------------------------------------------------------------------------------
A-19
<PAGE>
Petrie Seller Leases
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Store Mall City State Seller
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5834 De Diego Street #204 Arecibo PR 157 De Diego Corporation
- -------------------------------------------------------------------------------------------
5833 Vega Baja Vega Baja PR 157 De Diego Corporation
- -------------------------------------------------------------------------------------------
5805 Plaza Palma Real Humacao PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5838 Plaza Guayama Guayama PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5810 Plaza Del Oeste San German PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5819 Barcelo Street Barranquitas PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5848 Plaza Del Norte #116 Hatillo PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5850 Aguadilla Mall #9 Aquadilla PR 61 Dr. Veve Corporation
- -------------------------------------------------------------------------------------------
5806 Plaza Del Carmen Caguas PR Caribe Apparel Corporation
- -------------------------------------------------------------------------------------------
5826 Dorado S.C Dorado PR Caribe Apparel Corporation
- -------------------------------------------------------------------------------------------
5807 El Senoral Mall Rio Piedras PR Christina El Senorial Corp.
- -------------------------------------------------------------------------------------------
5815 Ponce De Leon Street Santruce PR Cumbres Apparel Corp.
- -------------------------------------------------------------------------------------------
5800 Plaza Las Americas Hato Rey PR Dayson's Cupey Corp.
- -------------------------------------------------------------------------------------------
5820 Baymon Oeste Hato Tejas PR Dayson's of Ponce, Inc.
- -------------------------------------------------------------------------------------------
5801 Ponce Mall Ponce PR Dayson's of Ponce, Inc.
- -------------------------------------------------------------------------------------------
5847 Plaza Del Caribe Ponce PR Dayson's of Ponce, Inc.
- -------------------------------------------------------------------------------------------
5822 De Diego Street Rio Piedras PR El Canton Apparel Corp.
- -------------------------------------------------------------------------------------------
5841 Plaza Carolina Carolina PR El Canton Apparel Corp.
- -------------------------------------------------------------------------------------------
5825 Guatier Benitez Caguas PR El Canton Apparel Corp.
- -------------------------------------------------------------------------------------------
5802 Mayaguez Mall Mayaguez PR Franklin 198 Corp.
- -------------------------------------------------------------------------------------------
5836 Atocha Mall Ponce PR Franklin 203 Corp.
- -------------------------------------------------------------------------------------------
5828 Caparra Heights Guaynabo PR Franklin 203 Corp.
- -------------------------------------------------------------------------------------------
5843 Fajardo Consumer Mall Fajardo PR Franklin 203 Corp.
- -------------------------------------------------------------------------------------------
5842 Plaza Centro Caguas PR Franklin 221 Corp.
- -------------------------------------------------------------------------------------------
5840 El Canton Mall Bayamon PR Franklin 221 Corp.
- -------------------------------------------------------------------------------------------
</TABLE>
A-20
<PAGE>
Petrie Seller Leases
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Store Mall City State Seller
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5844 53 McKinley Street Manati PR Franklin 223 Corp.
- --------------------------------------------------------------------------------------------------
5831 Post Street Mayaguez PR Marianne Estrella Corp.
- --------------------------------------------------------------------------------------------------
5829 Plaza Rio Hondo Bayamon PR Marianne Estrella Corp.
- --------------------------------------------------------------------------------------------------
5818 De Diego St. #83/84 Rio Piedras PR Marianne Estrella Corp.
- --------------------------------------------------------------------------------------------------
5835 Calle Ruis Belvis San Sebastian PR Marianne Estrella Corp.
- --------------------------------------------------------------------------------------------------
5808 Once De Diego Street Cayey PR Marianne Estrella Corp.
- --------------------------------------------------------------------------------------------------
5811 Plaza Carolina Carolina PR Noya Carolina Corp.
- --------------------------------------------------------------------------------------------------
5839 Plaza Juana Diaz Juana Diaz PR Noya Carolina Corp.
- --------------------------------------------------------------------------------------------------
5837 Bayamon S.C. Baymon PR Noya Carolina Corp.
- --------------------------------------------------------------------------------------------------
5816 44 Noya and Hernandez Humacao PR Noya Carolina Corp.
- --------------------------------------------------------------------------------------------------
5817 25 North Calimano Street Guayama PR N. Calimano MDA Corp.
- --------------------------------------------------------------------------------------------------
5814 #6 Progresso Street Aquadilla PR Progresso-Corchado, Corp.
- --------------------------------------------------------------------------------------------------
5803 Santa Rosa Mall Bayamon PR Rave Apparel Corp of Bayamon
- --------------------------------------------------------------------------------------------------
5846 Yauco Plaza Yauco PR Rave Apparel Corp of Humacao
- --------------------------------------------------------------------------------------------------
5804 Oriental Plaza Humacao PR Rave Apparel Corp of Humacao
- --------------------------------------------------------------------------------------------------
5084 Twin River Mall Newbern NC Whitney Stores, Inc.
- --------------------------------------------------------------------------------------------------
</TABLE>
A-21
<PAGE>
Other Contracts
- --------------------------------------------------------------------------------
Lessor Date Type
- --------------------------------------------------------------------------------
Accu-Sort Systems, Inc. 02/26/97 Distribution
- --------------------------------------------------------------------------------
ADT 05/10/90 Stores
- --------------------------------------------------------------------------------
ADT 10/19/94 Stores
- --------------------------------------------------------------------------------
ADT 02/07/89 Stores
- --------------------------------------------------------------------------------
ADT 03/01/91 Stores
- --------------------------------------------------------------------------------
ADT 10/11/91 Stores
- --------------------------------------------------------------------------------
ADT 01/30/90 Stores
- --------------------------------------------------------------------------------
ADT 11/26/86 Stores
- --------------------------------------------------------------------------------
ADT 03/05/93 Stores
- --------------------------------------------------------------------------------
ADT 02/10/94 Stores
- --------------------------------------------------------------------------------
ADT 08/02/90 Stores
- --------------------------------------------------------------------------------
ADT 05/04/92 Stores
- --------------------------------------------------------------------------------
ADT 07/10/87 Stores
- --------------------------------------------------------------------------------
ADT 06/04/92 Stores
- --------------------------------------------------------------------------------
AFA Protective Systems 12/05/86 Stores
- --------------------------------------------------------------------------------
Applied Sound and Communications 10/28/94 MIS
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 03/30/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 02/05/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 08/22/86 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 07/31/86 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 10/20/86 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 11/17/86 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 07/10/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 10/09/87 Stores
- --------------------------------------------------------------------------------
A-22
<PAGE>
Other Contracts
- --------------------------------------------------------------------------------
Lessor Date Type
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 02/17/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 06/08/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 06/08/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 07/30/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 11/12/90 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 11/13/90 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 08/24/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 08/05/86 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 08/12/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 07/09/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 08/18/87 Stores
- --------------------------------------------------------------------------------
Asset Conservation, Inc. 04/23/87 Stores
- --------------------------------------------------------------------------------
Atlantic Scale Company, Inc. 11/27/97 Distribution
- --------------------------------------------------------------------------------
Cannon 05/25/96 Office Equipment
- --------------------------------------------------------------------------------
Central Station Protective Service 05/01/92 Stores
- --------------------------------------------------------------------------------
Central Station Protective Service 02/21/92 Stores
- --------------------------------------------------------------------------------
Coverall of No. America, Inc. 11/21/97 Distribution
- --------------------------------------------------------------------------------
Eastern DataComm #1105 01/26/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #1106 01/26/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #597 01/26/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #598 01/26/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #601 02/09/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #856 02/09/98 MIS
- --------------------------------------------------------------------------------
Eastern DataComm #858 01/26/98 MIS
- --------------------------------------------------------------------------------
A-23
<PAGE>
Other Contracts
- --------------------------------------------------------------------------------
Lessor Date Type
- --------------------------------------------------------------------------------
Energy Engineering 10/17/97 Distribution
- --------------------------------------------------------------------------------
Fitzgerald and Long MIS
- --------------------------------------------------------------------------------
GRC Mechanical Services 10/14/97 Distribution
- --------------------------------------------------------------------------------
Holmes Protection of Philadelphia, Inc. 02/05/92 Stores
- --------------------------------------------------------------------------------
Holmes Protection, Inc. 05/01/91 Stores
- --------------------------------------------------------------------------------
IBM 11/06/97 MIS
- --------------------------------------------------------------------------------
James River Technical Incorporated 07/14/94 MIS
- --------------------------------------------------------------------------------
Liebert CS&S 11/07/97 MIS
- --------------------------------------------------------------------------------
Mannesmann Tally 02/17/98 MIS
- --------------------------------------------------------------------------------
MCS Cannon 11/29/94 Office Equipment
- --------------------------------------------------------------------------------
Millsoft, Inc. 08/12/94 MIS
- --------------------------------------------------------------------------------
Monarch Marketing Systems 01/01/98 Distribution
- --------------------------------------------------------------------------------
Net Manage 12/08/97 MIS
- --------------------------------------------------------------------------------
OCE Acquisition Alternatives 07/02/97 Office Equipment
- --------------------------------------------------------------------------------
Output Technology 10/08/97 MIS
- --------------------------------------------------------------------------------
Peak Technologies 01/28/98 MIS
- --------------------------------------------------------------------------------
Pitney Bowes Credit Corporation 02/01/96 Office Equipment
- --------------------------------------------------------------------------------
Retail Store Systems, Inc. 11/11/97 MIS
- --------------------------------------------------------------------------------
Siemens Business Communications Systems, Inc. 01/26/98 MIS
- --------------------------------------------------------------------------------
T&G Industries, Inc. 01/07/96 MIS
- --------------------------------------------------------------------------------
Vanstar MIS
- --------------------------------------------------------------------------------
V-Mark 02/01/95 MIS
- --------------------------------------------------------------------------------
Xerox 05/20/93 Office Equipment
- --------------------------------------------------------------------------------
A-24
<PAGE>
Other Contracts
- --------------------------------------------------------------------------------
Contracting Party Date Type
- --------------------------------------------------------------------------------
Jay Galin 3/4/97 Employment Contract
- --------------------------------------------------------------------------------
Scott Galin 4/23/97 Employment Contract
- --------------------------------------------------------------------------------
A-25
<PAGE>
EXHIBIT 10.06
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 28, 1998
(the "Effective Date"), by and between G+G Retail, Inc., a Delaware corporation
(the "Company"), and Jay Galin, an individual resident in 167 East 71st Street,
New York, NY 10021 (the "Executive").
RECITALS
Concurrently with the execution of this Agreement (i) the Company is
purchasing certain assets and assuming certain liabilities pursuant to the Asset
Purchase Agreement, dated as of July 6, 1998 among the Company, G & G Shops,
Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of
Petrie Retail, Inc. named therein and PSL, Inc., as amended (the "Asset Purchase
Agreement") and (ii) Pegasus G&G Retail, L.P., Pegasus G&G Retail II, L.P.
(collectively, the "Investors"), the Executive and the other stockholders of G&G
Retail Holdings, Inc., the Company's parent company ("Parent Company") are
entering into a stockholders agreement (the "Stockholders Agreement"), providing
for various rights and obligations of the Parent Company's stockholders. The
Company and the Investors desire the Executive's continued employment with the
Company, and the Executive wishes to accept such continued employment, upon the
terms and subject to the conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" shall mean this Employment Agreement, including the schedules
and exhibits hereto, as modified, supplemented or amended from time to time.
"Asset Purchase Agreement" shall have the meaning set forth in the
Recitals to this Agreement.
"Basic Compensation" shall have the meaning set forth in Section 3.1(b).
"Benefits" shall have the meaning set forth in Section 3.1(b).
"Board of Directors" shall mean the board of directors of the Company.
"Bonus Compensation" shall have the meaning set forth in Section 3.2(a).
<PAGE>
"Cause" shall have the meaning set forth in Section 4.3.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Confidential Information" shall mean any and all knowledge and
information relating to the business and affairs of the Company or any of its
affiliates, their products, processes and/or services and their customers,
suppliers, landlords, creditors, shareholders, contractors, agents, consultants
and employees ("Related Persons"), that is or is intended by any of them to be
of a confidential nature, including, but not limited to, any and all knowledge
and information relating to products, research, development, inventions,
manufacture, purchasing, accounting, finances, costs, profit margins, marketing,
merchandising, selling, customer lists, customer requirements and personnel,
pricing, pricing methods, computer programs and software, databases and data
processing and any and all other such knowledge, information and materials,
heretofore or hereafter during the term of this Agreement, conceived, designed,
created, used or developed by or relating to the Company, any of its affiliates
or any Related Person; Confidential Information does not include any information
that may be in the public domain or come into the public domain not as a result
of a breach by the Executive of any of the terms or provisions of this
Agreement.
"Designated Beneficiary" shall have the meaning set forth in Section 5.5.
"Disability" shall have the meaning set forth in Section 4.2.
"Effective Date" shall have the meaning set forth in the first paragraph
of this Agreement.
"Employment Period" shall have the meaning set forth in Section 2.2(a).
"Executive" shall have the meaning set forth in the first paragraph of
this Agreement.
"Good Reason" shall have the meaning set forth in Section 4.4.
"Investors" shall have the meaning set forth in the Recitals to this
Agreement.
"Parent Company" shall have the meaning set forth in the first paragraph
of this Agreement.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, governmental body or other
entity.
"Post-Employment Period" shall have the meaning set forth in Section 6.2.
"Proprietary Items" shall have the meaning set forth in Section 5.2(d).
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"Salary" shall have the meaning set forth in Section 3.1(a).
"Stockholders Agreement" shall have the meaning set forth in the Recitals
to this Agreement.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
Upon consummation of the transactions contemplated in the Asset
Purchase Agreement, the Company employs the Executive, and the Executive accepts
employment by the Company, upon the terms and subject to the conditions set
forth in this Agreement.
2.2 TERM
(a) Subject to the provisions of Section 4 and paragraph (b) below,
the term of the Executive's employment under this Agreement shall be two years,
beginning on the Effective Date and ending on the second anniversary of the
Effective Date (the "Employment Period").
(b) At any time during the Employment Period, the Executive may, by
written notice to the Company in accordance with Section 7.7 (the "Consulting
Notice"), terminate this Agreement and serve as a consultant to the Company (the
"Consulting Option"), substantially upon the terms and conditions set forth in
the consulting agreement attached hereto as Exhibit A (the "Consulting
Agreement"). Following the exercise by the Executive of the Consulting Option,
this Agreement shall terminate and the Consulting Agreement shall take effect in
place of this Agreement in all respects on the later of (i) the date on which
the Company and the Executive enter into the Consulting Agreement and (ii) the
date which is three full months following receipt by the Company of the
Consulting Notice.
2.3 DUTIES
The Executive shall have such duties as are assigned or delegated to
the Executive by the Board of Directors, and shall initially serve as Chairman
and Chief Executive Officer of the Company. The Executive shall (a) devote his
entire business time, attention, skill and energy exclusively to the business of
the Company, (b) serve the Company faithfully, diligently and to the best of his
ability under the direction of the Board of Directors, (c) use his best efforts
to promote the success of the Company's business and (d) cooperate fully with
the Board of Directors in the advancement of the best interests of the Company.
The Executive shall not, without the prior written consent of the Board of
Directors (x) do anything or permit anything to be done at his direction
inconsistent with his duties to the Company or its affiliates or opposed to
their best interests, or (y) become an officer, director, employee or consultant
of, or otherwise become associated with or engaged in, any business other than
that of the Company and the Parent Company, except that the Executive may
continue to serve as a non-employee or "outside" director of Ark Restaurants
Corp.,
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a publicly-held company. Nothing in this Section 2.3 shall prevent the Executive
from engaging in additional activities in connection with personal investments
and community affairs that are not inconsistent with the Executive's duties
under this Agreement. If the Executive is elected as a director of the Company
or as a director or officer of any of its affiliates, the Executive shall
fulfill his duties as such director or officer without additional compensation.
During the Employment Period, the Executive shall be headquartered in New York
City.
3. COMPENSATION AND BENEFITS
3.1 BASIC COMPENSATION
(a) Salary. The Executive shall be paid an initial annual salary of
$1,050,000 ("Salary"), which shall be payable in equal periodic installments
according to the Company's customary payroll practices, but no less frequently
than monthly. On each anniversary of the commencement of the Employment Period,
the Executive's Salary shall be increased by $25,000.
(b) Benefits. The Company shall maintain for the Executive during
the Employment Period, at no cost to the Executive, hospitalization, medical,
surgical, dental and other employee benefit plans of the Company currently in
effect, as set forth on Schedule 3.1 hereto including, without limitation, so
called Blue Cross-Blue Shield and major medical coverage, (collectively the
"Benefits" and, together with the Salary, "Basic Compensation"), providing for
direct payment or reimbursement to the Executive of substantially all medical
and dental expenses incurred by the Executive, his spouse and dependent members
of his family during the Employment Period.
The Company shall furnish to the Executive, during the Employment
Period, an automobile comparable to that currently being furnished to the
Executive by G&G Shops, Inc. The Company shall pay all expenses relating to the
maintenance and business use of such automobile, including, without limitation,
insurance, repairs and fuel.
(c) Expenses. The Company shall pay on behalf of the Executive (or
reimburse the Executive for) reasonable expenses incurred by the Executive at
the request of, or on behalf of, the Company in the performance of the
Executive's duties pursuant to this Agreement, and in accordance with the
Company's employment policies. The Executive shall file expense reports with
respect to such expenses in accordance with the Company's policies.
3.2 BONUS COMPENSATION
The Company shall implement a bonus plan for the benefit of the
senior management of the Company which plan shall provide for annual bonuses to
be paid to eligible members of the Company's management based on the Company
attaining certain annual EBITDA targets to be agreed upon and specified by the
holders of the Parent Company's shares of Class A common stock, par value $.001
per share and Class B common stock, par value $.001 per share.
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The Executive will be eligible to receive collectively with Scott
Galin up to (and no more than) 50% of the aggregate bonus pool amount, provided,
that in no event shall the Executive receive a bonus amount greater than the
amount of his annual salary. The remainder of the bonus pool shall be
distributed as determined by the Executive and Scott Galin jointly.
The bonus plan shall terminate upon consummation by the Company of
an initial public offering of its common stock, at which time the Company will
consider replacing the bonus plan with a plan more appropriate for public
companies.
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and Bonus
Compensation and any and all other rights of the Executive under this Agreement
or otherwise as an employee of the Company shall terminate (except as otherwise
provided in this Section 4):
(a) upon the death of the Executive;
(b) upon the Disability (as defined in Section 4.2) of the
Executive, immediately upon notice from either party to the other;
(c) upon termination by the Company for Cause (as defined in Section
4.3), on the date specified in Section 4.3; or
(d) upon termination by the Executive for Good Reason (as defined in
Section 4.4), on the date specified in Section 4.4.
4.2 DEFINITION OF "DISABILITY"
(a) For the purposes of this Section 4.2, the Executive shall be
deemed to have a Disability if (i) by reason of physical or mental incapacity,
the Executive shall not be able to perform his duties hereunder for a
consecutive period of six months or more or for a period in the aggregate of six
months in any consecutive period of twelve months; or (ii) when the Executive's
physician shall have determined that he shall not be able, by reason of physical
or mental disability, to devote his time and energy to the business of the
Company for a continuous period of six months or for a period in the aggregate
of six months in a consecutive period of twelve months. In the event that the
Executive or the Company shall dispute any determination of his Disability
hereunder, the matter shall be resolved by the determination of three physicians
qualified to practice medicine in the State of New York, one to be selected by
each of the Company and the Executive and the third to be selected by the
designated physicians. During the period in which the determination of the
Executive's Disability shall be under such review, the Executive shall continue
to be treated for all
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purposes of this Agreement as an employee of the Company, enjoying the full
status with full pay to which he would otherwise be entitled under this
Agreement.
(b) The Company may, but shall not be obligated to, apply for and
pay the premiums upon disability insurance covering the Executive under policies
providing for the payment thereunder directly to the Executive. If the Executive
shall receive benefits under any of such policies, the Company shall be entitled
to deduct the amount equal to the benefits so received from the Salary which it
otherwise would be required to pay to the Executive as provided in Section
4.5(c).
4.3 DEFINITION OF FOR "CAUSE"
For purposes of Section 4.1, the phrase for "Cause" means: (i) the
failure, neglect or refusal by the Executive to perform his duties hereunder
(including, without limitation, his inability to perform his duties hereunder as
a result of alcohol abuse, chronic alcoholism or drug addiction); (ii) any
willful, intentional or grossly negligent act by the Executive having the effect
of injuring the reputation or business of the Company; (iii) the Executive's
conviction of a felony or a crime involving moral turpitude (including the entry
of a nolo contendere plea); and (iv) any other default, nonperformance or
violation by the Executive of any of the covenants, provisions or terms of this
Agreement. A termination for Cause as defined in clause (i) or (iv) of the
preceding sentence shall become effective only if (A) the Company shall have
given Executive notice thereof describing the basis for such termination for
Cause, and (B) the Executive fails to cure such Cause within 10 business days
after receiving such notice (and the termination for Cause shall be effective
upon the expiration of such 10-business-day period if the Executive fails to
effect such cure); and a termination for Cause as defined in clause (ii) or
(iii) of the preceding sentence shall be effective at the time the Company gives
notice thereof to the Executive.
4.4 DEFINITION OF FOR "GOOD REASON"
For purposes of Section 4.1, the phrase for "Good Reason" means (i)
the Company effects a material reduction in the Executive's position or duties
from those set forth in Section 2.3 hereof, the Company fails to provide the
Executive with any material compensation or benefits to which he is entitled
pursuant to Section 3 hereof, or the Company commits any other material breach
of this Agreement; (ii) the Executive gives the Company notice of the event
described in clause (i) within 20 business days after its occurrence; and (iii)
the Company fails to cure such event within 10 business days after receiving
notice thereof (and the termination for Good Reason shall be effective upon the
expiration of such 10-business-day period if the Company, as applicable, fails
to effect such cure).
4.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Company shall
be obligated to pay the Executive (or, in the event of his death, his Designated
Beneficiary, as defined below)
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only such compensation as is provided in this Section 4.5, and in lieu of all
other amounts and in settlement and complete release of all claims the Executive
may have against the Company. For purposes of this Section 4.5, the Executive's
"Designated Beneficiary" shall be such individual beneficiary or trust, located
at such address, as the Executive may designate by notice to the Company from
time to time or, if the Executive fails to give notice to the Company of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Company shall have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any Person purporting
to act as the Executive's personal representative (or the trustee of a trust
established by the Executive) is duly authorized to act in that capacity or to
locate or attempt to locate any beneficiary, personal representative or trustee.
(a) Termination by the Executive for Good Reason or by the Company
Without Cause. In the event that during the Employment Period, the Executive
terminates his employment with the Company for Good Reason, or the Company
terminates the Executive's employment without Cause, then the Executive shall
receive from the Company (as severance pay and liquidated damages, in lieu of
any other rights or remedies which might otherwise be available to him under
this Agreement, and to the extent permitted by law, without any obligation on
the Executive's part to mitigate damages by seeking other employment or
otherwise and without any offset for any compensation earned as a result of any
such other employment or performance of other services) amounts equal to (and
payable at the same time and in the same manner as) the Salary payable pursuant
to Section 3.1(a) above and the bonus compensation described in Section 3.2(a)
above and all of the Benefits provided for in Section 3.1(b) above, which the
Executive would otherwise have been entitled to receive pursuant to this
Agreement, had he remained employed by the Company throughout the remainder of
the Employment Period as in effect immediately before such termination.
In case of any dispute as to the propriety of the termination of the
Executive's employment by the Company, the Company agrees to continue to provide
to the Executive all of the cash compensation and benefits that would be payable
to the Executive pursuant to the preceding sentence pending final resolution of
such dispute; the Executive shall be entitled to such legal or equitable damages
or relief as may be available to enforce his rights hereunder; and the Executive
shall be obligated to reimburse the Company for all such compensation and
benefits if it is finally determined that he was not entitled thereto. If such
termination is determined to be improper, the Company agrees to pay to the
Executive all of his attorney's fees and expenses arising from such dispute.
(b) Termination by the Company for Cause or by the Executive Without
Good Reason. If the Company terminates this Agreement for Cause, or if the
Executive terminates his employment other than for Good Reason, the Executive
shall be entitled to receive his Salary only through the date such termination
is effective, and shall not be entitled to any Bonus Compensation for the fiscal
year during which such termination occurs or any subsequent fiscal year.
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(c) Termination upon Disability. The Company shall continue to pay
the Executive his Salary pursuant to Section 3.1(a) and continue to provide the
Executive with Benefits pursuant to Section 3.1(b) for a period of one year
after he shall be deemed to have a Disability. Thereafter, the Executive shall
be entitled to receive a salary at an annual rate equal to one-half of the
Salary as then in effect and shall continue to receive Benefits, in each case
for a further period of six months. Upon the expiration of such further six-
month period, the Executive shall not be entitled to receive any further Salary
or other compensation or benefits from the Company, until he shall cease to have
a Disability and shall have resumed his duties hereunder. In the event the
Executive dies as the result of a Disability, payments under this Section 4.5(c)
shall cease and payments shall be made to the Executor's estate or otherwise as
provided in Section 4.5(d).
(d) Termination upon Death. In the event that the Executive shall
die during the Employment Period, or as a result of a Disability, the Company
shall pay to the Executive's Designated Beneficiary, the Salary and Bonus
Compensation otherwise payable to the Executive pursuant to Section 3 above for
a period of one year following the date of the Executive's death; provided, that
the foregoing obligation shall be contingent on the Company obtaining key man
life insurance to fund such obligation at a reasonable cost.
(e) Benefits. Upon the termination of this Agreement, the Executive
shall not receive, as part of his termination pay pursuant to this Section 4,
any payment or other compensation for any vacation, holiday, sick leave or other
leave unused on the date the notice of termination is given under this
Agreement. Notwithstanding the foregoing, in the event this Agreement is
terminated other than by the Company for Cause or by the Executive without Good
Reason or by exercise of the Consulting Option, if the Company is able to do so,
the Company shall continue to include the Executive in its hospitalization,
medical, surgical, dental and other health benefit plans and shall pay all
premiums under such plans on behalf of the Executive; provided, however, that
the Executive shall be solely responsible for any expenses or co-payments
incurred by the Executive, his spouse and dependent members of his family,
except as otherwise provided in this Agreement.
Following the Executive's death, unless this Agreement has been terminated
by the Company for Cause or by the Executive without Good Reason or by exercise
of the Consulting Option, until the death of the Executive's spouse, the Company
shall use reasonable efforts to include the Executive's spouse and dependent
children in hospitalization, medical, surgical, dental and other health benefit
plans of the Company currently in effect; provided, however, that the
Executive's spouse and dependent children shall be solely responsible for any
costs incurred by the Company as a result of the inclusion of such people in
such plans.
Notwithstanding anything to the contrary contained herein, the provisions
of this Section 4.5(e) shall survive any termination of this Agreement other
than a termination by the Company for Cause or by the Executive without Good
Reason or by the exercise of the Consulting Option, and shall terminate upon the
death of the Executive's spouse.
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Notwithstanding anything to the contrary contained in this Section
4.5(e), in the event this Agreement terminates pursuant to exercise of the
Consulting Option, the Executive's benefits following termination shall be
governed by the Consulting Agreement.
5. NON-DISCLOSURE COVENANT
5.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and
as a part of his employment, the Executive shall be afforded access to
Confidential Information; (b) public disclosure of such Confidential Information
could have an adverse effect on the Company and its business; (c) the Company
has required that the Executive make the covenants in this Section 5 as a
condition to its consummation of the transactions contemplated in the Asset
Purchase Agreement and the Investors have required that the Executive make the
covenants in this Section 5 as a condition to their investment in the Parent
Company and their entering into the Stockholders Agreement; and (d) the
provisions of this Section 5 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information.
5.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Company under this Agreement, the Executive
covenants as follows:
(a) During and following the Employment Period, the Executive shall
hold in confidence the Confidential Information and shall not disclose it to any
Person except with the specific prior written consent of the Company or except
as otherwise expressly permitted by the terms of this Agreement or as required
by law or a court of competent jurisdiction; provided, that in the event
disclosure is required by law or a court of competent jurisdiction, the
Executive shall, prior to disclosing any Confidential Information, promptly
notify the Company of such disclosure requirement and provide the Company with
an opportunity to contest such disclosure requirement.
(b) Any trade secrets of the Company shall be entitled to all of the
protections and benefits under applicable law. If any information that the
Company deems to be a trade secret is found by a court of competent jurisdiction
not to be a trade secret for purposes of this Agreement, such information shall,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Executive hereby waives any requirement that the Company submit
proof of the economic value of any trade secret or post a bond or other
security.
(c) None of the foregoing obligations and restrictions applies to
any part of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of disclosure by
the Executive.
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(d) The Executive shall not remove from the Company's premises
(except to the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Company), any design, document, record, notebook,
plan, model, or computer software, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Executive recognizes that, as
between the Company and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the Company. Upon
termination of this Agreement by either party, or upon the request of the
Company during the Employment Period, the Executive shall return to the Company
all of the Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies, abstracts,
sketches or other physical embodiment of any of the Proprietary Items.
5.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony and records relating to any such adjudication shall be maintained in
secrecy and shall be available for inspection by the Company, the Executive and
their respective attorneys and experts, who shall agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
6. NON-COMPETITION AND NON-INTERFERENCE
6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; (b) the Company's business is national in scope and its
products are marketed throughout the United States and in other countries,
territories and possessions; (c) the Company competes with other businesses that
are or could be located in any part of the United States and in other countries,
territories and possessions; (d) the Company has required that the Executive
make the covenants set forth in this Section 6 as a condition to the Company's
consummation of the transactions contemplated by the Asset Purchase Agreement
and the Investors have required that the Executive make the covenants in this
Section 6 as a condition to their investment in the Parent Company and their
entering into the Stockholders Agreement; and (e) the provisions of this Section
6 are reasonable and necessary to protect the Company's business.
6.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Company, the Executive covenants that he shall not, directly or
indirectly:
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(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period (as defined below),
engage or invest in, own, manage, operate, finance, control or participate in
the ownership, management, operation, financing or control of, be employed by,
associated with or in any manner connected with, lend the Executive's name or
any similar name to, lend the Executive's credit to or render services or advice
to, any Person (other than the Company and the Parent Company) engaged in the
retail apparel business anywhere within the United States or in any other
country, territory or possession in which the Company is then doing business;
provided, however, that the Executive may purchase or otherwise acquire up to
(but not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934,
as amended;
(b) whether for the Executive's own account or for the account of
any other Person, at any time during the Employment Period and the Post-
Employment Period, solicit business of the same or similar type being carried on
by the Company, from any Person known by the Executive to be a customer of the
Company, whether or not the Executive had personal contact with such Person
during and by reason of the Executive's employment with the Company;
(c) whether for the Executive's own account or the account of any
other Person at any time during the Employment Period and the Post-Employment
Period (i) solicit, employ or otherwise engage as an employee, independent
contractor or otherwise, any person who is or was an employee of the Company at
any time during the Employment Period, or in any manner induce or attempt to
induce any employee of the Company to terminate his employment with the Company;
or (ii) interfere with the Company's relationship with any Person, including any
Person who, at any time during the Employment Period, was an employee,
contractor, supplier or customer of the Company; or
(d) at any time during or after the Employment Period, disparage the
Company or any of its shareholders, directors, officers, employees or agents.
For purposes of this Section 6.2, the term "Post-Employment Period" means
the period from the date of termination of this Agreement until the earlier of
(i) the date on which the Employment Period would have terminated pursuant to
Section 2.2(a) without earlier termination of this Agreement by the Company or
the Executive and (ii) the date which is eighteen months following the date of
termination of the Executive's employment with the Company.
6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE
If any covenant in Section 6.2 is held to be unreasonable, arbitrary
or against public policy, such covenant shall be considered to be divisible with
respect to scope, time and geographic area, and such lesser scope, time or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary and not against public policy, shall
be
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effective, binding, and enforceable against the Executive. The period of time
applicable to any covenant in Section 6.2 shall be extended by the duration of
any violation by the Executive of such covenant. The Executive shall, while the
covenant under Section 6.2 is in effect, give notice to the Company, within ten
days after accepting any other employment, of the identity of the Executive's
employer. The Company may notify such employer that the Executive is bound by
this Agreement and, at the Company's election, furnish such employer with a copy
of this Agreement or relevant portions thereof.
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Company as a result of a breach of any of the provisions of this Agreement
(including, without limitation, any provision of Section 5 or 6) would be
irreparable and that an award of monetary damages to the Company for such a
breach would be an inadequate remedy. Consequently, the Company shall have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement, and the Company shall not be obligated to post
bond or other security in seeking such relief. Without limiting the Company's
rights under this Section 7 or any other remedies of the Company, if the
Executive breaches any of the provisions of Section 5 or 6, the Company shall
have the right to cease making any payments otherwise due to the Executive under
this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The covenants by the Executive in Sections 5 and 6 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Company would not have consummated the transactions
contemplated by the Asset Purchase Agreement, the Investors would not have
purchased interests in the Parent Company or entered into the Stockholders
Agreement, and the Company would not have entered into this Agreement or
employed or continued the employment of the Executive. The Company and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Company. The Executive's covenants in Sections 5 and 6 are independent
covenants, and the existence of any claim by the Executive against the Company
under this Agreement or otherwise, or against the Company, the Parent Company or
the Investors, shall not excuse the Executive's breach of any covenant in
Section 5 and 6. If the Executive's employment hereunder expires or is
terminated, this Agreement shall continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 5 and 6.
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7.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Company that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder shall not,
with or without the giving of notice or the passage of time, or both (a) violate
any judgment, writ, injunction or order of any court, arbitrator or governmental
agency applicable to the Executive; or (b) conflict with, result in the breach
of any provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Company hereunder, including its obligation
to pay the compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
7.5 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement shall
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege shall preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement may be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party shall be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party shall be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs and
legal representatives. This Agreement is personal to the parties hereto and
shall not be assignable by either party without the prior written consent of the
other.
7.7 NOTICES
All notices, consents, waivers and other communications under this
Agreement shall be made in writing and shall be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt) or
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(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to the Company:
G+G Retail, Inc.
520 Eighth Avenue
New York, NY 10018
Attention: Scott Galin
Facsimile: (212) 695-4952
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022-3598
Attention: Mark S. Selinger, Esq.
Facsimile: (212) 836-8689
If to the Executive:
Jay Galin
167 East 71st Street
New York, NY 10021
Facsimile: (212) 772-0474
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue, 16th Floor
New York, NY 10036
Attention: Donald Shack, Esq.
Facsimile: (212) 730-1964
7.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Asset Purchase Agreement, the Stockholders
Agreement and the documents executed in connection with the Asset Purchase
Agreement and the Stockholders Agreement, contain the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, between the parties hereto
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with respect to the subject matter hereof. This Agreement may not be amended
orally, but only by an agreement in writing signed by the parties hereto.
7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to conflicts of laws
principles.
7.10 ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the City of New York on
an expedited basis by a panel of three qualified independent arbitrators
selected on an expedited basis, one by the Executive, the second by the Company
and the third by the first two selected. If no arbitrator can be agreed upon by
the first two arbitrators within three business days of their selection, such
arbitrator shall be selected on an expedited basis in accordance with the rules
for commercial arbitration of the American Arbitration Association. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent, or to prevent any
continuation of, any violation of Sections 5 and 6. The fees and expenses of
such arbitration shall be fixed by the arbitrators and paid in accordance with
their determination.
7.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and shall not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement shall be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement
shall remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable.
7.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original copy of this Agreement and all of which,
when taken together, shall be deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------
Name: Scott Galin
Title: President and Chief
Operating Officer
/s/ Jay Galin
---------------------------------
Jay Galin
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CONSULTING AGREEMENT EXHIBIT A
THIS CONSULTING AGREEMENT (the "Agreement"), is made as of
_____________ ____ ,_____, by and between G+G Retail, Inc., a Delaware
corporation (the "Company"), and Jay Galin, an individual residing at 167 East
71st Street, New York, New York 10021 (the "Consultant").
RECITALS
WHEREAS, the Company purchased certain assets and assumed certain
liabilities pursuant to the Asset Purchase Agreement, dated as of July 6, 1998
among the Company, G & G Shops, Inc., the subsidiaries of G & G Shops, Inc.
named therein, the subsidiaries of Petrie Retail, Inc. named therein and PSL,
Inc., as amended (the "Asset Purchase Agreement").
WHEREAS, concurrently with the closing of the transactions
contemplated by the Asset Purchase Agreement, the Company, desirous of
maintaining Consultant's continued employment, entered into an Employment
Agreement, dated August 28, 1998, with Consultant (the "Employment
Agreement").
WHEREAS, Consultant desires to terminate the Employment Agreement
pursuant to Section 2.2 thereof.
WHEREAS, The Company desires to retain the services of the
Consultant and the Consultant desires to perform certain services for the
Company.
WHEREAS, the Company and the Consultant desire to enter into a
written agreement evidencing the foregoing.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
8.DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" shall mean this Consulting Agreement, including the schedules
and exhibits hereto, as modified, supplemented or amended from time to time.
"Asset Purchase Agreement" shall have the meaning set forth in the
Recitals to this Agreement.
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"Basic Compensation" shall have the meaning set forth in Section 3(b).
"Benefits" shall have the meaning set forth in Section 3(b).
"Board of Directors" shall mean the board of directors of the Company.
"Cause" shall have the meaning set forth in Section 4.3.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Confidential Information" shall mean any and all knowledge and
information relating to the business and affairs of the Company or any of its
affiliates, their products, processes and/or services and their customers,
suppliers, landlords, creditors, shareholders, contractors, agents, consultants
and employees ("Related Persons"), that is or is intended by any of them to be
of a confidential nature, including, but not limited to, any and all knowledge
and information relating to products, research, development, inventions,
manufacture, purchasing, accounting, finances, costs, profit margins, marketing,
merchandising, selling, customer lists, customer requirements and personnel,
pricing, pricing methods, computer programs and software, databases and data
processing and any and all other such knowledge, information and materials,
heretofore or hereafter during the term of this Agreement, conceived, designed,
created, used or developed by or relating to the Company, any of its affiliates
or any Related Person; Confidential Information does not include any information
that may be in the public domain or come into the public domain not as a result
of a breach by the Consultant of any of the terms or provisions of this
Agreement.
"Consultant" shall have the meaning set forth in the first paragraph of
this Agreement.
"Consultation Fees" shall have the meaning set forth in Section 3(a).
"Consultation Period" shall have the meaning set forth in Section 2.2.
"Designated Beneficiary" shall have the meaning set forth in Section 4.5.
"Disability" shall have the meaning set forth in Section 4.2.
"Employment Agreement" shall have the meaning set forth in the Recitals to
this Agreement.
"Good Reason" shall have the meaning set forth in Section 4.4.
"Parent Company" shall mean G&G Retail Holdings, Inc., the Company's
parent company.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, governmental body or other
entity.
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"Post-Consultation Period" shall have the meaning set forth in Section
6.2.
"Proprietary Items" shall have the meaning set forth in Section 5.2.
2. ENGAGEMENT TERMS AND DUTIES
2.1 ENGAGEMENT
Upon termination of the Employment Agreement, the Company engages
the Consultant, and the Consultant accepts engagement by the Company, upon the
terms and subject to the conditions set forth in this Agreement.
2.2 TERM
Subject to earlier termination pursuant to Section 4, this Agreement
shall commence on the date hereof and shall continue until the third anniversary
hereof (the "Consultation Period").
2.3 DUTIES
The Consultant agrees to perform, during the Consultation Period (as
defined below), such consulting, advisory and related services to and for the
Company as the Company shall reasonably request, for up to half normal working
time. Unless otherwise requested by the Company, (i) the Consultant shall not be
required to report to the Company's offices on a regular basis in order to
perform his duties hereunder, and (ii) if appropriate, may perform certain of
his services from his home or by telephone. If the Consultant is elected as a
director of the Company or as a director or officer of any of its affiliates,
the Consultant shall fulfill his duties as such director or officer without
additional compensation.
2.4 COOPERATION
The Consultant shall use his best efforts in the performance of his
obligations under this Agreement. The Company shall provide such access to its
information and property as may be reasonably required in order to permit the
Consultant to perform his obligations hereunder.
2.5 INDEPENDENT CONTRACTOR STATUS
The Consultant shall perform all services under this Agreement as an
"independent contractor" and not as an employee or agent of the Company. The
Consultant is not authorized to assume or create any obligation or
responsibility, express or implied, on behalf of, or in the name of, the Company
or to bind the Company in any manner.
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3. COMPENSATION AND BENEFITS
(a) Consultation Fees. The Company shall pay to the Consultant
consultation fees in an aggregate amount equal to __________1 (the "Consultation
Fees"). Such Consultation Fees shall be payable in equal periodic installments
according to the Company's customary payroll practices, but not less frequently
than monthly.
(b) Benefits. The Company shall maintain for the Consultant during the
Consultation Period, at no cost to the Consultant, hospitalization, medical,
surgical, dental and other employee benefit plans of the Company currently in
effect, as set forth on Schedule 3.1 hereto, including, without limitation, so
called Blue Cross-Blue Shield and major medical coverage, (collectively the
"Benefits" and, together with the Consultation Fees, "Basic Compensation"),
providing for direct payment or reimbursement to the Consultant of substantially
all medical and dental expenses incurred by the Consultant, his spouse and
dependent members of his family during the Consultation Period.
The Company shall furnish to the Consultant, during the Consultation
Period, an automobile comparable to that currently being furnished to the
Consultant by the Company under the terms of the Employment Agreement, with a
similar model automobile being furnished to the Consultant every two years
during the Consultation Period. The Company shall pay all expenses relating to
the maintenance and business use of such automobile, including, without
limitation, insurance, repairs and fuel.
(c) Expenses. The Company shall pay on behalf of the Consultant (or
reimburse the Consultant for) reasonable expenses incurred by the Consultant at
the request of, or on behalf of, the Company in the performance of the
Consultant's duties pursuant to this Agreement, and in accordance with the
Company's employment policies. The Consultant shall file expense reports with
respect to such expenses in accordance with the Company's policies.
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Consultation Period, the Consultant's Basic Compensation and any
and all other rights of the Consultant under this Agreement shall terminate
(except as otherwise provided in this Section 4):
(a) upon the death of the Consultant;
(b) upon the Disability (as defined in Section 4.2) of the
Consultant, immediately upon notice from either party to the other;
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1 One-half of his aggregate annual compensation in effect at the time
Consultant delivers written notice to the Company of his intent to
terminate the Employment Agreement.
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(c) upon termination by the Company for Cause (as defined in Section
4.3), on the date specified in Section 4.3; or
(d) upon termination by the Consultant for Good Reason (as defined
in Section 4.4), on the date specified in Section 4.4.
4.2 DEFINITION OF "DISABILITY"
(a) For the purposes of this Section 4.2, the Consultant shall be
deemed to have a Disability if (i) by reason of physical or mental incapacity,
the Consultant shall not be able to perform his duties hereunder for a
consecutive period of six months or more or for a period in the aggregate of six
months in any consecutive period of twelve months; or (ii) when the Consultant's
physician shall have determined that he shall not be able, by reason of physical
or mental disability, to devote his time and energy to the business of the
Company for a continuous period of six months or for a period in the aggregate
of six months in a consecutive period of twelve months. In the event that the
Consultant or the Company shall dispute any determination of his Disability
hereunder, the matter shall be resolved by the determination of three physicians
qualified to practice medicine in the State of New York, one to be selected by
each of the Company and the Consultant and the third to be selected by the
designated physicians. During the period in which the determination of the
Consultant's Disability shall be under such review, the Consultant shall
continue to be treated for all purposes of this Agreement as an employee of the
Company, enjoying the full status with full pay to which he would otherwise be
entitled under this Agreement.
(b) The Company may, but shall not be obligated to, apply for and
pay the premiums upon disability insurance covering the Consultant under
policies providing for the payment thereunder directly to the Consultant. If the
Consultant shall receive benefits under any of such policies, the Company shall
be entitled to deduct the amount equal to the benefits so received from the
Consultation Fees which it otherwise would be required to pay to the Consultant
as provided in Section 4.5(c).
4.3 DEFINITION OF FOR "CAUSE"
For purposes of this Section 4.3, the phrase for "Cause" means: (i)
the failure, neglect or refusal by the Consultant to perform his duties
hereunder (including, without limitation, his inability to perform his duties
hereunder as a result of alcohol abuse, chronic alcoholism or drug addiction);
(ii) any willful, intentional or grossly negligent act by the Consultant having
the effect of injuring the reputation or business of the Company; (iii) the
Consultant's conviction of a felony or a crime involving moral turpitude
(including the entry of a nolo contendere plea); and (iv) any other default,
nonperformance or violation by the Consultant of any of the covenants,
provisions or terms of this Agreement. A termination for Cause as defined in
clause (i) or (iv) of the preceding sentence shall become effective only if (A)
the Company shall have given Consultant notice thereof describing the basis for
such termination for Cause, and (B) the Consultant fails to cure such Cause
within 10 business days after receiving such notice (and the termination for
Cause shall be effective upon the expiration of such 10-business-day period if
the Consultant fails to effect such cure); and
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a termination for Cause as defined in clause (ii) or (iii) of the preceding
sentence shall be effective at the time the Company gives notice thereof to the
Consultant.
4.4 DEFINITION OF FOR "GOOD REASON"
For purposes of Section 4.4, the phrase for "Good Reason" means (i)
the Company effects a material reduction in the Consultant's position or duties
from those set forth in Section 2 hereof, the Company fails to provide the
Consultant with any material compensation or benefits to which he is entitled
pursuant to Section 3 hereof, or the Company commits any other material breach
of this Agreement; (ii) the Consultant gives the Company notice of the event
described in clause (i) within 20 business days after its occurrence; and (iii)
the Company fails to cure such event within 10 business days after receiving
notice thereof (and the termination for Good Reason shall be effective upon the
expiration of such 10-business-day period if the Company, as applicable, fails
to effect such cure).
4.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Company shall
be obligated to pay the Consultant (or, in the event of his death, his
Designated Beneficiary, as defined below) only such compensation as is provided
in this Section 4.5, and in lieu of all other amounts and in settlement and
complete release of all claims the Consultant may have against the Company. For
purposes of this Section 4.5, the Consultant's "Designated Beneficiary" shall be
such individual beneficiary or trust, located at such address, as the Consultant
may designate by notice to the Company from time to time or, if the Consultant
fails to give notice to the Company of such a beneficiary, the Consultant's
estate. Notwithstanding the preceding sentence, the Company shall have no duty,
in any circumstances, to attempt to open an estate on behalf of the Consultant,
to determine whether any beneficiary designated by the Consultant is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any Person purporting to act as the Consultant's
personal representative (or the trustee of a trust established by the
Consultant) is duly authorized to act in that capacity or to locate or attempt
to locate any beneficiary, personal representative or trustee.
(a) Termination by the Consultant for Good Reason or by the Company
Without Cause. In the event that during the Consultation Period, the Consultant
terminates his engagement with the Company for Good Reason, or the Company
terminates the Consultant's engagement without Cause, then the Consultant shall
receive from the Company (as severance pay and liquidated damages, in lieu of
any other rights or remedies which might otherwise be available to him under
this Agreement, and to the extent permitted by law, without any obligation on
the Consultant's part to mitigate damages by seeking other employment or
otherwise and without any offset for any compensation earned as a result of any
such other employment or performance of other services) an amount equal to (and
payable at the same time and in the same manner as) the Consultation Fees
payable pursuant to Section 3(a) above and all of the Benefits provided for in
Section 3(b) above, which the Consultant would otherwise have been entitled to
receive pursuant
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to this Agreement, had he remained engaged by the Company throughout the
remainder of the Consultation Period as in effect immediately before such
termination.
In case of any dispute as to the propriety of the termination of the
Consultant's engagement by the Company, the Company agrees to continue to
provide to the Consultant all of the cash compensation and benefits that would
be payable to the Consultant pursuant to the preceding sentence pending final
resolution of such dispute; the Consultant shall be entitled to such legal or
equitable damages or relief as may be available to enforce his rights hereunder;
and the Consultant shall be obligated to reimburse the Company for all such
compensation and benefits if it is finally determined that he was not entitled
thereto. If such termination is determined to be improper, the Company agrees to
pay to the Consultant all of his attorney's fees and expenses arising from such
dispute.
(b) Termination by the Company for Cause or by the Consultant
Without Good Reason. If the Company terminates this Agreement for Cause, or if
the Consultant terminates his engagement other than for Good Reason, the
Consultant shall be entitled to receive his Consultation Fee only through the
date such termination is effective, and shall not be entitled to any other
compensation for the fiscal year during which such termination occurs or any
subsequent fiscal year.
(c) Termination upon Disability. The Company shall continue to pay
the Consultant Consultation Fees pursuant to Section 3(a) and continue to
provide the Executive with Benefits pursuant to Section 3(b) for a period of one
year after he shall be deemed to have a Disability. Thereafter, the Consultant
shall be entitled to receive consultation fees at an annual rate equal to
one-half of the Consultation Fees as then in effect and shall continue to
receive Benefits, in each case for a further period of six months. Upon the
expiration of such further six-month period, the Consultant shall not be
entitled to receive any further Consultation Fees or other compensation or
benefits from the Company, until he shall cease to have a Disability and shall
have resumed his duties hereunder. In the event the Consultant dies as the
result of a Disability, payments under this Section 4.5(c) shall cease and
payments shall be made to the Executor's estate or otherwise as provided in
Section 4.5(d).
(d) Termination upon Death. In the event that the Consultant shall
die during the Consultation Period, or as a result of a Disability, the Company
shall pay to the Consultant's Designated Beneficiary, the Consultation Fees
otherwise payable to the Consultant pursuant to Section 3 above for a period of
one year following the date of the Consultant's death; provided, that the
foregoing obligation shall be contingent on the Company obtaining key man life
insurance to fund such obligation at a reasonable cost.
(e) Benefits. Upon the termination of this Agreement, the Consultant
shall not receive, as part of his termination pay pursuant to this Section 4,
any payment or other compensation for any vacation, holiday, sick leave or other
leave unused on the date the notice of termination is given under this
Agreement. Notwithstanding the foregoing, in the event this Agreement is
terminated other than by the Company for Cause or by the Consultant without Good
Reason, if the
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Company is able to do so, the Company shall continue to include the Consultant
in its hospitalization, medical, surgical, dental and other health benefit plans
and shall pay all premiums under such plans on behalf of the Consultant;
provided, however, that the Consultant shall be solely responsible for any
expenses or co-payments incurred by the Consultant, his spouse and dependent
members of his family, except as otherwise provided in this Agreement.
Following the Consultant's death, unless this Agreement has been
terminated by the Company for Cause or by the Consultant without Good Reason,
until the death of Consultant's spouse, the Company shall use reasonable efforts
to include the Consultant's spouse and dependent children in hospitalization,
medical, surgical, dental and other health benefit plans of the Company
currently in effect; provided, however, that the Consultant's spouse and
dependent children shall be solely responsible for any costs incurred by the
Company as a result of the inclusion of such people in such plans.
Notwithstanding anything to the contrary contained herein, the provisions
of this Section 4.5(e) shall survive any termination of this Agreement other
than a termination by the Company for Cause or by the Consultant without Good
Reason, and shall terminate upon the death of the Consultant's spouse.
5. NON-DISCLOSURE COVENANT
5.1 ACKNOWLEDGMENTS BY THE CONSULTANT
The Consultant acknowledges that (a) during the Consultation Period
and as a part of his engagement, the Consultant shall be afforded access to
Confidential Information (as defined below); (b) public disclosure of such
Confidential Information could have an adverse effect on the Company and its
business; (c) the Company has required that the Consultant make the covenants in
this Section 5 as a condition to entering into this Agreement; and (d) the
provisions of this Section 5 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information.
5.2 AGREEMENTS OF THE CONSULTANT
In consideration of the compensation to be paid or provided to the
Consultant by the Company under this Agreement, the Consultant covenants as
follows:
(a) During and following the Consultation Period, the Consultant
shall hold in confidence the Confidential Information and shall not disclose it
to any Person except with the specific prior written consent of the Board of
Directors or except as otherwise expressly permitted by the terms of this
Agreement or as required by law or a court of competent jurisdiction; provided,
that in the event disclosure is required by law or a court of competent
jurisdiction, the Executive shall, prior to disclosing any Confidential
Information, promptly notify the Company of such disclosure requirement and
provide the Company with an opportunity to contest such disclosure requirement.
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(b) Any trade secrets of the Company shall be entitled to all of the
protections and benefits under applicable law. If any information that the
Company deems to be a trade secret is found by a court of competent jurisdiction
not to be a trade secret for purposes of this Agreement, such information shall,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Consultant hereby waives any requirement that the Company submit
proof of the economic value of any trade secret or post a bond or other
security.
(c) None of the foregoing obligations and restrictions applies to
any part of the Confidential Information that the Consultant demonstrates was or
became generally available to the public other than as a result of disclosure by
the Consultant.
(d) The Consultant shall not remove from the Company's premises
(except to the extent such removal is for purposes of the performance of the
Consultant's duties at home or while traveling, or except as otherwise
specifically authorized by the Company), any design, document, record, notebook,
plan, model, or computer software, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Consultant recognizes that, as
between the Company and the Consultant, all of the Proprietary Items, whether or
not developed by the Consultant, are the exclusive property of the Company. Upon
termination of this Agreement by either party, or upon the request of the
Company during the Consultation Period, the Consultant shall return to the
Company all of the Proprietary Items in the Consultant's possession or subject
to the Consultant's control, and the Consultant shall not retain any copies,
abstracts, sketches or other physical embodiment of any of the Proprietary
Items.
5.3 DISPUTES OR CONTROVERSIES
The Consultant recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony and records relating to any such adjudication shall be maintained in
secrecy and shall be available for inspection by the Company, the Consultant and
their respective attorneys and experts, who shall agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
6. NON-COMPETITION AND NON-INTERFERENCE
6.1 ACKNOWLEDGMENTS BY THE CONSULTANT
The Consultant acknowledges that: (a) the services to be performed
by him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; (b) the Company's business is national in scope and its
products are marketed throughout the United States and in other countries,
territories and possessions; (c) the Company competes with other businesses that
are or could be located in any part of the United States and in other countries,
territories and possessions; (d) the Company has required that the Consultant
make the covenants in this Section 6
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as a condition to entering into this Agreement; and (e) the provisions of this
Section 6 are reasonable and necessary to protect the Company's business.
6.2 COVENANTS OF THE CONSULTANT
In consideration of the acknowledgments by the Consultant, and in
consideration of the compensation to be paid or provided to the Consultant by
the Company, the Consultant covenants that he shall not, directly or indirectly:
(a) during the Consultation Period, except in the course of his
engagement hereunder, and during the Post-Consultation Period (as defined
below), engage or invest in, own, manage, operate, finance, control or
participate in the ownership, management, operation, financing or control of, be
employed by, associated with or in any manner connected with, lend the
Consultant's name or any similar name to, lend the Consultant's credit to or
render services or advice to any Person (other than the Company and the Parent
Company) engaged in the retail apparel business anywhere within the United
States or in any other country, territory or possession in which the Company is
then doing business; provided, however, that the Consultant may purchase or
otherwise acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended;
(b) whether for the Consultant's own account or for the account of
any other Person, at any time during the Consultation Period and during the
Post-Consultation Period, solicit business of the same or similar type being
carried on by the Company, from any Person known by the Consultant to be a
customer of the Company, whether or not the Consultant had personal contact with
such Person during and by reason of the Consultant's employment with the
Company;
(c) whether for the Consultant's own account or the account of any
other Person at any time during the Consultation Period and during the
Post-Consultation Period (i) solicit, employ or otherwise engage as an employee,
independent contractor or otherwise, any person who is or was an employee of the
Company at any time during the Consultation Period, or in any manner induce or
attempt to induce any employee of the Company to terminate his employment with
the Company; or (ii) interfere with the Company's relationship with any Person,
including any Person who, at any time during the Consultation Period, was an
employee, contractor, supplier or customer of the Company; or
(d) at any time during or after the Consultation Period, disparage
the Company or any of its shareholders, directors, officers, employees or
agents.
For purposes of this Section 6.2, the term "Post-Consultation Period"
means the period from the date of termination of this Agreement until the
earlier of (i) the date on which the Consultation Period would have terminated
pursuant to Section 2.2 without earlier termination of this Agreement
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by the Company or the Consultant and (ii) the date which is eighteen months
following the date of termination of the Consultant's consultation with the
Company.
6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE
If any covenant in Section 6.2 is held to be unreasonable, arbitrary
or against public policy, such covenant shall be considered to be divisible with
respect to scope, time and geographic area, and such lesser scope, time or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary and not against public policy, shall
be effective, binding, and enforceable against the Consultant. The period of
time applicable to any covenant in Section 6.2 shall be extended by the duration
of any violation by the Consultant of such covenant. The Consultant shall, while
the covenant under Section 6.2 is in effect, give notice to the Company, within
ten days after accepting any other employment, of the identity of the
Consultant's employer. The Company may notify such employer that the Consultant
is bound by this Agreement and, at the Company's election, furnish such employer
with a copy of this Agreement or relevant portions thereof.
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Consultant acknowledges that the injury that would be suffered
by the Company as a result of a breach of any of the provisions of this
Agreement (including, without limitation, any provision of Section 5 or 6) would
be irreparable and that an award of monetary damages to the Company for such a
breach would be an inadequate remedy. Consequently, the Company shall have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement, and the Company shall not be obligated to post
bond or other security in seeking such relief. Without limiting the Company's
rights under this Section 7 or any other remedies of the Company, if the
Consultant breaches any of the provisions of Section 5 or 6, the Company shall
have the right to cease making any payments otherwise due to the Consultant
under this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The Company and the Consultant have independently consulted their
respective counsel and have been advised in all respects concerning the
reasonableness and propriety of such covenants, with specific regard to the
nature of the business conducted by the Company. The Consultant's covenants in
Sections 5 and 6 are independent covenants, and the existence of any claim by
the Consultant against the Company under this Agreement or otherwise shall not
excuse the Consultant's breach of any covenant in Section 5 and 6. If the
Consultant's engagement hereunder expires or is terminated, this Agreement shall
continue in full force and effect as is necessary or appropriate to enforce the
covenants and agreements of the Consultant in Sections 5 and 6.
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7.3 REPRESENTATIONS AND WARRANTIES BY THE CONSULTANT
The Consultant represents and warrants to the Company that the
execution and delivery by the Consultant of this Agreement do not, and the
performance by the Consultant of the Consultant's obligations hereunder shall
not, with or without the giving of notice or the passage of time, or both (a)
violate any judgment, writ, injunction or order of any court, arbitrator or
governmental agency applicable to the Consultant; or (b) conflict with, result
in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which the Consultant is a party or by which the
Consultant is or may be bound.
7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Company hereunder, including its obligation
to pay the compensation provided for herein, are contingent upon the
Consultant's performance of the Consultant's obligations hereunder.
7.5 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement shall
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege shall preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement may be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party shall be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party shall be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs and
legal representatives. This Agreement is personal to the parties hereto and
shall not be assignable by either party without the prior written consent of the
other.
7.7 NOTICES
All notices, consents, waivers and other communications under this
Agreement shall be made in writing and shall be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt) or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
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(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to the Company:
G+G Retail, Inc.
520 Eighth Avenue
New York, NY 10018
Attention: Scott Galin
Facsimile: (212) 695-4952
with a copy to:
Attention:
Facsimile:
If to the Consultant:
Jay Galin
167 East 71st Street
New York, NY 10021
Facsimile: (212) 772-0474
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue, 16th Floor
New York, NY 10036
Attention: Donald Shack, Esq.
Facsimile: (212) 730-1964
7.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Asset Purchase Agreement, the Employment
Agreement and the documents executed in connection with the Asset Purchase
Agreement and the Employment Agreement, contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
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7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to conflicts of laws
principles.
7.10 ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the City of New York on
an expedited basis by a panel of three qualified independent arbitrators
selected on an expedited basis, one by the Consultant, the second by the Company
and the third by the first two selected. If no arbitrator can be agreed upon by
the first two arbitrators within three business days of their selection, such
arbitrator shall be selected on an expedited basis in accordance with the rules
for commercial arbitration of the American Arbitration Association. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent, or to prevent any
continuation of, any violation of Sections 5 and 6. The fees and expenses of
such arbitration shall be fixed by the arbitrators and paid in accordance with
their determination.
7.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and shall not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement shall be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement
shall remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable.
7.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original copy of this Agreement and all of which,
when taken together, shall be deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
G+G RETAIL, INC.
By:_______________________________
Name:
Title:
__________________________________
Jay Galin
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EXHIBIT 10.07
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 28, 1998
(the "Effective Date"), by and between G+G Retail, Inc., a Delaware corporation
(the "Company"), and Scott Galin, an individual resident in 60 Hickory Drive,
East Hills, NY 11576 (the "Executive").
RECITALS
Concurrently with the execution of this Agreement (i) the Company is
purchasing certain assets and assuming certain liabilities pursuant to the Asset
Purchase Agreement, dated as of July 6, 1998 among the Company, G & G Shops,
Inc., the subsidiaries of G & G Shops, Inc. named therein, the subsidiaries of
Petrie Retail, Inc. named therein and PSL, Inc., as amended (the "Asset Purchase
Agreement") and (ii) Pegasus G&G Retail, L.P., Pegasus G&G Retail II, L.P.,
(collectively, the "Investors"), the Executive and the other stockholders of G&G
Retail Holdings, Inc., the Company's parent company ("Parent Company") are
entering into a stockholders agreement (the "Stockholders Agreement"), providing
for various rights and obligations of Parent Company's stockholders. The Company
and the Investors desire the Executive's continued employment with the Company,
and the Executive wishes to accept such continued employment, upon the terms and
subject to the conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" shall mean this Employment Agreement, including the schedules
and exhibits hereto, as modified, supplemented or amended from time to time.
"Asset Purchase Agreement" shall have the meaning set forth in the
Recitals to this Agreement.
"Basic Compensation" shall have the meaning set forth in Section 3.1(b).
"Benefits" shall have the meaning set forth in Section 3.1(b).
"Board of Directors" shall mean the board of directors of the Company.
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"Bonus Compensation" shall have the meaning set forth in Section 3.2(a).
"Cause" shall have the meaning set forth in Section 4.3.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Confidential Information" shall mean any and all knowledge and
information relating to the business and affairs of the Company or any of its
affiliates, their products, processes and/or services and their customers,
suppliers, landlords, creditors, shareholders, contractors, agents, consultants
and employees ("Related Persons"), that is or is intended by any of them to be
of a confidential nature, including, but not limited to, any and all knowledge
and information relating to products, research, development, inventions,
manufacture, purchasing, accounting, finances, costs, profit margins, marketing,
merchandising, selling, customer lists, customer requirements and personnel,
pricing, pricing methods, computer programs and software, databases and data
processing and any and all other such knowledge, information and materials,
heretofore or hereafter during the term of this Agreement, conceived, designed,
created, used or developed by or relating to the Company, any of its affiliates
or any Related Person; Confidential Information does not include any information
that may be in the public domain or come into the public domain not as a result
of a breach by the Executive of any of the terms or provisions of this
Agreement.
"Designated Beneficiary" shall have the meaning set forth in Section 4.5.
"Disability" shall have the meaning set forth in Section 4.2.
"Effective Date" shall have the meaning set forth in the first paragraph
of this Agreement.
"Employment Period" shall have the meaning set forth in Section 2.2(a).
"Executive" shall have the meaning set forth in the first paragraph of
this Agreement.
"Good Reason" shall have the meaning set forth in Section 4.4.
"Investors" shall have the meaning set forth in the Recitals to this
Agreement.
"Jay Galin Employment Agreement" shall mean the Employment Agreement,
dated as of the date hereof, between the Company and Jay Galin.
"Parent Company" shall have the meaning set forth in the first paragraph
of this Agreement.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, governmental body or other
entity.
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"Post-Employment Period" shall have the meaning set forth in Section 6.2.
"Proprietary Items" shall have the meaning set forth in Section 5.2(d).
"Salary" shall have the meaning set forth in Section 3.1(a).
"Stockholders Agreement" shall have the meaning set forth in the Recitals
to this Agreement.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
Upon consummation of the transactions contemplated in the Asset
Purchase Agreement, the Company employs the Executive, and the Executive accepts
employment by the Company, upon the terms and subject to the conditions set
forth in this Agreement.
2.2 TERM
Subject to the provisions of Section 4, the term of the Executive's
employment under this Agreement shall be five years, beginning on the Effective
Date and ending on the fifth anniversary of the Effective Date (the "Employment
Period").
2.3 DUTIES
(a) Subject to paragraph (b) below, the Executive shall have such
duties as are assigned or delegated to the Executive by the Board of Directors,
and shall initially serve as President and Chief Operating Officer of the
Company. The Executive shall (a) devote his entire business time, attention,
skill and energy exclusively to the business of the Company, (b) serve the
Company faithfully, diligently and to the best of his ability under the
direction of the Board of Directors, (c) use his best efforts to promote the
success of the Company's business and (d) cooperate fully with the Board of
Directors in the advancement of the best interests of the Company. The Executive
shall not, without the prior written consent of the Board of Directors (x) do
anything or permit anything to be done at his direction inconsistent with his
duties to the Company or its affiliates or opposed to their best interests, or
(y) become an officer, director, employee or consultant of, or otherwise become
associated with or engaged in, any business other than that of the Company or
the Parent Company. Nothing in this Section 2.3 shall prevent the Executive from
engaging in additional activities in connection with personal investments and
community affairs that are not inconsistent with the Executive's duties under
this Agreement. If the Executive is elected as a director of the Company or as a
director or officer of any of its affiliates, the Executive shall fulfill his
duties as such director or officer without additional compensation. During the
Employment Period, the Executive shall be headquartered in New York City.
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(b) In the event Jay Galin exercises his Consulting Option (as such
term is defined in the Jay Galin Employment Agreement) or his employment with
the Company is terminated for any reason, the Executive shall serve as the Chief
Executive Officer of the Company and shall perform the duties of such office in
accordance with the standards and provisions set forth above in paragraph (a)
for the remainder of the Employment Period.
3. COMPENSATION AND BENEFITS
3.1 BASIC COMPENSATION
(a) Salary. The Executive shall be paid an initial annual salary of
$525,000 ("Salary"), which shall be payable in equal periodic installments
according to the Company's customary payroll practices, but no less frequently
than monthly. On each anniversary of the commencement of the Employment Period,
the Executive's Salary shall be increased by $25,000 until the Executive becomes
the Chief Executive Officer of the Company in accordance with Section 2.3(b). In
the event that the Executive becomes the Chief Executive Officer of the Company
in accordance with Section 2.3(b), the Executive's Salary shall be increased to
$750,000. Thereafter, on each anniversary of the date on which the Executive
became the Chief Executive Officer of the Company, the Executive's Salary shall
be increased by $25,000.
(b) Benefits. The Company shall maintain for the Executive during
the Employment Period, at no cost to the Executive, hospitalization, medical,
surgical, dental and other employee benefit plans of the Company currently in
effect, as set forth on Schedule 3.1 hereto including, without limitation, so
called Blue Cross-Blue Shield and major medical coverage, (collectively the
"Benefits" and, together with the Salary, "Basic Compensation"), providing for
direct payment or reimbursement to the Executive of substantially all medical
and dental expenses incurred by the Executive, his spouse and dependent members
of his family during the Employment Period.
The Company shall furnish to the Executive, during the Employment
Period, an automobile comparable to that currently being furnished to Jay Galin
by G&G Shops, Inc., with a similar model automobile being furnished to the
Executive every two years during the Employment Period. The Company shall pay
all expenses relating to the maintenance and business use of such automobile,
including, without limitation, insurance, repairs and fuel.
(c) Expenses. The Company shall pay on behalf of the Executive (or
reimburse the Executive for) reasonable expenses incurred by the Executive at
the request of, or on behalf of, the Company in the performance of the
Executive's duties pursuant to this Agreement, and in accordance with the
Company's employment policies. The Executive shall file expense reports with
respect to such expenses in accordance with the Company's policies.
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3.2 BONUS COMPENSATION
(a) The Company shall implement a bonus plan for the benefit of the
senior management of the Company which plan shall provide for annual bonuses to
be paid to eligible members of the Company's management based on the Company
attaining certain annual EBITDA targets to be agreed upon and specified by the
holders of the Parent Company's shares of Class A common stock, par value $.001
per share and Class B common stock, par value $.001 per share.
The Executive will be eligible to receive collectively with Jay
Galin up to (and no more than) 50% of the aggregate bonus pool amount, provided,
that in no event shall the Executive receive a bonus amount greater than the
amount of his annual salary. The remainder of the bonus pool shall be
distributed as determined by the Executive and Jay Galin jointly.
The bonus plan shall terminate upon consummation by the Company of
an initial public offering of its common stock, at which time the Company will
consider replacing the bonus plan with a plan more appropriate for public
companies.
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and Bonus
Compensation and any and all other rights of the Executive under this Agreement
or otherwise as an employee of the Company shall terminate (except as otherwise
provided in this Section 4):
(a) upon the death of the Executive;
(b) upon the Disability (as defined in Section 4.2) of the
Executive), immediately upon notice from either party to the other;
(c) upon termination by the Company for Cause (as defined in Section
4.3), on the date specified in Section 4.3; or
(d) upon termination by the Executive for Good Reason (as defined in
Section 4.4), on the date specified in Section 4.4.
4.2 DEFINITION OF "DISABILITY"
(a) For the purposes of this Section 4.2, the Executive shall be
deemed to have a Disability if (i) by reason of physical or mental incapacity,
the Executive shall not be able to perform his duties hereunder for a
consecutive period of six months or more or for a period in the aggregate of six
months in any consecutive period of twelve months; or (ii) when the Executive's
physician shall have determined that he shall not be able, by reason of physical
or mental disability,
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to devote his time and energy to the business of the Company for a continuous
period of six months or for a period in the aggregate of six months in a
consecutive period of twelve months. In the event that the Executive or the
Company shall dispute any determination of his Disability hereunder, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the State of New York, one to be selected by each of the Company and
the Executive and the third to be selected by the designated physicians. During
the period in which the determination of the Executive's Disability shall be
under such review, the Executive shall continue to be treated for all purposes
of this Agreement as an employee of the Company, enjoying the full status with
full pay to which he would otherwise be entitled under this Agreement.
(b) The Company may, but shall not be obligated to, apply for and
pay the premiums upon disability insurance covering the Executive under policies
providing for the payment thereunder directly to the Executive. If the Executive
shall receive benefits under any of such policies, the Company shall be entitled
to deduct the amount equal to the benefits so received from the Salary which it
otherwise would be required to pay to the Executive as provided in Section
4.5(c).
4.3 DEFINITION OF FOR "CAUSE"
For purposes of Section 4.1, the phrase for "Cause" means: (i) the
failure, neglect or refusal by the Executive to perform his duties hereunder
(including, without limitation, his inability to perform his duties hereunder as
a result of alcohol abuse, chronic alcoholism or drug addiction); (ii) any
willful, intentional or grossly negligent act by the Executive having the effect
of injuring the reputation or business of the Company; (iii) the Executive's
conviction of a felony or a crime involving moral turpitude (including the entry
of a nolo contendere plea); and (iv) any other default, nonperformance or
violation by the Executive of any of the covenants, provisions or terms of this
Agreement. A termination for Cause as defined in clause (i) or (iv) of the
preceding sentence shall become effective only if (A) the Company shall have
given the Executive notice thereof describing the basis for such termination for
Cause, and (B) the Executive fails to cure such Cause within 10 business days
after receiving such notice (and the termination for Cause shall be effective
upon the expiration of such 10-business-day period if the Executive fails to
effect such cure); and a termination for Cause as defined in clause (ii) or
(iii) of the preceding sentence shall be effective at the time the Company gives
notice thereof to the Executive.
4.4 DEFINITION OF FOR "GOOD REASON"
For purposes of Section 4.1, the phrase for "Good Reason" means (i)
the Company effects a material reduction in the Executive's position or duties
from those set forth in Section 2.3 hereof, the Company fails to provide the
Executive with any material compensation or benefits to which he is entitled
pursuant to Section 3 hereof, or the Company commits any other material breach
of this Agreement; (ii) the Executive gives the Company notice of the event
described in clause (i) within 20 business days after its occurrence; and (iii)
the Company fails to cure such event within 10 business days after receiving
notice thereof (and the termination for Good Reason shall be
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effective upon the expiration of such 10-business-day period if the Company, as
applicable, fails to effect such cure).
4.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Company shall
be obligated to pay the Executive (or, in the event of his death, his Designated
Beneficiary, as defined below) only such compensation as is provided in this
Section 4.5, and in lieu of all other amounts and in settlement and complete
release of all claims the Executive may have against the Company. For purposes
of this Section 4.5, the Executive's "Designated Beneficiary" shall be such
individual beneficiary or trust, located at such address, as the Executive may
designate by notice to the Company from time to time or, if the Executive fails
to give notice to the Company of such a beneficiary, the Executive's estate.
Notwithstanding the preceding sentence, the Company shall have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any Person purporting to act as the Executive's
personal representative (or the trustee of a trust established by the Executive)
is duly authorized to act in that capacity or to locate or attempt to locate any
beneficiary, personal representative or trustee.
(a) Termination by the Executive for Good Reason or by the Company
Without Cause. In the event that during the Employment Period, the Executive
terminates his employment with the Company for Good Reason, or the Company
terminates the Executive's employment without Cause, then the Executive shall
receive from the Company (as severance pay and liquidated damages, in lieu of
any other rights or remedies which might otherwise be available to him under
this Agreement, and to the extent permitted by law, without any obligation on
the Executive's part to mitigate damages by seeking other employment or
otherwise and without any offset for any compensation earned as a result of any
such other employment or performance of other services) amounts equal to (and
payable at the same time and in the same manner as) the Salary payable pursuant
to Section 3.1(a) above and the bonus compensation described in Section 3.2(a)
above and all of the Benefits provided for in Section 3.1(b) above, which the
Executive would otherwise have been entitled to receive pursuant to this
Agreement, had he remained employed by the Company throughout the remainder of
the Employment Period as in effect immediately before such termination.
In case of any dispute as to the propriety of the termination of the
Executive's employment by the Company, the Company agrees to continue to provide
to the Executive all of the cash compensation and benefits that would be payable
to the Executive pursuant to the preceding sentence pending final resolution of
such dispute; the Executive shall be entitled to such legal or equitable damages
or relief as may be available to enforce his rights hereunder; and the Executive
shall be obligated to reimburse the Company for all such compensation and
benefits if it is finally determined that he was not entitled thereto. If such
termination is determined to be improper, the
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Company agrees to pay to the Executive all of his attorney's fees and expenses
arising from such dispute.
(b) Termination by the Company for Cause or by the Executive Without
Good Reason. If the Company terminates this Agreement for Cause, or if the
Executive terminates his employment other than for Good Reason, the Executive
shall be entitled to receive his Salary only through the date such termination
is effective, and shall not be entitled to any Bonus Compensation for the fiscal
year during which such termination occurs or any subsequent fiscal year.
(c) Termination upon Disability. The Company shall continue to pay
the Executive his Salary pursuant to Section 3.1(a) and continue to provide the
Executive with Benefits pursuant to Section 3.1(b) for a period of one year
after he shall be deemed to have a Disability. Thereafter, the Executive shall
be entitled to receive a salary at an annual rate equal to one-half of the
Salary as then in effect and shall continue to receive Benefits, in each case
for a further period of six months. Upon the expiration of such further
six-month period, the Executive shall not be entitled to receive any further
Salary or other compensation or benefits from the Company, until he shall cease
to have a Disability and shall have resumed his duties hereunder. In the event
the Executive dies as the result of a Disability, payments under this Section
4.5(c) shall cease and payments shall be made to the Executor's estate or
otherwise as provided in Section 4.5(d).
(d) Termination upon Death. In the event that the Executive shall
die during the Employment Period, or as a result of a Disability, the Company
shall pay to the Executive's Designated Beneficiary, the Salary and Bonus
Compensation otherwise payable to the Executive pursuant to Section 3 above for
a period of one year following the date of the Executive's death; provided, that
the foregoing obligation shall be contingent on the Company obtaining key man
life insurance to fund such obligation at a reasonable cost.
(e) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits shall cease at the effective date of the termination
of this Agreement, and the Executive shall be entitled to accrued Benefits
pursuant to such plans only as provided in such plans. The Executive shall not
receive, as part of his termination pay pursuant to this Section 4, any payment
or other compensation for any vacation, holiday, sick leave or other leave
unused on the date the notice of termination is given under this Agreement,
except as otherwise provided in this Agreement.
5. NON-DISCLOSURE COVENANT
5.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and
as a part of his employment, the Executive shall be afforded access to
Confidential Information; (b) public disclosure of such Confidential Information
could have an adverse effect on the Company and its business; (c) the Company
has required that the Executive make the covenants in this Section 5 as a
condition to its consummation of the transactions contemplated in the Asset
Purchase Agreement
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and the Investors have required that the Executive make the covenants in this
Section 5 as a condition to their investment in the Parent Company and their
entering into the Stockholders Agreement; and (d) the provisions of this Section
5 are reasonable and necessary to prevent the improper use or disclosure of
Confidential Information.
5.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Company under this Agreement, the Executive
covenants as follows:
(a) During and following the Employment Period, the Executive shall
hold in confidence the Confidential Information and shall not disclose it to any
Person except with the specific prior written consent of the Company or except
as otherwise expressly permitted by the terms of this Agreement or as required
by law or a court of competent jurisdiction; provided, that in the event
disclosure is required by law or a court of competent jurisdiction, the
Executive shall, prior to disclosing any Confidential Information, promptly
notify the Company of such disclosure requirement and provide the Company with
an opportunity to contest such disclosure requirement.
(b) Any trade secrets of the Company shall be entitled to all of the
protections and benefits under applicable law. If any information that the
Company deems to be a trade secret is found by a court of competent jurisdiction
not to be a trade secret for purposes of this Agreement, such information shall,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Executive hereby waives any requirement that the Company submit
proof of the economic value of any trade secret or post a bond or other
security.
(c) None of the foregoing obligations and restrictions applies to
any part of the Confidential Information that the Executive demonstrates was or
became generally available to the public other than as a result of disclosure by
the Executive.
(d) The Executive shall not remove from the Company's premises
(except to the extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Company), any design, document, record, notebook,
plan, model, or computer software, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Executive recognizes that, as
between the Company and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the Company. Upon
termination of this Agreement by either party, or upon the request of the
Company during the Employment Period, the Executive shall return to the Company
all of the Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies, abstracts,
sketches or other physical embodiment of any of the Proprietary Items.
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5.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony and records relating to any such adjudication shall be maintained in
secrecy and shall be available for inspection by the Company, the Executive and
their respective attorneys and experts, who shall agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
6. NON-COMPETITION AND NON-INTERFERENCE
6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; (b) the Company's business is national in scope and its
products are marketed throughout the United States and in other countries,
territories and possessions; (c) the Company competes with other businesses that
are or could be located in any part of the United States and in other countries,
territories and possessions; (d) the Company has required that the Executive
make the covenants set forth in this Section 6 as a condition to the Company's
consummation of the transactions contemplated by the Asset Purchase Agreement
and the Investors have required that the Executive make the covenants in this
Section 6 as a condition to their investment in the Parent Company and their
entering into the Stockholders Agreement; and (e) the provisions of this Section
6 are reasonable and necessary to protect the Company's business.
6.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Company, the Executive covenants that he shall not, directly or
indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period (as defined below),
engage or invest in, own, manage, operate, finance, control or participate in
the ownership, management, operation, financing or control of, be employed by,
associated with or in any manner connected with, lend the Executive's name or
any similar name to, lend the Executive's credit to or render services or advice
to, (i) any Person (other than the Company and the Parent Company) engaged in
any business whose products or activities compete in whole or in material part
with, or (ii) any part of any business which competes with, the products or
activities of the Company (which, with respect to the Post- Employment Period,
shall be deemed to include products and activities of the Company at the time of
termination or contemplated by the Company at the time of termination) anywhere
within the United States or in any other country, territory or possession in
which the Company is then doing
10
<PAGE>
business; provided, however, that the Executive may purchase or otherwise
acquire up to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended;
(b) whether for the Executive's own account or for the account of
any other Person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type being
carried on by the Company, from any Person known by the Executive to be a
customer of the Company, whether or not the Executive had personal contact with
such Person during and by reason of the Executive's employment with the Company;
(c) whether for the Executive's own account or the account of any
other Person at any time during the Employment Period and the Post-Employment
Period (i) solicit, employ or otherwise engage as an employee, independent
contractor or otherwise, any person who is or was an employee of the Company at
any time during the Employment Period, or in any manner induce or attempt to
induce any employee of the Company to terminate his employment with the Company;
or (ii) interfere with the Company's relationship with any Person, including any
Person who, at any time during the Employment Period, was an employee,
contractor, supplier or customer of the Company; or
(d) at any time during or after the Employment Period, disparage the
Company or any of its shareholders, directors, officers, employees or agents.
For purposes of this Section 6.2, the term "Post-Employment Period"
means the period from the date of termination of this Agreement until the
earlier of (i) the date on which the Employment Period would have terminated
pursuant to Section 2.2 without earlier termination of this Agreement by the
Company or the Executive and (ii) the date which is eighteen months following
the date of termination of the Executive's employment with the Company.
6.3 BINDING NATURE AND DURATION OF COVENANTS; DISCLOSURE
If any covenant in Section 6.2 is held to be unreasonable, arbitrary
or against public policy, such covenant shall be considered to be divisible with
respect to scope, time and geographic area, and such lesser scope, time or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary and not against public policy, shall
be effective, binding, and enforceable against the Executive. The period of time
applicable to any covenant in Section 6.2 shall be extended by the duration of
any violation by the Executive of such covenant. The Executive shall, while the
covenant under Section 6.2 is in effect, give notice to the Company, within ten
days after accepting any other employment, of the identity of the Executive's
employer. The Company may notify such employer that the Executive is bound by
this Agreement and, at the Company's election, furnish such employer with a copy
of this Agreement or relevant portions thereof.
11
<PAGE>
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Company as a result of a breach of any of the provisions of this Agreement
(including, without limitation, any provision of Section 5 or 6) would be
irreparable and that an award of monetary damages to the Company for such a
breach would be an inadequate remedy. Consequently, the Company shall have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement, and the Company shall not be obligated to post
bond or other security in seeking such relief. Without limiting the Company's
rights under this Section 7 or any other remedies of the Company, if the
Executive breaches any of the provisions of Section 5 or 6, the Company shall
have the right to cease making any payments otherwise due to the Executive under
this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The covenants by the Executive in Sections 5 and 6 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Company would not have consummated the transactions
contemplated by the Asset Purchase Agreement, the Investors would not have
purchased interests in the Parent Company or entered into the Stockholders
Agreement, and the Company would not have entered into this Agreement or
employed or continued the employment of the Executive. The Company and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Company. The Executive's covenants in Sections 5 and 6 are independent
covenants, and the existence of any claim by the Executive against the Company
under this Agreement or otherwise, or against the Company, the Parent Company or
the Investors, shall not excuse the Executive's breach of any covenant in
Section 5 and 6. If the Executive's employment hereunder expires or is
terminated, this Agreement shall continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 5 and 6.
7.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Company that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder shall not,
with or without the giving of notice or the passage of time, or both (a) violate
any judgment, writ, injunction or order of any court, arbitrator or governmental
agency applicable to the Executive; or (b) conflict with, result in the breach
of any provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
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7.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Company hereunder, including its obligation
to pay the compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
7.5 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement shall
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege shall preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement may be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party shall be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party shall be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
7.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs and
legal representatives. This Agreement is personal to the parties hereto and
shall not be assignable by either party without the prior written consent of the
other.
7.7 NOTICES
All notices, consents, waivers and other communications under this
Agreement shall be made in writing and shall be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt) or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
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If to the Company:
G+G Retail, Inc.
520 Eighth Avenue
New York, NY 10018
Attention: Jay Galin
Facsimile: (212) 695-4952
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022-3598
Attention: Mark S. Selinger, Esq.
Facsimile: (212) 836-8689
If to the Executive:
Scott Galin
60 Hickory Drive
East Hills, NY 11576
Facsimile: (516) 621-4246
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue, 16th Floor
New York, NY 10036
Attention: Donald Shack, Esq.
Facsimile: (212) 730-1964
7.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Asset Purchase Agreement, the Stockholders
Agreement and the documents executed in connection with the Asset Purchase
Agreement and the Stockholders Agreement, contain the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
14
<PAGE>
7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to conflicts of laws
principles.
7.10 ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the City of New York on
an expedited basis by a panel of three qualified independent arbitrators
selected on an expedited basis, one by the Executive, the second by the Company
and the third by the first two selected. If no arbitrator can be agreed upon by
the first two arbitrators within three business days of their selection, such
arbitrator shall be selected on an expedited basis in accordance with the rules
for commercial arbitration of the American Arbitration Association. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent, or to prevent any
continuation of, any violation of Sections 5 and 6. The fees and expenses of
such arbitration shall be fixed by the arbitrators and paid in accordance with
their determination.
7.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and shall not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement shall be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement
shall remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable.
7.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original copy of this Agreement and all of which,
when taken together, shall be deemed to constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
G+G RETAIL, INC.
By: /s/ Jay Galin
-------------------------------
Name: Jay Galin
Title: Chairman and Chief Executive
Officer
/s/ Scott Galin
----------------------------------
Scott Galin
16
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EXHIBIT 10.08
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail,
Inc., a Delaware corporation (together with its subsidiaries, the "Corporation")
and Jay Galin (the "Director").
BACKGROUND:
A. The Director is a member of the Board of Directors of the Corporation
and in such capacity is performing a valuable service for the Corporation;
B. Article EIGHTH of the Restated Certificate of Incorporation of the
Corporation (the "Certificate") provides for the indemnification of the
officers, directors, agents and employees of the Corporation to the maximum
extent authorized by Section 145 and otherwise in the General Corporation Law of
the State of Delaware as amended to date (the "State Statute");
C. The Certificate and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification of such directors;
D. In order to induce the Director to continue to serve as a member of the
Board of Directors of the Corporation, the Corporation has agreed to enter into
this contract with the Director;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. Indemnity. Subject only to the exclusions set forth in Section 2
hereof, and provided that the Director in good faith and in a manner he
reasonably believes to be the best interests of and not opposed to the
Corporation and, with the respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful, the Corporation hereby agrees to
hold harmless and indemnify the Director:
Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which the Director is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that the Director is, was or at any time becomes a director of the
Corporation, all to the fullest extent as may be provided under Section 145(a)
and (b) of the State Statute.
<PAGE>
2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
(a) In respect to remuneration paid to the Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(b) On account of any suit for an accounting of profits made from
the purchase or sale by the Director of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(c) On account of the Director's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
3. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was a director of the Corporation and shall continue thereafter so long as the
Director shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Director was a director of the Corporation.
4. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability under this Agreement except to the extent such omission in fact
prejudices the Corporation or its defense of the matter, or which it may have to
the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Corporation of
the commencement thereof:
(a) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Director. After notice from the Corporation to the Director
of its election so to assume the defense thereof, the Corporation will not be
liable to the Director under this Agreement for any legal or other expenses
subsequently incurred by the Director in connection with the defense thereof
other than reasonable costs of investigation incurred at the request of the
Corporation or as otherwise provided below. The Director shall have the right to
employ its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Director unless (i) the
employment of counsel by the Director has been authorized by the Corporation,
(ii) counsel retained by the Corporation concludes that there is a conflict of
interest between the Corporation and the Director in the conduct of the defense
of such action such that joint representation is
2
<PAGE>
inappropriate or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of the Director's counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation as to which the
Director shall have made the conclusion provided for in (ii) above.
(b) The Corporation shall not be liable to indemnify the Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty (other than
monetary damages which the Corporation is obligated to pay) or limitation on the
Director without the Director's written consent.
5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys'
fees) incurred by the Director in defending any action, suit or proceeding shall
be promptly advanced by the Corporation upon the written request of the
Director. Any judgments, fines or amounts to be paid in settlement shall also be
promptly advanced by the Corporation and/or to the Director upon the Director's
written request. If it shall ultimately be determined by a court of competent
jurisdiction that the Director was not entitled to be indemnified, or was not
entitled to be fully indemnified, the Director shall repay to the Corporation
all amounts so advanced, or the appropriate portion thereof so advanced.
6. Repayment of Expenses. The Director agrees that the Director will
reimburse the Corporation for all reasonable expenses paid by the Corporation in
defending any civil or criminal action, suit or proceeding against the Director
in the event and only to the extent that it shall be ultimately determined that
the Director is not entitled to be indemnified by the Corporation for such
expenses under the provisions of the Certificate, the State Statute or this
Agreement.
7. Enforcement. In the event either party is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the unsuccessful party shall reimburse the other for
all of the reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Other Rights and Remedies. The indemnification and other rights
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Director may be entitled under any provision of law, the Certificate
or the Corporation's By-Laws, or other agreement, and shall continue after the
Director has ceased to occupy such position.
3
<PAGE>
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
the Director, his heirs, personal representatives and assigns and the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
11. Counterparts; Facsimile Transmission. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. If a party executes the signature
page hereof and causes same to be sent to the other party by facsimile
transmission, such act shall constitute the due execution and delivery of this
Agreement by such sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
G+G RETAIL, INC.
By: /s/ Scott Galin
----------------------------
/s/ Jay Galin
-------------------------------
Jay Galin
Director
4
<PAGE>
EXHIBIT 10.09
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 28 day of August, 1998 between G+G Retail,
Inc., a Delaware corporation (together with its subsidiaries, the "Corporation")
and Scott Galin (the "Director").
BACKGROUND:
A. The Director is a member of the Board of Directors of the Corporation
and in such capacity is performing a valuable service for the Corporation;
B. Article EIGHTH of the Restated Certificate of Incorporation of the
Corporation (the "Certificate") provides for the indemnification of the
officers, directors, agents and employees of the Corporation to the maximum
extent authorized by Section 145 and otherwise in the General Corporation Law of
the State of Delaware as amended to date (the "State Statute");
C. The Certificate and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification of such directors;
D. In order to induce the Director to continue to serve as a member of the
Board of Directors of the Corporation, the Corporation has agreed to enter into
this contract with the Director;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. Indemnity. Subject only to the exclusions set forth in Section 2
hereof, and provided that the Director in good faith and in a manner he
reasonably believes to be the best interests of and not opposed to the
Corporation and, with the respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful, the Corporation hereby agrees to
hold harmless and indemnify the Director:
Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which the Director is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that the Director is, was or at any time becomes a director of the
Corporation, all to the fullest extent as may be provided under Section 145(a)
and (b) of the State Statute.
<PAGE>
2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
(a) In respect to remuneration paid to the Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(b) On account of any suit for an accounting of profits made from
the purchase or sale by the Director of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(c) On account of the Director's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
3. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was a director of the Corporation and shall continue thereafter so long as the
Director shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Director was a director of the Corporation.
4. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability under this Agreement except to the extent such omission in fact
prejudices the Corporation or its defense of the matter, or which it may have to
the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Corporation of
the commencement thereof:
(a) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Director. After notice from the Corporation to the Director
of its election so to assume the defense thereof, the Corporation will not be
liable to the Director under this Agreement for any legal or other expenses
subsequently incurred by the Director in connection with the defense thereof
other than reasonable costs of investigation incurred at the request of the
Corporation or as otherwise provided below. The Director shall have the right to
employ its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Director unless (i) the
employment of counsel by the Director has been authorized by the Corporation,
(ii) counsel retained by the Corporation concludes that there is a conflict of
interest between the Corporation and the Director in the conduct of the defense
of such action such that joint representation is
2
<PAGE>
inappropriate or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of the Director's counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation as to which the
Director shall have made the conclusion provided for in (ii) above.
(b) The Corporation shall not be liable to indemnify the Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty (other than
monetary damages which the Corporation is obligated to pay) or limitation on the
Director without the Director's written consent.
5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys'
fees) incurred by the Director in defending any action, suit or proceeding shall
be promptly advanced by the Corporation upon the written request of the
Director. Any judgments, fines or amounts to be paid in settlement shall also be
promptly advanced by the Corporation and/or to the Director upon the Director's
written request. If it shall ultimately be determined by a court of competent
jurisdiction that the Director was not entitled to be indemnified, or was not
entitled to be fully indemnified, the Director shall repay to the Corporation
all amounts so advanced, or the appropriate portion thereof so advanced.
6. Repayment of Expenses. The Director agrees that the Director will
reimburse the Corporation for all reasonable expenses paid by the Corporation in
defending any civil or criminal action, suit or proceeding against the Director
in the event and only to the extent that it shall be ultimately determined that
the Director is not entitled to be indemnified by the Corporation for such
expenses under the provisions of the Certificate, the State Statute or this
Agreement.
7. Enforcement. In the event either party is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the unsuccessful party shall reimburse the other for
all of the reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Other Rights and Remedies. The indemnification and other rights
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Director may be entitled under any provision of law, the Certificate
or the Corporation's By-Laws, or other agreement, and shall continue after the
Director has ceased to occupy such position.
3
<PAGE>
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
the Director, his heirs, personal representatives and assigns and the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
11. Counterparts; Facsimile Transmission. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. If a party executes the signature
page hereof and causes same to be sent to the other party by facsimile
transmission, such act shall constitute the due execution and delivery of this
Agreement by such sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
G+G RETAIL, INC.
By: /s/ Jonathan Berger
-----------------------------
/s/ Scott Galin
--------------------------------
Scott Galin
Director
4
<PAGE>
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail,
Inc., a Delaware corporation (together with its subsidiaries, the "Corporation")
and Craig Cogut (the "Director").
BACKGROUND:
A. The Director is a member of the Board of Directors of the Corporation
and in such capacity is performing a valuable service for the Corporation;
B. Article EIGHTH of the Restated Certificate of Incorporation of the
Corporation (the "Certificate") provides for the indemnification of the
officers, directors, agents and employees of the Corporation to the maximum
extent authorized by Section 145 and otherwise in the General Corporation Law of
the State of Delaware as amended to date (the "State Statute");
C. The Certificate and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification of such directors;
D. In order to induce the Director to continue to serve as a member of the
Board of Directors of the Corporation, the Corporation has agreed to enter into
this contract with the Director;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. Indemnity. Subject only to the exclusions set forth in Section 2
hereof, and provided that the Director in good faith and in a manner he
reasonably believes to be the best interests of and not opposed to the
Corporation and, with the respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful, the Corporation hereby agrees to
hold harmless and indemnify the Director:
Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which the Director is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that the Director is, was or at any time becomes a director of the
Corporation, all to the fullest extent as may be provided under Section 145(a)
and (b) of the State Statute.
<PAGE>
2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
(a) In respect to remuneration paid to the Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(b) On account of any suit for an accounting of profits made from
the purchase or sale by the Director of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(c) On account of the Director's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
3. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was a director of the Corporation and shall continue thereafter so long as the
Director shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Director was a director of the Corporation.
4. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability under this Agreement except to the extent such omission in fact
prejudices the Corporation or its defense of the matter, or which it may have to
the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Corporation of
the commencement thereof:
(a) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Director. After notice from the Corporation to the Director
of its election so to assume the defense thereof, the Corporation will not be
liable to the Director under this Agreement for any legal or other expenses
subsequently incurred by the Director in connection with the defense thereof
other than reasonable costs of investigation incurred at the request of the
Corporation or as otherwise provided below. The Director shall have the right to
employ its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Director unless (i) the
employment of counsel by the Director has been authorized by the Corporation,
(ii) counsel retained by the Corporation concludes that there is a conflict of
interest between the Corporation and the Director in the conduct of the defense
of such action such that joint representation is
2
<PAGE>
inappropriate or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of the Director's counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation as to which the
Director shall have made the conclusion provided for in (ii) above.
(b) The Corporation shall not be liable to indemnify the Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty (other than
monetary damages which the Corporation is obligated to pay) or limitation on the
Director without the Director's written consent.
5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys'
fees) incurred by the Director in defending any action, suit or proceeding shall
be promptly advanced by the Corporation upon the written request of the
Director. Any judgments, fines or amounts to be paid in settlement shall also be
promptly advanced by the Corporation and/or to the Director upon the Director's
written request. If it shall ultimately be determined by a court of competent
jurisdiction that the Director was not entitled to be indemnified, or was not
entitled to be fully indemnified, the Director shall repay to the Corporation
all amounts so advanced, or the appropriate portion thereof so advanced.
6. Repayment of Expenses. The Director agrees that the Director will
reimburse the Corporation for all reasonable expenses paid by the Corporation in
defending any civil or criminal action, suit or proceeding against the Director
in the event and only to the extent that it shall be ultimately determined that
the Director is not entitled to be indemnified by the Corporation for such
expenses under the provisions of the Certificate, the State Statute or this
Agreement.
7. Enforcement. In the event either party is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the unsuccessful party shall reimburse the other for
all of the reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Other Rights and Remedies. The indemnification and other rights
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Director may be entitled under any provision of law, the Certificate
or the Corporation's By-Laws, or other agreement, and shall continue after the
Director has ceased to occupy such position.
3
<PAGE>
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
the Director, his heirs, personal representatives and assigns and the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
11. Counterparts; Facsimile Transmission. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. If a party executes the signature
page hereof and causes same to be sent to the other party by facsimile
transmission, such act shall constitute the due execution and delivery of this
Agreement by such sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
G+G RETAIL, INC.
By: /s/ Scott Galin
---------------------------------
/s/ Craig Cogut
------------------------------------
Craig Cogut
Director
4
<PAGE>
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail,
Inc., a Delaware corporation (together with its subsidiaries, the "Corporation")
and Lenard Tessler (the "Director").
BACKGROUND:
A. The Director is a member of the Board of Directors of the Corporation
and in such capacity is performing a valuable service for the Corporation;
B. Article EIGHTH of the Restated Certificate of Incorporation of the
Corporation (the "Certificate") provides for the indemnification of the
officers, directors, agents and employees of the Corporation to the maximum
extent authorized by Section 145 and otherwise in the General Corporation Law of
the State of Delaware as amended to date (the "State Statute");
C. The Certificate and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification of such directors;
D. In order to induce the Director to continue to serve as a member of the
Board of Directors of the Corporation, the Corporation has agreed to enter into
this contract with the Director;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. Indemnity. Subject only to the exclusions set forth in Section 2
hereof, and provided that the Director in good faith and in a manner he
reasonably believes to be the best interests of and not opposed to the
Corporation and, with the respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful, the Corporation hereby agrees to
hold harmless and indemnify the Director:
Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which the Director is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that the Director is, was or at any time becomes a director of the
Corporation, all to the fullest extent as may be provided under Section 145(a)
and (b) of the State Statute.
<PAGE>
2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
(a) In respect to remuneration paid to the Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(b) On account of any suit for an accounting of profits made from
the purchase or sale by the Director of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(c) On account of the Director's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
3. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was a director of the Corporation and shall continue thereafter so long as the
Director shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Director was a director of the Corporation.
4. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability under this Agreement except to the extent such omission in fact
prejudices the Corporation or its defense of the matter, or which it may have to
the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Corporation of
the commencement thereof:
(a) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Director. After notice from the Corporation to the Director
of its election so to assume the defense thereof, the Corporation will not be
liable to the Director under this Agreement for any legal or other expenses
subsequently incurred by the Director in connection with the defense thereof
other than reasonable costs of investigation incurred at the request of the
Corporation or as otherwise provided below. The Director shall have the right to
employ its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Director unless (i) the
employment of counsel by the Director has been authorized by the Corporation,
(ii) counsel retained by the Corporation concludes that there is a conflict of
interest between the Corporation and the Director in the conduct of the defense
of such action such that joint representation is
2
<PAGE>
inappropriate or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of the Director's counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation as to which the
Director shall have made the conclusion provided for in (ii) above.
(b) The Corporation shall not be liable to indemnify the Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty (other than
monetary damages which the Corporation is obligated to pay) or limitation on the
Director without the Director's written consent.
5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys'
fees) incurred by the Director in defending any action, suit or proceeding shall
be promptly advanced by the Corporation upon the written request of the
Director. Any judgments, fines or amounts to be paid in settlement shall also be
promptly advanced by the Corporation and/or to the Director upon the Director's
written request. If it shall ultimately be determined by a court of competent
jurisdiction that the Director was not entitled to be indemnified, or was not
entitled to be fully indemnified, the Director shall repay to the Corporation
all amounts so advanced, or the appropriate portion thereof so advanced.
6. Repayment of Expenses. The Director agrees that the Director will
reimburse the Corporation for all reasonable expenses paid by the Corporation in
defending any civil or criminal action, suit or proceeding against the Director
in the event and only to the extent that it shall be ultimately determined that
the Director is not entitled to be indemnified by the Corporation for such
expenses under the provisions of the Certificate, the State Statute or this
Agreement.
7. Enforcement. In the event either party is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the unsuccessful party shall reimburse the other for
all of the reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Other Rights and Remedies. The indemnification and other rights
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Director may be entitled under any provision of law, the Certificate
or the Corporation's By-Laws, or other agreement, and shall continue after the
Director has ceased to occupy such position.
3
<PAGE>
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
the Director, his heirs, personal representatives and assigns and the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
11. Counterparts; Facsimile Transmission. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. If a party executes the signature
page hereof and causes same to be sent to the other party by facsimile
transmission, such act shall constitute the due execution and delivery of this
Agreement by such sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------
/s/ Lenard Tessler
----------------------------------
Lenard Tessler
Director
4
<PAGE>
EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 28th day of August, 1998 between G+G Retail,
Inc., a Delaware corporation (together with its subsidiaries, the "Corporation")
and Donald Shack (the "Director").
BACKGROUND:
A. The Director is a member of the Board of Directors of the Corporation
and in such capacity is performing a valuable service for the Corporation;
B. Article EIGHTH of the Restated Certificate of Incorporation of the
Corporation (the "Certificate") provides for the indemnification of the
officers, directors, agents and employees of the Corporation to the maximum
extent authorized by Section 145 and otherwise in the General Corporation Law of
the State of Delaware as amended to date (the "State Statute");
C. The Certificate and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification of such directors;
D. In order to induce the Director to continue to serve as a member of the
Board of Directors of the Corporation, the Corporation has agreed to enter into
this contract with the Director;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. Indemnity. Subject only to the exclusions set forth in Section 2
hereof, and provided that the Director in good faith and in a manner he
reasonably believes to be the best interests of and not opposed to the
Corporation and, with the respect to any criminal action or proceeding, had no
reason to believe such conduct was unlawful, the Corporation hereby agrees to
hold harmless and indemnify the Director:
Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which the Director is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that the Director is, was or at any time becomes a director of the
Corporation, all to the fullest extent as may be provided under Section 145(a)
and (b) of the State Statute.
<PAGE>
2. Limitations on Additional Indemnity. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
(a) In respect to remuneration paid to the Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(b) On account of any suit for an accounting of profits made from
the purchase or sale by the Director of securities of the Corporation pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(c) On account of the Director's conduct which is finally adjudged
to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
3. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was a director of the Corporation and shall continue thereafter so long as the
Director shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Director was a director of the Corporation.
4. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability under this Agreement except to the extent such omission in fact
prejudices the Corporation or its defense of the matter, or which it may have to
the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Corporation of
the commencement thereof:
(a) Except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Director. After notice from the Corporation to the Director
of its election so to assume the defense thereof, the Corporation will not be
liable to the Director under this Agreement for any legal or other expenses
subsequently incurred by the Director in connection with the defense thereof
other than reasonable costs of investigation incurred at the request of the
Corporation or as otherwise provided below. The Director shall have the right to
employ its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Director unless (i) the
employment of counsel by the Director has been authorized by the Corporation,
(ii) counsel retained by the Corporation concludes that there is a conflict of
interest between the Corporation and the Director in the conduct of the defense
of such action such that joint representation is
2
<PAGE>
inappropriate or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of the Director's counsel shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation as to which the
Director shall have made the conclusion provided for in (ii) above.
(b) The Corporation shall not be liable to indemnify the Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty (other than
monetary damages which the Corporation is obligated to pay) or limitation on the
Director without the Director's written consent.
5. Advance of Expenses, Judgments, Etc. The expenses (including attorneys'
fees) incurred by the Director in defending any action, suit or proceeding shall
be promptly advanced by the Corporation upon the written request of the
Director. Any judgments, fines or amounts to be paid in settlement shall also be
promptly advanced by the Corporation and/or to the Director upon the Director's
written request. If it shall ultimately be determined by a court of competent
jurisdiction that the Director was not entitled to be indemnified, or was not
entitled to be fully indemnified, the Director shall repay to the Corporation
all amounts so advanced, or the appropriate portion thereof so advanced.
6. Repayment of Expenses. The Director agrees that the Director will
reimburse the Corporation for all reasonable expenses paid by the Corporation in
defending any civil or criminal action, suit or proceeding against the Director
in the event and only to the extent that it shall be ultimately determined that
the Director is not entitled to be indemnified by the Corporation for such
expenses under the provisions of the Certificate, the State Statute or this
Agreement.
7. Enforcement. In the event either party is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the unsuccessful party shall reimburse the other for
all of the reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
9. Other Rights and Remedies. The indemnification and other rights
provided by this Agreement shall not be deemed exclusive of any other rights to
which the Director may be entitled under any provision of law, the Certificate
or the Corporation's By-Laws, or other agreement, and shall continue after the
Director has ceased to occupy such position.
3
<PAGE>
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon and inure to the benefit of
the Director, his heirs, personal representatives and assigns and the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
11. Counterparts; Facsimile Transmission. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. If a party executes the signature
page hereof and causes same to be sent to the other party by facsimile
transmission, such act shall constitute the due execution and delivery of this
Agreement by such sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------
/s/ Donald Shack
----------------------------------
Donald Shack
Director
4
<PAGE>
EXHIBIT 10.13
October 12, 1998
Mr. Michael Kaplan
29 Marc Drive
Englishtown, New Jersey 07726
Dear Mr. Kaplan:
We are pleased to confirm our offer of continued employment with G+G
Retail, Inc. (the "Company") on the following terms and conditions:
1. You will continue to be employed as the Company's Vice President and
Chief Financial Officer reporting to the Company's President and Chief
Operating Officer and to its Chairman and Chief Executive Officer.
2. You will be paid a base salary at the rate of $265,000 per year. Such
base salary will be reviewed yearly and may be subject to increases,
in the Company's discretion, based, among other things, upon your
performance and the Company's results of operation. You will also be
eligible to participate during the period of your employment in any
incentive bonus plans which the Company may adopt for employees of
your level.
3. The Company will continue to provide you with use of an automobile and
pay your reasonable business related automobile expenses consistent
with the Company's automobile and expense policies as in effect from
time to time.
4. You will continue to be eligible to participate in the Company's group
medical and hospitalization insurance plans and its retirement plans
as in effect from time to time during the period of your employment.
5. Your employment by with Company will be "at will" and may be
terminated by the Company or by you at any time, with or without
"cause", for any reason or for no reason. If your employment is
terminated by the Company without cause, then the Company will pay to
you as severance (and in lieu of any other benefits, compensation or
payments of any kind by reason of the termination of your employment)
the following: (a) an amount equal to your base salary at your then
current rate payable in installments in accordance with the Company's
normal payroll schedule for a period of one year (the "Severance
Period"), and (b) provided that you elect to continue your coverage
under the Company's medical and hospitalization insurance benefits
under the Company's group plans in accordance with your rights under
the Consolidated Omnibus Budget and Reconciliation Act of 1985, as
amended ("COBRA"), the Company will waive or pay on your behalf the
portion
<PAGE>
of the premiums for such continuation coverage which equals the
portion of such premiums which would otherwise have been paid by the
Company had you continued in the Company's employ for the Severance
Period or until you obtain other employment which offers medical and
hospitalization coverage to you (whether or not you accept such
coverage.) As used above, the term "cause" means any willful,
intentional or negligent act or omission by you which has the effect
of injuring the business or reputation of the Company and includes
your resignation or other voluntary termination of your employment,
your failure or refusal to perform your duties and obligations to the
Company or to comply with a reasonable instruction of any of the
Company's President or Chairman or your commission of a crime under
any state or federal laws.
The Company agrees that your principal place of employment shall be
located in the New York Metropolitan Area (although you may be
required, from time to time, to travel in the performance of your
duties) and that, if the Company shall nonetheless require that you
relocate your principal place of business outside of the New York
Metropolitan Area, unless you shall consent to such relocation, the
Company shall be deemed to have terminated your employment hereunder
without cause.
6. During the Severance Period you shall not for yourself or on behalf of
any other person, partnership, corporation or entity, directly or
indirectly, or by action in concert with others (a) solicit, induce,
or encourage any person known to you to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or
other contractual relationship with the Company or any of its
affiliates, or (b) solicit, induce or encourage any customer, supplier
or other person known by you to have a contractual relationship with
the Company to discontinue, terminate, cancel or refrain from entering
into any clothing retail or other contractual relationship with the
Company or any of its affiliates.
7. During the period of your employment, you will necessarily have access
to information, knowledge and data concerning the Company, its
operations, business and affairs which is confidential and which is
not generally known to the public. You agree that you will not at any
time disclose or divulge any such confidential information to any
person firm or corporation except as may be required in connection
with the Company's business and affairs or otherwise by law.
8. This letter is intended to supersede all prior understandings and
agreements regarding your employment by the Company. You acknowledge
that the Company has not made and you have not relied upon, any
representations, promises or inducements concerning the terms and
conditions of your employment except as provided above.
2
<PAGE>
If the foregoing is acceptable to you, please indicate your agreement by
signing below.
Very truly yours,
G+G RETAIL, INC.
By: /s/ Scott Galin
-----------------------
ACCEPTED AND AGREED TO:
/s/ Michael Kaplan
- -----------------------
Michael Kaplan
3
<PAGE>
EXHIBIT 10.14
October 12, 1998
Mr. Jeffrey Galin
10600 Wilshire Blvd.
Apt. 309
Los Angeles, California 90024
Dear Jeffrey:
We are pleased to confirm our offer of continued employment with G+G
Retail, Inc. (the "Company") on the following terms and conditions:
1. You will continue to be employed as a Vice President/Merchandise
Manager of the Company reporting to the Company's President and
Chief Operating Officer and to its Chairman and Chief Executive
Officer.
2. You will be paid a base salary at the rate of $205,000 per year.
Such base salary will be reviewed yearly and may be subject to
increases, in the Company's discretion, based, among other things,
upon your performance and the Company's results of operation. You
will also be eligible to participate during the period of your
employment in any incentive bonus plans which the Company may adopt
for employees of your level.
3. The Company will continue to provide you with use of an automobile
and pay your reasonable business related automobile expenses
consistent with the Company's automobile and expense policies as in
effect from time to time.
4. You will continue to be eligible to participate in the Company's
group medical and hospitalization insurance plans and its retirement
plans as in effect from time to time during the period of your
employment.
5. Your employment by with Company will be "at will" and may be
terminated by the Company or by you at any time, with or without
"cause", for any reason or for no reason. If your employment is
terminated by the Company without cause, then the Company will pay
to you as severance (and in lieu of any other benefits, compensation
or payments of any kind by reason of the termination of your
employment) the following: (a) an amount equal to your base salary
at your then current rate payable in installments in accordance with
the Company's normal payroll schedule for a period of one year (the
"Severance Period"), and (b) provided that you elect to continue
your coverage under the Company's medical and hospitalization
insurance benefits under the Company's group plans in accordance
with your rights
<PAGE>
under the Consolidated Omnibus Budget and Reconciliation Act of
1985, as amended ("COBRA"), the Company will waive or pay on your
behalf the portion of the premiums for such continuation coverage
which equals the portion of such premiums which would otherwise have
been paid by the Company had you continued in the Company's employ
for the Severance Period or until you obtain other employment which
offers medical and hospitalization coverage to you (whether or not
you accept such coverage.) As used above, the term "cause" means any
willful, intentional or negligent act or omission by you which has
the effect of injuring the business or reputation of the Company and
includes your resignation or other voluntary termination of your
employment, your failure or refusal to perform your duties and
obligations to the Company or to comply with a reasonable
instruction of any of the Company's President or Chairman or your
commission of a crime under any state or federal laws.
The Company agrees that your principal place of employment shall be
located in the Los Angeles Metropolitan Area (although you may be
required, from time to time, to travel in the performance of your
duties) and that, if the Company shall nonetheless require that you
relocate your principal place of business outside of the Los Angeles
Metropolitan Area, unless you shall consent to such relocation, the
Company shall be deemed to have terminated your employment hereunder
without cause.
6. During the Severance Period you shall not for yourself or on behalf
of any other person, partnership, corporation or entity, directly or
indirectly, or by action in concert with others (a) solicit, induce,
or encourage any person known to you to be an employee of the
Company or any affiliate of the Company to terminate his or her
employment or other contractual relationship with the Company or any
of its affiliates, or (b) solicit, induce or encourage any customer,
supplier or other person known by you to have a contractual
relationship with the Company to discontinue, terminate, cancel or
refrain from entering into any clothing retail or other contractual
relationship with the Company or any of its affiliates.
7. During the period of your employment, you will necessarily have
access to information, knowledge and data concerning the Company,
its operations, business and affairs which is confidential and which
is not generally known to the public. You agree that you will not at
any time disclose or divulge any such confidential information to
any person firm or corporation except as may be required in
connection with the Company's business and affairs or otherwise by
law.
8. This letter is intended to supersede all prior understandings and
agreements regarding your employment by the Company. You acknowledge
that the Company has not made and you have not relied upon, any
representations, promises or inducements concerning the terms and
conditions of your employment except as provided above.
2
<PAGE>
If the foregoing is acceptable to you, please indicate your agreement by
signing below.
Very truly yours,
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------
ACCEPTED AND AGREED TO:
/s/ Jeffrey Galin
- ---------------------
Jeffrey Galin
3
<PAGE>
EXHIBIT 10.15
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
G+G RETAIL, INC.
and
THE ADDITIONAL PARTIES SET FORTH ON SCHEDULE 1 HERETO
as Borrowers
Dated: October 30, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS........................................................... 1
SECTION 2. CREDIT FACILITIES..................................................... 10
2.1 Loans............................................................ 10
2.2 Letter of Credit Accommodations.................................. 11
2.3 Availability Reserves............................................ 13
SECTION 3. INTEREST AND FEES..................................................... 14
3.1 Interest......................................................... 14
3.2 Closing Fee...................................................... 15
3.3 [Intentionally Omitted].......................................... 15
3.4 Unused Line Fee.................................................. 15
3.5 Changes in Laws and Increased Costs of Loans..................... 15
SECTION 4. CONDITIONS PRECEDENT.................................................. 16
4.1 Conditions Precedent to Initial Loans and
Letter of Credit Accommodations.................................. 16
4.2 Conditions Precedent to All Loans and
Letter of Credit Accommodations.................................. 18
SECTION 5. SECURITY INTEREST..................................................... 18
SECTION 6. COLLECTION AND ADMINISTRATION......................................... 20
6.1 Borrowers' Loan Account(s)....................................... 20
6.2 Statements....................................................... 20
6.3 Collection of Accounts........................................... 20
6.4 Payments......................................................... 22
6.5 Authorization to Make Loans...................................... 22
6.6 Use of Proceeds.................................................. 23
6.7 Appointment of G+G as Agent for Borrowers........................ 23
SECTION 7. COLLATERAL REPORTING AND COVENANTS.................................... 23
7.1 Collateral Reporting............................................. 23
7.2 Accounts Covenants............................................... 24
7.3 Inventory Covenants.............................................. 25
7.4 Power of Attorney................................................ 26
7.5 Right to Cure.................................................... 27
7.6 Access to Premises............................................... 27
SECTION 8. REPRESENTATIONS AND WARRANTIES........................................ 28
8.1 Corporate Existence, Power and Authority; Subsidiaries........... 28
8.2 Financial Statements; No Material Adverse Change................. 28
8.3 Chief Executive Office; Collateral Locations..................... 28
8.4 Priority of Liens; Title to Properties........................... 28
8.5 Tax Returns...................................................... 29
8.6 Litigation....................................................... 29
8.7 Compliance with Other Agreements and Applicable Laws............. 29
8.8 Environmental Compliance......................................... 30
8.9 Credit Card Agreements........................................... 31
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
8.10 Employee Benefits.................................................. 31
8.11 Bank Accounts...................................................... 32
8.12 Accuracy and Completeness of Information........................... 32
8.13 Survival of Warranties; Cumulative................................. 32
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................................ 33
9.1 Maintenance of Existence........................................... 33
9.2 New Collateral Locations........................................... 33
9.3 Compliance with Laws, Regulations, Etc............................. 33
9.4 Payment of Taxes and Claims........................................ 34
9.5 Insurance.......................................................... 34
9.6 Financial Statements and Other Information......................... 34
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............ 36
9.8 Encumbrances....................................................... 37
9.9 Indebtedness....................................................... 38
9.10 Loans, Investments, Guarantees, Etc................................ 40
9.11 Dividends and Redemptions.......................................... 41
9.12 Transactions with Affiliates....................................... 42
9.13 Credit Card Agreements............................................. 42
9.14 Adjusted Tangible Net Worth........................................ 42
9.15 Compliance with ERISA.............................................. 43
9.16 Additional Bank Accounts........................................... 43
9.17 Costs and Expenses................................................. 43
9.18 Further Assurances................................................. 44
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................ 44
10.1 Events of Default.................................................. 44
10.2 Remedies........................................................... 46
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................................... 48
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.................................................. 48
11.2 Waiver of Notices.................................................. 49
11.3 Amendments and Waivers............................................. 49
11.4 Waiver of Counterclaims............................................ 49
11.5 Indemnification.................................................... 49
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................................... 50
12.1 Term................................................................ 50
12.2 Notices............................................................. 51
12.3 Partial Invalidity.................................................. 52
12.4 Successors.......................................................... 52
12.5 Confidentiality..................................................... 52
12.6 Entire Agreement.................................................... 53
</TABLE>
(ii)
<PAGE>
INDEX TO
EXHIBIT AND SCHEDULES
---------------------
Exhibit A Information Certificate of G+G Retail, Inc.
Schedule 1 Additional Borrowers
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Compliance
Schedule 8.9 Credit Card Agreements
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Loans, Investments, Guarantees
Schedule 9.12 Transactions With Affiliates
(iii)
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated October 30, 1998 is entered into by
and between CONGRESS FINANCIAL CORPORATION, a Delaware corporation ("Lender")
and G+G RETAIL, INC., a Delaware corporation ("G+G") and each of the
corporations listed on Schedule 1 hereto (each of the foregoing, individually a
"Borrower" and collectively, "Borrowers").
W I T N E S S E T H:
-------------------
WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender may make loans and provide
other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers pursuant to the definitions set
forth in the recitals hereto, unless the context otherwise requires, shall mean
each and all of them and their respective successors and assigns, individually
and collectively, jointly and severally. All references to Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or cured, if
such Event of Default is capable of being cured as determined by Lender. Any
accounting term used herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in accordance with GAAP. For
purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of each Borrower
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, credit card Receivables.
<PAGE>
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its subsidiaries (if any),
the amount equal to the difference between: (a) the aggregate net book value of
all assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose principally on a first-in-first-out basis, at the
lower of cost or market using the retail method of accounting after deducting
from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence, depreciation and
amortization), provided, however, that for G+G such aggregate net book value of
-------- -------
all assets shall not be reduced by the amount of any intangible assets written
off in whole or in part, and (b) the aggregate amount of the indebtedness and
other liabilities of such Person and its subsidiaries (including tax and other
proper accruals, but excluding any indebtedness which is subordinated to the
Obligations of Lender hereunder and excluding any indebtedness permitted
pursuant to Section 9.9(e)(iii) to the extent the proceeds of such indebtedness
are used as dividend payments as permitted under Section 9.11(b)), provided
--------
further, however, for G+G that the aggregate net book value of assets shall not
- ------- -------
reflect any non-cash gains or non-cash losses from unusual, infrequent or
extraordinary items or from changes in accounting principles recognized after
the date hereof.
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations that would
otherwise be available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks that, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii
the assets, business or prospects of any Borrower or any Obligor or (ii the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of any Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) in respect
of any state of facts which Lender determines in good faith constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default, or (d) to reflect outstanding Letter of Credit Accommodations as
provided in Section 2.2 hereof or (e) as otherwise provided in Section 2.3
hereof. In addition to, and not in limitation of the foregoing, if at any time,
the Borrowers have Excess Availability of less than
2
<PAGE>
$3,000,000 or an Event of Default exists and is continuing, then, with respect
to any leased locations where Lender determines the landlord has any rights in
and to the Collateral pursuant to applicable law, Lender shall have the right to
establish an Availability Reserve in respect of amounts due for unpaid rent to
the owner and lessor of such leased location.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Bridge Loan Agreement" shall mean that certain $90,000,000 Loan
Agreement dated as of August 28, 1998 among G+G, Parent, the initial lenders
named therein and First Union National Bank, as administrative agent.
1.7 "Bridge Notes" shall mean, individually and collectively, all
promissory notes executed and delivered by G+G pursuant to the terms of the
Bridge Loan Agreement.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina and a day on
which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.9 "Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.10 "Cash Equivalents" means (a) United States dollars (including, without
limitation, such dollars as are held as overnight bank deposits and demand
deposits with banks, which deposits are insured by the Federal Deposit Insurance
Corporation), (b) securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition, (c)
certificates of deposit and Eurodollar time deposits with maturities of one year
or less from the date of acquisition and bankers' acceptances with maturities
not exceeding one year, in each case with any domestic commercial bank having
capital and surplus in excess of $500,000,000 and rated "A3" or better by
Moody's Investors Service, Inc. and "A-" or better by Standard & Poor's Rating
Group, (d) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (b) and (c) above, (e)
commercial paper having one of the two highest ratings obtainable from Moody's
Investors Service, Inc or Standard & Poor's Ratings Group and in each case
maturing within nine months after the date of acquisition, and (f) money market
funds, the portfolios of which are limited to investments described in clauses
(a) through (e) above.
1.11 "Change Of Control" shall mean the earlier of (a) the first date that
the Initial Holders, on a collective basis, cease to be the "beneficial owners"
(as such term is defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of securities representing
3
<PAGE>
at least a majority of the total voting power of the outstanding capital stock
of Parent that is entitled to vote in the election of the Board of Directors of
Parent, or (b) the first date on which Parent (or its wholly-owned subsidiaries)
cease to wholly-own G+G.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.13 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.14 "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined on a first-in-first-out basis under
the retail method of accounting in accordance with GAAP.
1.15 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
any Borrower or Obligor (including, without limitation, credits and reserves)
under the Credit Card Agreements, and agreeing to transfer all such amounts to
the Blocked Accounts, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.16 "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by any Borrower or Obligor with any Credit Card Issuer or any
Credit Card Processor, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, including, but
not limited to, the agreements set forth on Schedule 8.9 hereto.
1.17 "Credit Card Issuer" shall mean any person (other than Borrowers) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, Carte Blanche and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc. and Novus Services, Inc.
1.18 "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of Borrowers' or Obligors' sales transactions involving
credit card or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer.
1.19 "Credit Card Receivables" shall mean collectively, (a) all present
and future rights of Borrowers to payment from any Credit Card Issuer, Credit
Card Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such
4
<PAGE>
goods or services using a credit or debit card and (b) all present and future
rights of Borrowers to payment from any Credit Card Issuer, Credit Card
Processor or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card, including, but not limited to, all amounts at any time due or to
become due from any Credit Card Issuer or Credit Card Processor under the Credit
Card Agreements or otherwise.
1.20 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrowers that
are acceptable to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) packaging and shipping materials; (b)
supplies used or consumed in Borrowers' business; (c) Inventory at premises
other than those owned or leased and controlled by Borrowers; (d) Inventory
subject to a security interest or lien in favor of any person other than Lender
except those permitted in this Agreement; (e) bill and hold goods; (f)
unserviceable, obsolete or slow moving Inventory; (g) Inventory which is not
subject to the first priority, valid and perfected security interest of Lender;
(h) damaged and/or defective Inventory (i) returned Inventory that is not held
for resale; (j) Inventory to be returned to vendors; (k) Inventory subject to
deposits made by customers for sales of Inventory that has not been delivered;
(l) samples; (m) Inventory purchased or sold on consignment; (n) Inventory
received by Borrowers earlier then the date six (6) months prior to the date
hereof; and (o) Inventory purchased from an affiliate of Borrowers at a purchase
price exceeding the fair market value of such Inventory, to the extent of such
excess purchase price.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no notice thereof, which adversely affected or could
reasonably be expected to adversely affect the Inventory in the good faith
determination of Lender. Lender will not establish new criteria for Eligible
Inventory if Lender has established an Availability Reserve for the same purpose
and Lender will use its best efforts to promptly notify Borrowers of any new
criteria established by Lender. Any Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.
1.21 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrowers and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act,
5
<PAGE>
the Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal
and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii
applicable state counterparts to such laws, and (ii any common law or equitable
doctrine that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of or exposure to any Hazardous
Materials.
1.22 "Equipment" shall mean all of Borrowers' now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.23 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.24 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrowers or any of their subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.
1.25 "Eurodollar Rate" shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrowers and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrowers in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrowers.
1.26 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.27 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
available to Borrowers as of such time based on the applicable lending formula
multiplied by the Value of Eligible Inventory, as determined by Lender, and
subject to the sublimits and Availability Reserves from time to time established
by Lender hereunder and (ii the Maximum Credit, minus (b) the sum of: (i) the
-----
amount of all then outstanding and unpaid Obligations, plus (ii (A) the
aggregate amount of all trade payables of Borrowers which are more than forty-
five (45) days past due as of such time less (B) the lesser of (x) the amount of
----
all trade payables which are more than forty-five (45) days past due which the
Borrowers are in good faith contesting, to the extent each such payable is so
contested and (y) $500,000.
6
<PAGE>
1.28 "Event Of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.29 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.30 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.31 "Guarantor" shall mean any person other than Borrowers which executes
a guarantee in favor of Lender unconditionally guaranteeing Borrowers'
Obligations to Lender and has executed in favor of Lender a security agreement
and related documents including UCC-1 Financing Statements, and all of which
documents then continue in effect.
1.32 "Information Certificate" shall mean the Information Certificate of
Borrowers constituting Exhibit A hereto containing material information with
respect to Borrowers, their business and assets provided by or on behalf of
Borrowers to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.33 Initial Holders" means Pegasus Partners, L.P., Pegasus Related
Partners, L.P., Jay Galin, Scott Galin, Jeffrey Galin and their respective
affiliates.
1.34 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of approximately one (1), two (2), or three (3) months duration as Borrowers may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
-------- ----
not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.35 "Interest Rate" shall mean (a) as to Prime Rate Loans, a rate equal
to the Prime Rate and (b) as to Eurodollar Rate Loans, a rate of one and three-
quarters (1 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period selected by
Borrowers as in effect three (3) Business Days after the date of receipt by
Lender of the request of Borrowers for such Eurodollar Rate Loans in accordance
with the terms hereof ("Eurodollar Request Notice"), whether such rate is higher
or lower than any rate previously quoted to Borrowers); provided, that: the
-------- ----
Interest Rate specified in clause (a) with
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respect to Prime Rate Loans and in clause (b) with respect to Eurodollar Rate
Loans shall be increased, in each case, by two (2%) percent per annum, at
Lender's option, without notice, (i) for the period on and after (A) the date of
termination or non-renewal hereof and until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment against
Borrowers), or (B) the date of the occurrence of any Event of Default, and for
so long as such Event of Default or other event is continuing as determined by
Lender, and (ii on the Loans at any time outstanding in excess of the amounts
available to Borrowers under Section 2 (whether or not such excess(es), arise or
are made with or without Lender's knowledge or consent and whether made before
or after an Event of Default).
1.36 "Inventory" shall mean all of Borrowers' now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.37 "Landlord Agreement" shall mean an agreement in writing from the
owner and lessor of any leased premises in form and substance reasonably
satisfactory to Lender acknowledging Lender's first priority security interest
in the Collateral, waiving or subordinating in favor of Lender security
interests and claims by such person against the Collateral and permitting Lender
access to, and the right to remain on, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Collateral.
1.38 "Letter Of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrowers of their obligations to such issuer.
1.39 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.40 "Material Adverse Change" shall mean a material adverse change in the
condition (financial or otherwise), operations, performance, properties,
business or affairs of the Borrowers or any Obligor.
1.41 "Material Adverse Effect" shall mean a material adverse change in, or
a material adverse effect upon (a) the condition (financial or otherwise),
operations, business or affairs of Borrowers or any Obligor, (b) the ability of
Borrowers or any Obligor to repay any Obligations under any of the Financing
Agreements, or (c) Lender's rights or interests in its Collateral or of Lender's
ability to enforce the Obligations or realize upon its Collateral.
1.42 "Maximum Credit" shall mean $20,000,000.
1.43 "Net Recovery Amount" shall mean at any given time the Value of
Eligible Inventory multiplied by the Net Recovery Cost Percentage.
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1.44 "Net Recovery Cost Percentage" shall mean the fraction, expressed as
a percentage, (a) the numerator of which is the amount equal to the recovery on
the aggregate amount of the Inventory at such time on a "going out of business
sale" basis as set forth in the most recent acceptable appraisal of Inventory
received by Lender in accordance with Section 7.3, net of operating expenses,
liquidation expenses and commissions, and (b) the denominator of which is the
original Cost of the aggregate amount of the Inventory subject to appraisal.
1.45 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrowers to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrowers under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such case,
whether or not such amounts are allowed or allowable in whole or in part in such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.46 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrowers.
1.47 "Parent" shall mean G&G Retail Holdings, Inc., together with its
successors and assigns.
1.48 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.49 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.50 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.51 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.52 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
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1.53 "Real Property" shall mean all now owned and hereafter acquired real
property of Borrowers, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.54 "Records" shall mean all of Borrowers' present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrowers with respect to the
foregoing maintained with or by any other person).
1.55 "Reference Bank" shall mean First Union National Bank or such other
bank as Lender may designate from time to time.
1.56 "Renewal Date" shall have the meaning set forth in Section 12.1
hereof.
1.57 "Retail Value" shall mean, as to the Inventory as of any date, the
then current retail sales price of such Inventory as of such date, net of
markdowns from the original retail sales price or ticketed sales price with
respect thereto.
1.58 "Value" shall mean with respect to Inventory, the lower of (a) Cost
or (b) market value, as determined in good faith by Lender.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrowers from time to time in amounts
requested by Borrowers up to the amount equal to: (i) (A) the lesser of (1) the
Maximum Credit and (2) eighty (80%) percent of the Net Recovery Amount of the
Eligible Inventory; minus (ii any Availability Reserves; except that, so long as
----- ------ ----
no Event of Default exists and is continuing, for the calendar months of July,
August, October and November of each year, Lender agrees to make Loans to
Borrowers from time to time in amounts requested by Borrowers up to the amount
equal to: (i) the lesser of (A) the Maximum Credit and (B) eighty-five (85%)
percent of the Net Recovery Amount of the Eligible Inventory; minus (ii) any
-----
Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrowers, reduce the lending formula
with respect to Eligible Inventory to the extent that Lender determines that:
(i) the number of days of the turnover of the Inventory for any period has
changed in any respect or (ii the nature, quality or mix of the Inventory has
deteriorated or (ii there is a decrease in the Net Recovery Cost Percentage
after the date hereof. In determining whether to reduce the lending formula(s),
Lender may consider events, conditions,
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contingencies or risks which are also considered in determining Eligible
Inventory or in establishing Availability Reserves.
To the extent Lender shall have established an Availability
Reserve which is sufficient to address any event, condition or matter in a
manner satisfactory to Lender in good faith, Lender shall not exercise its
rights under this Section 2.1(b) to reduce the lending formulas to address such
event, condition or matter. The amount of any reduction in the lending formula
by Lender pursuant to this Section 2.1(b) shall have a reasonable relationship
to the matter which is the basis for such a reduction.
(c) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In the event that the outstanding amount of the Loans, or
the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrowers shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrowers, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrowers containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrowers
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrowers
shall pay to Lender a letter of credit fee at a rate equal to one and three
quarters (1 3/4%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrowers shall pay to Lender such letter of credit fee, at Lender's
option, without notice, at a rate equal to three and three quarters (3 3/4%)
percent per annum for (i) the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrowers) and (ii the
period from and after the date of the occurrence of an Event of Default and for
so long as such Event of Default is continuing. Such letter of credit fee shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed and the obligation of Borrowers to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to
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Borrowers (subject to the Maximum Credit and any Availability Reserves) are
equal to or greater than (i) if the proposed Letter of Credit Accommodation is
for the purpose of purchasing Eligible Inventory, the sum of (A) the percentage
equal to one hundred (100%) percent minus the then applicable percentage set
forth in Section 2.1(a) above multiplied by the Value of such Eligible
Inventory, plus (B) freight, taxes, duty and other amounts that Lender estimates
must be paid in connection with such Inventory upon arrival and for delivery to
one of Borrowers' locations for Eligible Inventory; and (ii if the proposed
Letter of Credit Accommodation is for any other purpose an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodations, an Availability Reserve shall
be established in the applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith, shall not at any time exceed
$10,000,000. At any time an Event of Default has occurred and is continuing,
upon Lender's request, Borrowers will either furnish cash collateral to secure
the reimbursement obligations to the issuer in connection with any Letter of
Credit Accommodations or furnish cash collateral to Lender for the Letter of
Credit Accommodations, and in either case, the Loans otherwise available to
Borrowers shall not be reduced as provided in Section to 2.2(c) the extent of
such cash collateral.
(e) Borrowers shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation, except for any losses, claims, damages,
liabilities, costs and expenses as a result of the gross negligence or willful
misconduct of Lender as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. Borrowers assume all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrowers' agent. Borrowers assume all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrowers hereby release and hold Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrowers, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation, except for any losses, claims,
damages, liabilities, costs and expenses as a result of the gross negligence or
willful misconduct of Lender as determined pursuant to a final non-appealable
order of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or non-
renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrowers any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer
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other than Lender unless Lender has duly executed and delivered to such issuer
the application or a guarantee or indemnification in writing with respect to
such Letter of Credit Accommodation. Borrowers shall be bound by any
interpretation made in good faith by Lender, or any other issuer or
correspondent under or in connection with any Letter of Credit Accommodation or
any documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrowers. Lender
shall have the sole and exclusive right and authority to, and Borrowers shall
not at any time an Event of Default exists or has occurred and is continuing,
unless Lender delivers notice to the Borrowers to the contrary, (i) approve or
resolve any questions of non-compliance of documents, (ii give any instructions
as to acceptance or rejection of any documents or goods, or (ii execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders, (iv grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents, and (v) agree to
any amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrowers' name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrowers to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrowers to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrowers to Lender
and to apply in all respects to Borrowers.
2.3 Availability Reserves. All Loans otherwise available to Borrowers
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Without limiting any other rights
or remedies of Lender under this Agreement or any of the other Financing
Agreements with respect to the establishment of Availability Reserves or
otherwise, Lender may establish and revise Availability Reserves to reflect: (a)
inventory shrinkage; (b) the aggregate amount of deposits, if any, received by
Borrowers from their retail customers in respect of unfilled orders for
merchandise; (c) (i) amounts due or to become due in respect of use and/or
withholding taxes and (ii) at any time when Excess Availability is less than
$3,000,000, amounts due or to become due in respect of sales taxes; or (d)
amounts owing by Borrowers to Credit Card Issuers or Credit Card Processors in
connection with the Credit Card Agreements.
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SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the Loans at the Interest Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or non-
renewal hereof shall be payable on demand.
(b) Borrowers may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, as of such date each of the following conditions is satisfied as
- -------- ----
determined by Lender in good faith: (i) no Event of Default, or event which
with notice or passage of time or both would constitute an Event of Default
exists or has occurred and is continuing, (ii no party hereto shall have sent
any notice of termination or non-renewal of this Agreement, (ii Borrowers shall
have complied with such customary procedures as are established by Lender and
specified by Lender to Borrowers from time to time for requests by Borrowers for
Eurodollar Rate Loans, (iv no more than six (6) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $1,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrowers shall not exceed the amount equal to
ninety (90%) percent of the lowest principal amount of the Loans which it is
anticipated will be outstanding during the applicable Interest Period, in each
case as determined by Lender (but with no obligation of Lender to make such
Loans) and (vi Lender shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to Lender through the Reference Bank and can be
readily determined as of the date of the request for such Eurodollar Rate Loan
by Borrowers. Any request by Borrowers to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) an
Event of Default shall exist, (ii this Agreement shall terminate or not be
renewed, or (ii the aggregate principal amount of the Prime Rate Loans which
have previously been converted to Eurodollar
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Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at
the beginning of an Interest Period shall at any time during such Interest
Period exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the Loans then available to Borrowers under Section 2
hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on Loans (other than Eurodollar Rate Loans) shall
increase or decrease by an amount equal to each increase or decrease in the
Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrowers to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the
amount of $125,000 which shall be fully earned as of and payable on the date
hereof.
3.3 [Intentionally Omitted].
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line
fee at a rate equal to one-quarter of one (1/4%) percent per annum calculated
upon the amount by which the Maximum Credit exceeds the average daily principal
balance of the outstanding Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans or by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii the cost to Lender, Reference Bank
or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrowers shall
pay to Lender, upon
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demand by Lender (or Lender may, at its option, charge any loan account of
Borrowers) any amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any loss (including loss of anticipated profits),
cost or expense incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrowers and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrowers shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by Madeleine, L.L.C. of its
financing arrangements with Borrowers and the termination and release by it of
any interest in and to any assets and properties of Borrowers and each Obligor,
duly authorized, executed and delivered by it, including, but not limited to,
UCC termination statements for all UCC financing statements previously filed by
it or its predecessors, as secured party and Borrowers or any Obligor, as
debtor;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have
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requested in connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or governmental
authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrowers since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrowers or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrowers including, without
limitation, current perpetual inventory records and/or roll-forwards of
Inventory through the date of closing, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Lender to accurately identify and verify the
Collateral, the results of which shall be satisfactory to Lender, not more than
three (3) Business Days prior to the date hereof;
(f) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons (other than from landlords of the Borrowers' leased locations) which
Lender may deem necessary or desirable in order to permit, protect and perfect
its security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements,
including, without limitation, acknowledgements by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(g) Borrowers shall have established the Blocked Accounts and Lender
shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrowers with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrowers;
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrowers have (i) directed the banks at which
Borrowers maintains deposit accounts for the initial receipt of cash, checks and
other items from Borrowers' retail store locations to transfer all immediately
available funds deposited in such bank only to the Blocked Accounts as required
pursuant to Section 6.3 hereof or as otherwise consented to by Lender and (ii
notified such banks of the security interests of Lender in such funds and the
other Collateral;
(i) Lender shall have received Credit Card Acknowledgements in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
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(j) the Excess Availability as determined by Lender, as of the date
hereof, shall not be less than $3,000,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
(k) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance satisfactory
to Lender, the opinion letter of counsel to Borrowers with respect to the
Financing Agreements and the security interests and liens of Lender with respect
to the Collateral and such other matters and Lender may request; and
(m) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrowers, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. SECURITY INTEREST
-----------------
To secure payment and performance of all Obligations, each Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby collaterally assigns to Lender the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
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5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of such Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (ii goods described in invoices, documents, credit card
sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property;
5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
5.9 Notwithstanding anything to the contrary set forth above, Collateral
shall not include any rights or interests in Real Property or Equipment which
is, and so long as such Real Property or Equipment remains subject to, a
contract or lease which, pursuant to its stated terms, prohibits the granting of
a security interest or lien therein to Lender and such prohibition has not been
or is not waived or the consent of the other party to such contract or lease has
not been or is not otherwise obtained or, under applicable law, such prohibition
cannot be waived; provided that the foregoing exclusion shall in no way be
construed (a) to apply if any such prohibition is unenforceable under Section 9-
318 of the Uniform Commercial Code or other applicable law, or (b) so as to
limit, impair or otherwise affect the Lender's unconditional continuing security
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interests in and liens upon any rights or interests of Borrowers in or to monies
due or to become due under any such contract or lease (including any Accounts),
or (c) if the lessor or holder of such purchase money mortgage or security
interest in and to such Equipment does not have a valid and perfected security
interest in or lien upon such Equipment.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Account(s). Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in the Borrowers' loan account(s) maintained by Lender
for Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Lender receives a
written notice from Borrowers of any specific exceptions of Borrowers thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrowers a written statement
as provided above, the balance in Borrowers' loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are reasonably acceptable
to Lender into which Borrowers shall promptly deposit and direct their account
debtors to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check, credit card sales drafts, credit card
sales or charge slips or other manner. The banks at which the Blocked Accounts
are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right to setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, at such time as Lender shall direct, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose ("Payment Account"). Lender
shall instruct the depository banks at which the Blocked Accounts are maintained
to transfer the funds on deposit in the Blocked Accounts to such operating bank
account of Borrowers as Borrowers may specify in writing to Lender (the
"Operating Account") until such time as Lender shall notify the depository bank
otherwise. Lender may instruct the
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depository banks at which the Blocked Accounts are maintained to transfer all
funds received or deposited into the Blocked Accounts to the Payment Account if,
at any time: (i) an Event of Default, or event which with notice or passage of
time or both would constitute an Event of Default, shall exist, or (ii Borrowers
have Excess Availability of less than $5,000,000 for three (3) consecutive days.
Borrowers agree that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as proceeds of
Inventory or other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available to
Borrowers, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and by 12:00 noon New York City time or, at Lender's
discretion, otherwise within sufficient time to credit Borrowers' loan account
on such day, and if not, then on the next Business Day. Until the date Lender
notifies the depository banks at which the Blocked Accounts are maintained to
direct payment to the Payment Account in accordance with Section 6.3(a), Lender
shall be entitled to charge Borrowers an administrative fee equivalent to the
interest Lender would have received for the Collection Period (as defined below)
had the funds deposited in the Blocked Account on such day been transferred from
the Blocked Account to the Payment Account on such day. If Lender notifies the
depository banks at which the Blocked Accounts are maintained to direct payment
to the Payment Account in accordance with the terms of Section 6.3(a), then, for
purposes of calculating interest on the Obligations, such payments or other
funds received in the Payment Account will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account (the
"Collection Period") provided such payments or other funds and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and by 12:00 noon New York City time, or, at Lender's
discretion, otherwise within sufficient time to credit Borrowers' loan account
on such day, and if not, then on the next Business Day. Prior to the Lender
notifying the depository banks at which the Blocked Accounts are maintained to
direct payment to the Payment Account in accordance with Section 6.3(a), for
purposes of calculating interest on the Obligations, payments or other funds
received in the Payment Account will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt of immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and by 12:00 noon New York
City time, or, at Lender's discretion, otherwise within sufficient time to
credit Borrowers' loan account on such day, and if not, then on the next
Business Day.
(c) Borrowers and all of their affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts, credit card sales
drafts, credit card sales or charge slips or receipts, or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to
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be remitted, in kind, to Lender. In no event shall the same be commingled with
Borrowers' own funds. Borrowers agree to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of Borrowers to reimburse Lender, for such
amounts pursuant to this Section 6.3 shall survive the termination or non-
renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate in writing
from time to time. Lender may apply payments received or collected from
Borrowers or for the account of Borrowers (including, without limitation, the
monetary proceeds of collections or of realization upon any Collateral) to such
of the Obligations, whether or not then due, in such order and manner as Lender
determines; except that, so long as no Event of Default exists and is
------ ----
continuing, Lender agrees to apply all payments received or collected from
Borrowers first against all outstanding Obligations, other then Eurodollar Rate
Loans, and second against all outstanding Eurodollar Rate Loans. At Lender's
option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrowers. Borrowers shall make all payments
to Lender on the Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender.
Borrowers shall be liable to pay to Lender, and does hereby indemnify and hold
Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.4 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.4 shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement. If, at any time, there are no
Loans outstanding, and Lender holds a credit balance, Lender shall remit such
credit balance to an account of Borrowers as directed in writing by G+G.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrowers or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Loan. Requests
received after 11:00 a.m. New York City time on any day shall be deemed to have
been made as of the opening of business on the immediately following Business
Day. All Loans and Letter of Credit Accommodations under this Agreement shall
be conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrowers when deposited to the credit of Borrowers
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or otherwise disbursed or established in accordance with the instructions of
Borrowers or in accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to Borrowers hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrowers pursuant to the provisions
hereof shall be used by Borrowers only for general operating, working capital
and other proper corporate purposes of Borrowers not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
6.7 Appointment of G+G as Agent for Borrowers. The Borrowers, other than
G+G, hereby irrevocably appoint G+G, and each officer thereof, as their agent
and attorney-in-fact to request Loans and Letter of Credit Accommodations on
their behalf, at Lender's option, to receive disbursements of Loans on their
behalf (which may be made to the same account of G+G to which disbursements of
Loans to G+G are made), to receive notices and statements of account from
Lender, to take such other actions on their behalf as is provided hereunder or
under any of the other Financing Agreements and generally to deal with Lender on
their behalf, for all matters pertaining to the financing arrangements under
this Agreement and the other Financing Agreements.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrowers shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a monthly basis or
more frequently as Lender may request, perpetual inventory reports with reports
of sales of Inventory by store, and (b) on a weekly basis or more frequently as
Lender may request, (i) reports of sales of Inventory, indicating net sales, (ii
reports of aggregate Inventory purchases (including all costs related thereto,
such as freight, duty and taxes) and identifying items of Inventory in transit
to Borrowers related to the applicable documentary letter of credit and/or bill
of lading number, (ii) reports of amounts of consigned Inventory held by
Borrowers by category and consignor, (iv) reports of the Cost and Retail Value
of the Inventory (net of markdowns), (c) upon Lender's request, (i) reports on
Accounts, including aggregate outstanding amounts by category, payments,
accruals and returns and other credits, (ii) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (iii) copies of bills of lading, (iv copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrowers, (v) reports by retail store location of sales and operating profits
for each such retail store location; (vi) accounts payable trial balance and
(vii) reports on sales and use tax collections, deposits and payments, including
monthly sales and use tax accruals; (d) accounts
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receivable detail as Lender may request; (e) upon Lender's request, the monthly
statements received by Borrowers from any Credit Card Issuers or Credit Card
Processors, together with such additional information with respect thereto as
shall be sufficient to enable Lender to monitor the transactions pursuant to the
Credit Card Agreements; and (f) such other reports as to the Collateral as
Lender shall request from time to time. If any of Borrowers' records or reports
of the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrowers hereby irrevocably authorize such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender.
7.2 Accounts Covenants.
(a) Borrowers shall notify Lender promptly of the assertion of any
claims, offsets, defenses or counterclaims by any account debtor, Credit Card
Issuer or Credit Card Processor or any disputes with any of such persons or any
settlement, adjustment or compromise thereof which could reasonably be expected
to have a Material Adverse Effect. No credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account debtor,
Credit Card Issuer or Credit Card Processor except in the ordinary course of
Borrowers' business in accordance with the then-current practices of Borrowers.
So long as no Event of Default has occurred and is continuing, Borrowers shall
be entitled to settle, adjust or compromise any claim, offset, counterclaim or
dispute with any account debtor, Credit Card Issuer, Credit Card Processor. At
any time that an Event of Default has occurred and is continuing, Lender shall,
unless it delivers notice to the contrary to Borrowers, have the exclusive right
to settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors, Credit Card Issuers or Credit Card Processors or grant any
credits, discounts or allowances.
(b) Borrowers shall notify Lender promptly of any of the following
which could reasonably be expected to have a Material Adverse Effect: (i) any
notice of a material default by Borrowers under any of the Credit Card
Agreements or of any default which might result in the Credit Card Issuer or
Credit Card Processor ceasing to make payments or suspending payments to
Borrowers, (ii) any notice from any Credit Card Issuer or Credit Card Processor
that such person is ceasing or suspending, or will cease or suspend, any present
or future payments due or to become due to Borrowers from such person, or that
such person is terminating or will terminate any of the Credit Card Agreements,
and (iii) the failure of Borrowers to comply with any material terms of the
Credit Card Agreements or any terms thereof which might result in the Credit
Card Issuer or Credit Card Processor ceasing or suspending payments to
Borrowers.
(c) With respect to each Account: (i) the amounts shown on any report
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete in all material respects, (ii) except as otherwise provided in Section
6.3 hereof, no payments shall be made thereon except payments delivered to
Lender pursuant to the terms of this Agreement, (iii) no credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any Credit Card Issuer or Credit Card Processor, except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrowers' business in
accordance with practices and policies previously
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disclosed to Lender, and (iv) none of the transactions giving rise thereto will
violate any applicable State or Federal Laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and regulations and
all such documentation will be legally enforceable in accordance with its terms.
(d) Lender may, at any time or times that an Event of Default exists
and is continuing (i) notify any or all account debtors, Credit Card Issuers and
Credit Card Processors that the Accounts have been collaterally assigned to
Lender and that Lender has a security interest in the Accounts and Lender may
direct any or all account debtors, Credit Card Issuers and Credit Card
Processors to make payments of Accounts directly to Lender, (ii) extend the time
of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof not for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor, Credit Card Issuer or Credit Card
Processor shall state that the Accounts due from such account debtor, Credit
Card Issuer or Credit Card Processor and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrowers
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
(e) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f) Upon the request of Lender, Borrowers shall deliver or cause to be
delivered to Lender, with appropriate endorsement and assignment, with full
recourse to Borrowers, all chattel paper and instruments which Borrowers now own
or may at any time acquire. In the event that Borrowers deliver to Lender any
instrument or note executed and delivered by any officer, director, employee or
shareholder of Borrower in connection with the transactions more particularly
described in Section 9.10(e)(iii) below (the "Employee Notes"), Lender agrees,
upon the request of Borrowers, to return any such instrument to Borrowers for
the purpose of permitting Borrowers to consummate their transactions with such
employee, officer, director or shareholder and to provide Borrowers with such
additional documents reasonably necessary to release Lender's lien upon such
instruments.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrowers
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrowers' Cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may
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request during the continuance of an Event of Default, and promptly following
such physical inventory shall supply Lender with a report in the form and with
such specificity as may be reasonably satisfactory to Lender concerning such
physical count; (c) Borrowers shall not remove any Inventory from the locations
set forth or permitted herein, without the prior written consent of Lender,
except for sales of Inventory in the ordinary course of Borrowers' business and
except to move Inventory directly from one location set forth or permitted
herein to another such location; (d) upon Lender's request, Borrowers shall, at
their expense, no more than twice in any twelve (12) month period, but at any
time or times as Lender may request at Lender's expense, or at any time or times
as Lender may request at Borrowers' expense during the existence and continuance
of Event of Default, or in the event that Excess Availability is less than
$5,000,000, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser reasonably acceptable to Lender, addressed to Lender
or upon which Lender is expressly permitted to rely; (e) upon Lender's request,
Borrowers shall, at their expense, conduct through RGIS Inventory Specialists,
Inc. or another inventory counting service reasonably acceptable to Lender, a
physical count of the Inventory in form, scope and methodology reasonably
acceptable to Lender no more than twice in any twelve (12) month period, but at
any time or times as Lender may request during the continuance of an Event of
Default, the results of which shall be reported directly by such inventory
counting service to Lender and Borrowers shall promptly deliver confirmation in
a form satisfactory to Lender that appropriate adjustments have been made to the
inventory records of Borrowers to reconcile the inventory count to Borrowers'
inventory records; (f) Borrowers shall produce, use, store and maintain the
Inventory, with reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including,
but not limited to, the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto); (g)
Borrowers assume all responsibility and liability arising from or relating to
the production, use, sale or other disposition of the Inventory; (h) Borrowers
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrowers to repurchase such
Inventory except for the right of return given to retail customers of Borrowers
in the ordinary course of the business of Borrowers in accordance with the then
current return policy of Borrowers; (i) Borrowers shall use their best efforts
to keep the Inventory in good and marketable condition; and (j) Borrowers shall
not acquire or accept any Inventory on consignment or approval, except to the
extent such Inventory is reported to Lender in accordance with the terms hereof.
7.4 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all of Lender's employees, agents or affiliates designated
by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes
Lender, in Borrowers' or Lender's name, to: (a) at any time an Event of Default
exists or has occurred and is continuing (i) demand payment on Accounts or other
proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by
legal proceedings or otherwise, (iii) exercise all of Borrowers' rights and
remedies to collect any Account or other Collateral, (iv) sell or assign any
Account upon such terms, for such amount and at such time or times as the Lender
deems advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Account, (vii) prepare, file and sign such
Borrower's name on any proof of claim in bankruptcy or other similar
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document against an account debtor, (viii) notify the post office authorities to
change the address for delivery of Borrowers' mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrowers, and (ix) do all
acts and things which are necessary, in Lender's determination, to fulfill
Borrowers' obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment or
proceeds thereof, (ii) have access to any lockbox or postal box into which
Borrowers' mail is deposited, (iii) endorse such Borrower's name upon any items
of payment or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse such Borrower's name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Account or any goods pertaining thereto or any other Collateral,
(v) sign such Borrower's name on any verification of Accounts and notices
thereof to account debtors and (vi) execute in such Borrower's name and file any
UCC financing statements or amendments thereto. Borrowers hereby releases Lender
and its officers, employees and designees from any liabilities arising from any
act or acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.5 Right to Cure. Lender may, at its option, (a) cure any default by
Borrowers under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrowers, provided that any such default or judgment
-------- ----
would constitute an Event of Default hereunder, (b) discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or perform
any act which, in Lender's reasonable judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the Obligations
and charge Borrowers' account therefor, such amounts to be repayable by
Borrowers on demand. Lender shall be under no obligation to effect such cure,
payment or bonding and shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrowers. Any payment made or other action taken by
Lender under this Section shall be without prejudice to any right to assert an
Event of Default hereunder and to proceed accordingly.
7.6 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of Borrowers' premises during normal business hours and after
reasonable notice to Borrowers, or at any time and without notice to Borrowers
if an Event of Default exists or has occurred and is continuing, for the
purposes of inspecting, verifying and auditing the Collateral and all of
Borrowers' books and records, including, without limitation, the Records, and
(b) Borrowers shall promptly furnish to Lender such copies of such books and
records or extracts therefrom as Lender may request, and (c) use during normal
business hours such of Borrowers' personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing and if an Event of Default exists
or has occurred and is continuing for the collection of Accounts and realization
of other Collateral.
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SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers hereby, jointly and severally, represent and warrant to Lender
the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which (except to the extent that such
representations and warranties relate solely to an earlier date) are a
continuing condition of the making of Loans and providing Letter of Credit
Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within such Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of such Borrower's
certificate of incorporation, by-laws, or other organizational documentation, or
any indenture, agreement or undertaking to which such Borrower is a party or by
which such Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of such
Borrower enforceable in accordance with their respective terms. Borrowers do
not have any subsidiaries except as set forth on the Information Certificate or
otherwise disclosed in writing to Lender.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein except that the pro forma
------ ---- --- -----
financial statements and projections delivered to Lender have been, or will be,
prepared consistent with the principles used in preparing the audited financial
statements required to be delivered under this Agreement. Except as disclosed
in any interim financial statements furnished by Borrowers to Lender prior to
the date of this Agreement, there has been no material adverse change in the
assets, liabilities, properties and condition, financial or otherwise, of
Borrowers taken as a whole, since the date of the most recent audited financial
statements furnished by Borrowers to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and each Borrower's Records concerning Accounts and
Inventory are located only at the address set forth below and its only other
places of business and the only other locations of Collateral, if any, are the
addresses set forth in the Information Certificate, subject to the right of each
Borrower to establish new locations in accordance with Section 9.2 below.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and
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perfected first priority liens and security interests in and upon the Collateral
subject only to the liens indicated on Schedule 8.4 hereto and the other liens
permitted under Section 9.8 hereof. Each Borrower has good and marketable title
to all of its properties and assets subject to no liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except those granted to
Lender and such others as are specifically listed on Schedule 8.4 hereto or
permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, and has collected, deposited and
remitted in accordance with all applicable laws all sales and/or use taxes
applicable to the conduct of its business, except taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
material Federal, State, county, local, foreign and other taxes whether or not
yet due and payable and whether or not disputed. Each Borrower has collected
and has remitted or will remit timely to the appropriate tax authority all sales
and/or use taxes applicable to its business required to be collected under the
laws of the United States and each possession or territory thereof, and each
State or political subdivision thereof, including any State in which such
Borrower owns any Inventory or owns or leases any other property.
8.6 Litigation. Except as set forth on the Information Certificate or
otherwise disclosed in writing by Borrowers to Lender, there is no present
investigation by any governmental agency pending, or to the best of Borrowers'
knowledge threatened, against or affecting Borrowers, their assets or business
and there is no action, suit, proceeding or claim by any Person pending, or to
the best of Borrowers' knowledge threatened, against Borrowers or their assets
or goodwill, or against or affecting any transactions contemplated by this
Agreement, in each case which if adversely determined against Borrowers would
result in any material adverse change in the assets, business or prospects of
Borrowers taken as a whole or would impair the ability of Borrowers to perform
their obligations hereunder or under any of the other Financing Agreements to
which it is a party or of Lender to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Each Borrower is not in default in any respect under, or in
violation in any respect of any of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound where such default or violation would
have a Material Adverse Effect. Each Borrower is in compliance in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority relating to its business, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the
29
<PAGE>
Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and
the rules and regulations thereunder, all federal, state and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all federal, state
and local states, regulations, rules and orders pertaining to sales of consumer
goods (including, without limitation, the Consumer Products Safety Act of 1972,
as amended, and the Federal Trade Commission Act of 1914, as amended, and all
regulations, rules and orders promulgated thereunder), where the failure to
comply would have a Material Adverse Effect.
(b) Each Borrower has obtained all permits, licenses, approvals,
consents, certificates, orders or authorizations (the "Permits") of any
governmental agency required for the lawful conduct of its business, in each
case except to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The Permits constitute all permits,
licenses, approvals, consents, certificates, orders or authorizations necessary
for Borrowers to own and operate their business as presently conducted or
proposed to be conducted where the failure to have such Permits would have a
material adverse effect on the business, performance, operations or properties
of Borrowers or the legality, validity or enforceability of this Agreement or
the other Financing Agreements or the ability of Borrowers to perform their
obligations under the Agreement or any of the other Financing Agreements or the
rights and remedies of Lender under this Agreement or any of the other Financing
Agreements. All of the Permits are valid and subsisting and in full force and
effect. There are no actions, claims or proceedings pending or threatened that
seek the revocation, cancellation, suspension or modification of any of the
Permits.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, no Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law in any material respect or any license, permit, certificate,
approval or similar authorization issued to Borrowers thereunder and the
operations of Borrowers comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of Borrowers' knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrowers
nor has there been any release, spill or discharge, overtly threatened or
actual, of any Hazardous Material on any properties of Borrowers, or to the best
of Borrowers' knowledge, releases, spills or discharges from any properties at
which any Borrower has transported, stored or disposed of any Hazardous
Materials, or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental matter which would have a Material Adverse Effect.
30
<PAGE>
(c) Except as set forth in Schedule 8.8 hereto, no Borrower has any
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of such Borrower under any Environmental Law and all of such
licenses, permits, certificates, approvals or similar authorizations are valid
and in full force and effect in each case where the failure to obtain or
maintain such licenses, permits, certificates, approvals or similar
authorizations would have a material adverse effect on the assets or business of
such Borrower or would impair the ability of such Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Agent or any Lender to enforce any Obligations or realize upon
any Collateral.
8.9 Credit Card Agreements. Set forth in Schedule 8.9 hereto is a correct
and complete list of all of the Credit Card Agreements and all other related
agreements, documents and instruments existing as of the date hereof between or
among Borrowers, the Credit Card Issuers, the Credit Card Processors and any of
their affiliates. The Credit Card Agreements constitute all of such agreements
necessary for Borrowers to operate their businesses as presently conducted with
respect to credit cards and debit cards and no Accounts of Borrowers arise from
purchases by customers of Inventory with credit cards or debit cards, other than
those which are issued by Credit Card Issuers with whom Borrowers have entered
into one of the Credit Card Agreements set forth on Schedule 8.9 hereto or with
whom Borrowers have entered into a Credit Card Agreement in accordance with
Section 9.13 hereof. Each of the Credit Card Agreements constitutes the legal,
valid and binding obligations of Borrowers and to the best of Borrowers'
knowledge, the other parties thereto, enforceable in accordance with their
respective terms and are in full force and effect. No default or event of
default, or act, condition or event which after notice or passage of time or
both, would constitute a default or an event of default under any of the Credit
Card Agreements exists or has occurred. Borrowers and the other parties thereto
have complied with all of the terms and conditions of the Credit Card Agreements
to the extent necessary for Borrowers to be entitled to receive all payments
thereunder. Borrowers have delivered, or caused to be delivered to Lender,
true, correct and complete copies of all of the Credit Card Agreements.
8.10 Employee Benefits.
(a) Borrowers have not engaged in any transaction in connection with
which Borrowers or any of their ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to ERISA or a tax imposed the Code, including
any accumulated funding deficiency described in Section 8.10(c) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrowers to be incurred with respect to any employee benefit
plan of Borrowers
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or any of their ERISA Affiliates. There has been no reportable event (within the
meaning of ERISA) or any other event or condition with respect to any employee
benefit plan of Borrowers or any of their ERISA Affiliates which presents a risk
of termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrowers or
any of their ERISA Affiliates is required under ERISA and the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in ERISA and the
Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 8.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
8.10(d) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrowers that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(d) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrowers nor any of their ERISA Affiliates is or
has ever been obligated to contribute to any "multiemployer plan" (as such term
is defined in ERISA) that is subject to Title IV of ERISA.
8.11 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrowers maintained at any bank or
other financial institution are set forth on Schedule 6.3 hereto, subject to the
right of Borrowers to establish new accounts in accordance with Section 9.13
below.
8.12 Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrowers in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrowers, which has not been fully and accurately disclosed to Lender in
writing.
8.13 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be
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cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on its business as presently or proposed to be
conducted in each case except to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect. Each Borrower shall
give Lender at least thirty (30) days prior written notice of any proposed
change in its corporate name, which notice shall set forth the new name and such
Borrower shall deliver to Lender a copy of the amendment to the Certificate of
Incorporation of such Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation of such Borrower as soon
as it is available.
9.2 New Collateral Locations. Each Borrower may open any new location
within (a) the United States, including the Commonwealth of Puerto Rico and the
United States Virgin Islands, (b) Canada, (c) in any other country where Lender
has a first priority security interest in such assets and Lender determines that
it has rights and remedies to enforce its lien and realize upon its Collateral
located in such country, all as determined by Lender in its sole discretion; or
(d) any country where the terms of Section 9.2 (c) are not complied with,
provided that, in such instance, the aggregate amount of all such net
- -------- ----
investments in such countries, including all loans, investments, guaranties or
advances made by Borrowers or any Guarantors, shall not exceed, in the
aggregate, $1,000,000, and provided that in all such instances Borrowers (i)
-------- ----
give Lender at least thirty (30) days prior written notice of the intended
opening of any such new location and (ii) execute and deliver, or cause to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at such locations, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all
times comply in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders and duly observe all
material requirements, of any foreign, Federal, State or local governmental
authority, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended,
and the rules and regulations thereunder, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitations, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all Federal, State
and local statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation,
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all Environmental Laws except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect.
9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
by such Borrower and with respect to which adequate reserves have been set aside
on its books. Borrowers shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and each
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrowers such amount shall be added and deemed part of the Loans, provided,
--------
that, nothing contained herein shall be construed to require Borrowers to pay
- ----
any income or franchise taxes, including those attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be reasonably satisfactory to Lender
as to form, amount and insurer. Borrowers shall furnish certificates, policies
or endorsements to Lender as Lender shall require as proof of such insurance,
and, if Borrowers fail to do so, Lender is authorized, but not required, to
obtain such insurance at the expense of Borrowers. All policies shall provide
for at least thirty (30) days prior written notice to Lender of any cancellation
or reduction of coverage and that Lender may act as attorney for Borrowers in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Borrowers shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrowers shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance reasonably
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrowers or any of their affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations; except that, so
------ ----
long as no Event of Default exists and is continuing, to the extent Lender
applies such proceeds in respect of the Obligations, Lender shall apply such
proceeds first, against all outstanding Obligations, other than Eurodollar Rate
Loans, and second, against all outstanding Eurodollar Rate Loans.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall keep proper books and records in which
true and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral
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and the business of such Borrower and its subsidiaries (if any) in accordance
with GAAP and Borrowers shall furnish or cause to be furnished to Lender: (i)
within thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements, and, if Borrowers have any subsidiaries, and
have prepared such statements, unaudited consolidating financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrowers and their subsidiaries as of the end of and through
such fiscal month and (ii) within one hundred five (105) days after the end of
each fiscal year, audited consolidated financial statements and, if Borrowers
have any subsidiaries and have prepared such statements, audited consolidating
financial statements of Borrowers and their subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrowers and their subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrowers and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrowers and their
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrowers shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim in excess of $500,000 or $1,000,000 in the aggregate relating to the
Collateral or any other property which is security for the Obligations or which
would result in any Material Adverse Change in any Borrower's business,
properties, assets, goodwill or condition, financial or otherwise and (ii) the
occurrence of any Event of Default or act, condition or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports and
registration statements which any Borrower files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers, as Lender may, from time to time,
reasonably request. Each Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrowers' expense, copies of
the financial statements of Borrowers and any reports or management letters
prepared by such accountants or auditors on behalf of Borrowers. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrowers to Lender in writing.
(e) Borrowers shall deliver, or cause to be delivered, to Lender,
within five (5) days after receipt by Borrower, a consolidated balance sheet for
Parent and G+G dated as of
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August 29, 1998 certified by the Chief Financial Officer of G+G, to the effect
that such balance sheet has been prepared consistent with the principles used to
prepare the audited financial statements required to be delivered under this
Agreement and presents fairly the financial condition of Parent and G+G as of
such date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each
Borrower shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, provided,
--------
however, that, so long as no Event of Default exists and is continuing, any
- -------
Borrower or Guarantor may merge with or into any other Borrower or Guarantor (i)
upon at least thirty (30) days advance written notice to Lender, (ii) provided
that such Borrowers or Guarantors execute UCC-1 financing statements and any
other agreements, documents, guaranties and instruments reasonably requested by
Lender whether to protect or continue Lender's interests in and upon the
Collateral or otherwise related to the Collateral or the Financing Agreements
and (iii) provided that such Borrowers or Guarantors deliver financial and other
information as Lender may reasonably request, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any stock or indebtedness to any other Person or any of its assets to any
other Person, except for:
------ ---
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of Collateral so long as (A) if an
Event of Default exists or has occurred and is continuing, any proceeds are paid
to Lender and (B) such dispositions for all Borrowers do not involve Collateral
having an aggregate fair market value in excess of $250,000 for all such
Collateral disposed of in any fiscal year of Borrowers,
(iii) sales or other dispositions by such Borrower of assets
in connection with the closing or sale of a retail store location of such
Borrower in the ordinary course of such Borrower's business which consist of
leasehold interests in the premises of such store, the Equipment and fixtures
located at such premises and the books and records relating exclusively and
directly to the operations of such store; provided, that, as to each and all
-------- ----
such sales, (A) on the date of, and after giving effect to, any such sale, in
any calendar year, such Borrower shall not have closed or sold retail store
locations accounting for more than twenty (20)%) of all sales of such Borrower
in the immediately preceding twelve (12) month period, (B) Lender shall have
received not less than ten (10) Business Days prior written notice of such sale,
which notice shall set forth in reasonable detail satisfactory to Lender, the
parties to such sale or other disposition, the assets to be sold or otherwise
disposed of, the purchase price and the manner of payment thereof and such other
information with respect thereto as Lender may request, (C) as of the date of
such sale or other disposition and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time would
constitute an Event of Default, shall exist, (D) such sale shall be on
commercially reasonable prices and terms in a bona fide arm's length
---- ----
transaction, and (E) any and all net proceeds payable or delivered to Borrowers
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or
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delivered, to Lender in accordance with the terms of this Agreement either, at
Lender's option, for application to the Obligations in accordance with the terms
hereof (except to the extent such proceeds reflect payment in respect of
indebtedness secured by a valid security interest in the assets sold, in which
case, such proceeds shall be applied to such indebtedness secured thereby).
(iv) the abandonment of any assets no longer deemed
necessary to the conduct of such Borrower's business, as determined by such
Borrower's board of directors in its business judgment,
(v) except as expressly limited in this Agreement, transfer
of assets to any other Borrower or Guarantor, or
(vi) any sale, assignment, lease, transfer, abandonment or
other disposition expressly permitted under Sections 9.9, 9.10, 9.11 or 9.12
hereof, or
(c) form or acquire any subsidiaries except that, so long as no
------ ----
Event of Default then exists and is continuing, Borrowers may form or acquire
subsidiaries (i) upon at least thirty (30) days advance written notice to
Lender, provided, however, that such notice may be contemporaneous with the
-------- -------
execution or acquisition of any such subsidiaries which operate or own assets
located solely in the United States Virgin Islands or Puerto Rico, (ii) provided
that such new subsidiary or subsidiaries and each Borrower in such transaction
execute and deliver to Lender all such UCC-1 financing statements and other
agreements, documents, guarantees and instruments as Lender may request, whether
to protect or continue Lender's interest in the Collateral or otherwise, (iii)
provided that such subsidiaries, at Lender's request, (x) execute this Agreement
as a "Borrower" or (y) execute as a "Guarantor" an unlimited guarantee in favor
of Lender guaranteeing the Obligations and a general security agreement in favor
of Lender granting in favor of Lender a first priority security interest in all
assets of such subsidiary and (iv provided that Borrowers and any such
subsidiaries deliver such financial or other information as Lender may request,
or
(d) wind up, liquidate or dissolve provided, however, that any
-------- -------
Borrower (other than G+G) or any Guarantor may be wound up, liquidated or
dissolved so long as such Borrower or Guarantor (i) is no longer actively
engaged in any business or activities, (ii) does not own assets with an
aggregate fair market or book value in excess of $250,000 and (iii) determines
through its board of directors that such action is in the best interests of
Borrowers and Guarantors, or
(e) in a manner that does not contemplate payment in full of the
Obligations upon consummation thereof, agree to do any of the foregoing.
9.8 Encumbrances. Each Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: (a) liens and security
------
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings
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diligently pursued by such Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of such
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued by such Borrower, in each case prior
to the commencement of foreclosure or other similar proceedings and with respect
to which adequate reserves have been set aside on its books; (d) liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business, (e) liens of or resulting from any judgment or award that would not
have a Material Adverse Effect and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect of which
Borrowers are in good faith prosecuting an appeal or proceeding for a review,
and in respect of which a stay of execution pending such appeal or proceeding
for review has been secured, (f) liens on property of a person existing at the
time such person is acquired, merged into or consolidated with any Borrower, so
long as such liens were in existence prior to the consummation of such
acquisition, merger or consolidation and do not (after consummation thereof)
extend to any assets other than the Equipment or Real Property of the person
merged into or consolidated with such Borrower, (g) zoning restrictions,
easements, licenses, covenants and other restrictions affecting the use of Real
Property which do not interfere in any material respect with the use of such
Real Property or ordinary conduct of the business of such Borrower as presently
conducted thereon or materially impair the value of the Real Property which may
be subject thereto; (h) purchase money security interests in Equipment
(including capital leases) not to exceed $12,000,000 in the aggregate at any
time outstanding so long as such security interests and mortgages do not apply
to any property of Borrowers other than the Equipment or real estate so
acquired, and the indebtedness secured thereby does not exceed the cost of the
Equipment or real estate so acquired, as the case may be; (i) liens or rights of
setoff or credit balances of Borrowers with banks and other financial
institutions at which Borrowers have accounts or other investments permitted
hereunder and Credit Card Issuers, but not liens on or rights of setoff against
any other property or assets of Borrowers pursuant to the Credit Card Agreements
(as in effect on the date hereof) to secure the obligations of Borrowers to the
Credit Card Issuers as a result of fees and chargebacks; (j) deposits of cash
with the owner or lessor of premises leased and operated by Borrowers in the
ordinary course of the business of Borrowers to secure the performance by
Borrowers of their obligations under the terms of the lease for such premises;
and (k) the liens and security interests set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Each Borrower shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist, any
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course
of business;
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(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) obligations or indebtedness existing as of the date hereof
set forth on Schedule 9.9 hereto, provided, that, (i) Borrowers may only make
-------- ----
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness, (ii) Borrowers shall not,
directly or indirectly amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof in any manner which purports to grant any lien,
collateral or other security therefor, provided, however, that nothing in this
-------- -------
Section 9.9(d) shall limit Borrower's ability to refinance the indebtedness
under the Bridge Notes and Bridge Loan Agreement, (iii) Borrowers shall furnish
to Lender all notices or demands in connection with such indebtedness either
received by Borrowers or on their behalf, promptly after the receipt thereof, or
sent by Borrowers or on their behalf, concurrently with the sending thereof, as
the case may be, and (iv notwithstanding anything to the contrary contained in
this Section 9.9(d), so long as no Event of Default exists and is continuing,
Borrowers shall have the right to make prepayments in respect of any such
indebtedness provided that after giving effect thereto, Borrowers have Excess
Availability of not less than $5,000,000 in each instance;
(e) unsecured indebtedness of Borrowers for borrowed money
incurred after the date hereof owing to any person on commercially reasonable
rates and terms pursuant to an arm's length transaction; provided, that, (i)
-------- ----
Lender shall have received not less than five (5) Business Days prior written
notice of the intention to incur such indebtedness, which notice shall set forth
in reasonable detail satisfactory to Lender, the amount of such indebtedness,
the person to whom such indebtedness will be owed, the interest rate, the
schedule of repayments and maturity date with respect thereto, the Borrower or
Borrowers incurring such indebtedness and such other information as Lender may
reasonably request with respect thereto, (ii) Lender shall have received true,
correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such indebtedness, (iii) the aggregate amount
of such indebtedness of all Borrowers at any time outstanding shall not exceed
the aggregate amount $140,000,000 less the outstanding obligations due and owing
by Borrowers under the Bridge Notes and Bridge Loan Agreement, (iv) on and
before the date of incurring such indebtedness and after giving effect thereto,
no Event of Default, or event which with the passage of time or both would
constitute an Event of Default, shall exist and be continuing, (v) except for a
refinancing or cancellation of the indebtedness under the Bridge Notes and
Bridge Loan Agreement, Borrowers may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date of the execution thereof, (vi) except for
a refinancing or cancellation of the indebtedness under the Bridge Notes and
Bridge Loan Agreement, Borrowers shall not, directly or indirectly, (A) make any
prepayments or other non-mandatory payments in respect of such indebtedness, or
(B) amend, modify, alter or change any material terms of such indebtedness or
any agreement, document or instrument related thereto in any manner which
purports to grant any lien, collateral or other security therefor, or (C)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
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aside or otherwise deposit or invest any sums for such purpose, (vii) Borrowers
shall furnish to Lender all notices, demands or other materials in connection
with such indebtedness either received by Borrowers or on their behalf, promptly
after the receipt thereof, or sent by Borrowers or on their behalf, concurrently
with the sending thereof, as the case may be, and (viii) notwithstanding
anything to the contrary contained in this Section 9.9(e), so long as no Event
of Default exists and is continuing, Borrowers shall have the right to make
prepayments in respect of any such indebtedness provided that after giving
effect thereto, Borrowers have Excess Availability of not less than $5,000,000
in each instance;
(f) intercompany loans and advances among the Borrowers and
Guarantors, or any guarantees by any Borrower of the obligations of any other
Borrower or Guarantor to any third party;
(g) indebtedness secured by liens permitted under Section 9.8, to
the extent permitted under such Section;
(h) indebtedness of the Borrowers consisting of performance, bid
or advance payment bonds, custom bonds, utility bonds and similar obligations
arising in the ordinary course of business, provided that the aggregate amount
of such bonds shall not exceed $4,000,000, at any time outstanding; and
(i) indebtedness permitted under Section 9.10.
9.10 Loans, Investments, Guarantees, Etc. Each Borrower shall not,
directly or indirectly, make any loans or advance money (other than sales on
credit in the ordinary course of its business) or property to any person, or
invest in (by capital contribution, dividend (except as expressly permitted
under Section 9.11) or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, except: (a) intercompany
------
loans and advances among the Borrowers and Guarantors or investments by any
Borrower in any other Borrower or Guarantor; (b) the endorsement of instruments
for collection or deposit in the ordinary course of business; (c) investments in
Cash Equivalents; provided, that, unless waived in writing by Lender, so long as
-------- ----
any Obligations are outstanding such Borrower shall take such actions as are
deemed necessary by Lender to perfect the security interest of Lender in such
investments; (d) the existing loans, advances and guarantees by such Borrower
outstanding as of the date hereof as set forth on Schedule 9.10 hereto or as
permitted under Section 9.9; provided, that, as to such loans, advances and
-------- ----
guarantees and except as permitted under Section 9.9, (i) such Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto in any manner which purports to grant any lien, collateral or
other security therefor, or (B) as to such guarantees, except as otherwise
permitted herein with respect to the underlying indebtedness, redeem, retire,
defease, purchase or otherwise acquire such guarantee or set aside or otherwise
deposit or invest any sums for such purpose and (ii) such Borrower shall furnish
to Lender all notices, demands or other materials in connection with such
40
<PAGE>
loans, advances or guarantees either received by such Borrower or on its behalf,
promptly after the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be; (e) loans or advances
of money (other than salary) to officers, directors, employees, independent
contractors, or stockholders of Borrower consisting of (i) expense advances in
the ordinary course of business consistent with past practices, (ii) loans, not
to exceed $500,000 outstanding in the aggregate at any time and (iii) loans to
Borrowers' employees, officers and directors in connection with the purchase by
such employees, officers and directors of common stock of Parent so long as the
cash proceeds of such purchase received by Parent are contemporaneously remitted
by Parent to G+G as a capital contribution and that such obligations of
employees, officers and/or directors are evidenced by promissory notes; (f)
Borrowers shall be permitted to form or purchase subsidiaries and, except as
expressly limited in Section 9.2, contribute assets or properties to
subsidiaries engaged in a like business as G+G; provided that, in each instance
-------- ----
each such subsidiary executes and delivers an amendment to this Agreement adding
such subsidiary as a "Borrower" hereunder, together with related documents
including UCC-1 financing statements or, alternatively, becomes a "Guarantor"
and executes and delivers a guarantee of the Obligations hereunder and a
security agreement and related documents including UCC-1 financing statements
granting Lender a first priority security interest in and lien upon all assets
of such subsidiary; (g) make investments in account debtors received in
connection with the bankruptcy or reorganization, or in settlement of delinquent
obligations, of customers in the ordinary course of business and in accordance
with applicable collection and credit policies established by such Borrower; (h)
promissory notes and other similar noncash consideration received as proceeds of
asset dispositions permitted by Section 9.7; and (i) the guarantee by any
Borrower of the obligations of any other Borrower or Guarantor.
9.11 Dividends and Redemptions.
(a) G+G shall not, directly or indirectly, declare or pay any
dividends on account of any shares of any class of its Capital Stock now or
hereafter outstanding, or set aside or otherwise deposit or invest any sums for
such purpose, or redeem, retire, defease, purchase or otherwise acquire any
shares of any class of Capital Stock (or set aside or otherwise deposit or
invest any sums for such purpose) for any consideration other than common stock
or apply or set apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do any of the
foregoing.
(b) Notwithstanding anything to the contrary contained in Section
9.11(a):
(i) G+G may declare and pay cash dividends upon its Capital
Stock, provided, that (1) no Event of Default has occurred and is continuing on
-------- ----
the proposed dividend payment date ("Dividend Payment Date") set forth in a
notice of such proposed dividend to be delivered by Borrowers to Lender at least
ten (10) days prior to the Dividend Payment Date, (2) Borrowers' Excess
Availability on the Dividend Payment Date, after giving effect to such dividend,
is at least $5,000,000 and (3) Borrowers' Adjusted Tangible Net Worth on the
Dividend Payment Date, after giving effect to such dividend, is in compliance
with Section 9.14, and
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(ii) G+G may issue stock dividends upon any shares of any
class of capital stock so long as the same is in accordance with all applicable
laws.
9.12 Transactions with Affiliates. Except for (a) reasonable
compensation paid to officers, employees and directors for services rendered in
the ordinary course of business including, but not limited to the Employment
Agreements set forth as items 1 and 2 on Schedule 9.12, (b) transactions and/or
payments pursuant to the agreements described as item 3 on Schedule 9.12, and
(c) transactions and/or payments otherwise permitted under, but in all cases,
subject to, any other section of this Agreement, at any time that Borrowers have
Excess Availability of less than $5,000,000 or any Event of Default has occurred
and is continuing, no Borrower shall directly or indirectly purchase, acquire or
lease any property from, or sell, transfer or lease any property to, any
officer, employee, shareholder, director, agent or any other person affiliated
with Borrowers or make any payment of management, consulting or other fees for
management or similar services; except that, if Borrowers have Excess
------ ----
Availability of less than $5,000,000 or an Event of Default exists and is
continuing, Borrowers may make payments in respect of items 4 and 5 on Schedule
9.12 in an aggregate amount not to exceed $600,000 and in respect of item 6 on
Schedule 9.12 in an aggregate amount not to exceed $300,000.
9.13 Credit Card Agreements. Borrowers shall (a) observe and perform
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by them at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a material default under or material breach of any of the terms
of any of the Credit Card Agreements; (c) at all times maintain in full force
and effect the Credit Card Agreements and not terminate, cancel, surrender,
modify, amend (unless such amendment does not adversely affect Lender's rights
under the Financing Agreements), waive or release any of the Credit Card
Agreements, or consent to or permit to occur any of the foregoing; except, that,
Borrowers may terminate or cancel any of the Credit Card Agreements in the
ordinary course of the business of Borrowers; provided, that, Borrowers shall
-------- ----
give Lender not less than fifteen (15) days prior written notice of their
intention to so terminate or cancel any of the Credit Card Agreements; (d) not
enter into any new Credit Card Agreements with any new Credit Card Issuer unless
(i) Lender shall have received not less than thirty (30) days prior written
notice of the intention of Borrowers to enter into such agreement (together with
such other information with respect thereto as Lender may request) and (ii)
Borrowers deliver, or cause to be delivered to Lender, a Credit Card
Acknowledgment in favor of Lender; (e) give Lender written notice of any Credit
Card Agreement entered into by Borrowers after the date hereof, together with a
true, correct and complete copy thereof and such other information with respect
thereto as Lender may request; and (f) furnish to Lender, promptly upon the
request of Lender, such information and evidence as Lender may reasonably
require from time to time concerning the observance, performance and compliance
by Borrowers or the other party or parties thereto with the terms, covenants or
provisions of the Credit Card Agreements.
9.14 Adjusted Tangible Net Worth. Borrowers shall, at all times,
maintain Adjusted Tangible Net Worth of not less than $39,000,000.
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9.15 Compliance with ERISA.
(a) Each Borrower shall not with respect to any "employee benefit
plans" maintained by any Borrower or any of its ERISA Affiliates: (i) terminate
any of such employee pension plans so as to incur any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer
to exist any prohibited transaction involving any of such employee benefit plans
or any trust created thereunder which would subject any Borrower or such ERISA
Affiliate to a material tax or penalty or other liability on prohibited
transactions imposed under the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under ERISA,
the Code or the terms of such plan, (iv) allow or suffer to exist any material
accumulated funding deficiency, whether or not waived, with respect to any such
employee benefit plan, (v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such employee
benefit plan that is a single employer plan, which termination could result in
any material liability to the Pension Benefit Guaranty Corporation or (vi) incur
any material withdrawal liability with respect to any multiemployer pension
plan.
(b) As used in this Section 9.15, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA.
9.16 Additional Bank Accounts. Borrowers shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts, accounts holding Cash Equivalents and other investments
permitted hereunder, and the accounts set forth in Schedule 6.3 hereto, except:
(a) any new or additional Blocked Accounts and other such new or additional
accounts which contain any Collateral or proceeds thereof, so long as in the
case of any such other accounts the applicable bank or financial institution has
executed an agreement as described in Section 6.3(a) hereof or, in the case of
depository or concentration accounts, so long as Borrowers have given written
notice to such depository or concentration account bank to transfer on a daily
basis to a Blocked Account all funds received in such depository or
concentration account, and (b) as to any depository or concentration accounts
used by Borrowers to make payments of payroll, taxes or other obligations to
third parties, after prior written notice to Lender.
9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b)
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all insurance premiums, appraisal fees and search fees; (c) costs and expenses
of remitting loan proceeds, collecting checks and other items of payment, and
establishing and maintaining the Blocked Accounts, together with Lender's
customary charges and fees with respect thereto; (d) charges, fees or expenses
charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers'
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (h) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrowers shall, at their expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrowers representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of the Obligations when
due; or (ii) any Borrower or any Obligor fails to perform any of the covenants
contained in this Agreement or any of the other Financing Agreements other than
as described in Section 10.1(a)(i) and such failure shall continue for fifteen
(15) days; provided, that, such fifteen (15) day period shall not apply in the
-------- ----
case of (A) any failure to observe any such covenant which is not capable of
being cured at all or within such fifteen (15) day period or which has been the
subject of a prior failure within a six (6) month period or (B) a wilful breach
of any Borrower or any Obligor of any such covenant or (C) the failure to
observe or perform any of the covenants or provisions contained in Section 9.2,
9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.15, 9.16 or 9.18 of this Agreement or
any
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covenants or agreements covering substantially the same matter as such sections
in any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes or terminates any guarantee, endorsement
or other agreement of such party in favor of Lender;
(d) (i) any judgment for the payment of money is rendered against
any Borrower or any Obligor in excess of $2,500,000 in the aggregate (net of
amounts covered by insurance) and either (A) shall remain undischarged or
unvacated or unstayed for a period in excess of thirty (30) consecutive days or
(B) enforcement proceedings shall have been commenced upon such judgment or
execution shall at any time not be effectively stayed, or (ii) any judgment
other than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against any Borrower or any Obligor or any of their
assets, unless the same could not reasonably be expected to have a Material
Adverse Effect;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies, or except as otherwise permitted
hereunder, any Borrower or any Obligor, which is a partnership, limited
liability company, limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (as defined
under applicable state or federal law), makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within sixty
(60) days after the date of its filing or any Borrower or any Obligor shall file
any answer admitting or not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower or any Obligor or for all or any part of its
property; or
45
<PAGE>
(i) any default by any Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $2,500,000, which default
continues for more than the applicable cure period, if any, with respect
thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of any Borrower or
any Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Borrower or any
Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of any Borrower or
such Obligor;
(l) there shall be a Material Adverse Change in the business or
assets of any Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default (after giving effect to
any applicable grace and/or cure period and/or notice period) under any of the
other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by any Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against any Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrowers, at
46
<PAGE>
Borrowers' expense, to assemble and make available to Lender any part or all of
the Collateral at any place and time designated by Lender, (iv) collect,
foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(v) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including,
without limitation, entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Lender or
elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon
credit or for future delivery, with the Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrowers, which
right or equity of redemption is hereby expressly waived and released by
Borrowers and/or (vii) terminate this Agreement. If any of the Collateral is
sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of Collateral is required
by law, ten (10) days prior notice by Lender to Borrowers designating the time
and place of any public sale or the time after which any private sale or other
intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrowers waive any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrowers waive the posting of any bond
which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, Lender may, at its option,
without notice (i) upon the occurrence and during the continuance of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default cease making Loans or arranging for Letter of
Credit Accommodations or reduce the lending formulas or amounts of Loans and
Letter of Credit Accommodations available to Borrowers and/or (ii) upon the
occurrence and during the continuance of an Event of Default, or an event which
would with notice or passage of time or both constitute an Event of Default
under Section 10.1(g) or Section 10.1(h), terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrowers.
47
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
--------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Supreme Court of the State of New York,
New York County and the United States District Court for the Southern District
of New York and waive any objection based on venue or forum non conveniens with
----- --- ----------
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against any
Borrower or its property in the courts of any other jurisdiction which Lender
deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against any Borrower or its property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon such Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such service,
such Borrower shall appear in answer to such process, failing which such
Borrower shall be deemed in default and judgment may be entered by Lender
against such Borrower for the amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWERS
48
<PAGE>
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrowers (whether in
tort, contract, equity or otherwise) for losses suffered by Borrowers in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrowers which Lender may elect to give shall entitle Borrowers
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Each Borrower shall indemnify and hold Lender,
and its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, court costs, and the fees and
49
<PAGE>
expenses of counsel, except for any losses, claims, damages, liabilities, costs
or expenses which result from the gross negligence or willful misconduct of
Lender as determined pursuant to a final non-appealable order of a court of
competent jurisdiction. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrowers shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof, including, without
limitation, pursuant to Section 12.1(c) hereof; provided, that, Lender or
-------- ----
Borrowers may terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving to the other party at least sixty (60) days prior written notice,
or, alternatively, effective upon any other date pursuant to Section 12.1(c);
provided, that, this Agreement and all other Financing Agreements must be
- -------- ----
terminated simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrowers shall pay to Lender, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Lender
in such amounts as Lender determines are reasonably necessary to secure Lender
from loss, cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrowers for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrowers to the
bank account designated by Lender are received in such bank account later than
12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrowers of their respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a
50
<PAGE>
reasonable calculation of Lender's lost profits as a result thereof, Borrowers
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in the amount set forth below if such termination is effective
in the period indicated:
<TABLE>
<CAPTION>
Amount Period
------ ------
<S> <C> <C>
(i) .75% of Maximum Credit From the date hereof to and
including October 29, 1999
(ii) .5% of Maximum Credit From October 30, 1999 to and
including October 29, 2000
(iii) .333% of Maximum Credit From October 30, 2000 to and
including October 29, 2001
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrowers agree
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrowers or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in
Section 13.1(c), in the event of the termination of this Agreement by Borrowers
prior to the end of the then current term and the full and final repayment of
all of the Obligations and the receipt by Lender of cash collateral all as
provided in Section 13.1(a), Borrowers shall not be required to pay the early
termination fee provided for above if each of the following conditions is
satisfied: (i) no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred and be continuing, (ii) Lender shall have received not less than
thirty (30) days prior written notice of the intention of Borrowers to so
terminate this Agreement, and (iii) the final payment in full of all of the
Obligations is received simultaneously with (A) the refinancing of the Credit
Facility with proceeds of Loans made by First Union National Bank to Borrowers;
(B) the consummation of a public equity offering, after the first anniversary of
the date hereof, which equity offering shall be registered under the Securities
Act of 1933, as amended, and the net proceeds received by Borrowers shall not be
less than the Maximum Credit; or (C) the consummation by Borrowers after the
first anniversary of the date hereof of an unsecured bond, debenture or note
offering pursuant to which Borrowers shall receive net proceeds of not less than
the Maximum Credit.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
51
<PAGE>
person, immediately upon delivery; if by facsimile transmission, immediately
upon sending and upon confirmation of receipt; if by nationally recognized
overnight courier service with instructions to deliver the next Business Day,
one (1) Business Day after sending; and if by certified mail, return receipt
requested, seven (7) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign their rights and delegate their obligations
under this Agreement and the other Financing Agreements and further may assign,
or sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation, provided, however, that Lender shall
-------- -------
obtain Borrowers' prior written consent, which consent shall not be unreasonably
withheld, with respect to any such proposed assignment or participation by
Lender, and if the proposed assignee or participant is a lending institution
that is not organized and existing under the laws of the United States or a
political subdivision thereof, such lending institution must be capable of
receiving payments of interest hereunder without deduction or withholding of
United States federal income taxes under the provisions of an applicable tax
treaty concluded by the United States.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by Borrowers pursuant to this Agreement which is clearly and
conspicuously marked as confidential at the time such information is furnished
by Borrowers to Lender, provided, that, nothing contained herein shall limit the
-------- ----
disclosure of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation
to which Lender is a party, (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) shall have first agreed in writing to treat such
information as confidential in accordance with this Section 12.5, or (v) to
counsel for Lender or any participant or assignee (or prospective participant or
assignee).
52
<PAGE>
(b) In no event shall this Section 12.5 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrowers or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other than
Borrowers, (iii) require Lender to return any materials furnished by Borrowers
to Lender or (iv) prevent Lender from responding to routine informational
requests in accordance with the Code of Ethics for the Exchange of Credit
-----------------------------------------
Information promulgated by The Robert Morris Associates or other applicable
- -----------
industry standards relating to the exchange of credit information. The
obligations of Lender under this Section 12.5 shall supersede and replace the
obligations of Lender under any confidentiality letter signed prior to the date
hereof.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
[Remainder of Page Intentionally Left Blank]
53
<PAGE>
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER
------
CONGRESS FINANCIAL CORPORATION
By: /s/ Philip Emma
------------------------------
Title: Vice President
Address:
1133 Avenue of the Americas
New York, New York 10036
BORROWER
--------
G+G RETAIL, INC.
By: /s/ Scott Galin
------------------------------
Title: President and
Chief Executive Officer
Address:
520 Eighth Avenue
New York, New York 10018
54
<PAGE>
SCHEDULE 1
ADDITIONAL BORROWERS
--------------------
None
55
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No.1, dated as of November 30, 1998, to the Employment
Agreement (the "Employment Agreement"), dated as of August 28, 1998, by and
between G+G Retail, Inc., a Delaware corporation (the "Company") and Jay Galin,
an individual residing in 167 East 71st Street, New York, NY 10021 ( the
"Executive").
The parties hereto desire to amend the Employment Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Capitalized terms used but not defined herein shall have the
meanings set forth in the Employment Agreement.
2. The first paragraph of Section 3.2 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"3.2 Bonus Compensation
The Company shall implement a bonus plan for the benefit of the
senior management of the Company which plan shall provide for annual bonuses to
be paid to eligible members of the Company's management based on the Company
attaining certain annual EBITDA targets to be agreed upon and specified by the
holders of a majority of the outstanding shares of Class A common stock of the
Parent Company, par value $.001 per share, and a majority of the outstanding
shares of Class B common stock of the Parent Company, par value $.001 per
share."
3. Except as specifically amended above, the Employment Agreement is
and shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects.
4. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles.
5. This Amendment No. 1 may be executed in one or more counterparts,
each of which shall be deemed to be an original copy of this Amendment No. 1 and
all of which, when taken together, shall be deemed to constitute one and the
same agreement.
<PAGE>
IN WITNESS WHEREOF the parties hereto have entered into this
Amendment No. 1 on the date first written above.
G+G RETAIL, INC.
By: /s/ Scott Galin
-------------------------------
/s/ Jay Galin
----------------------------------
Jay Galin
2
<PAGE>
EXHIBIT 10.17
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No.1, dated as of November 30, 1998, to the Employment
Agreement (the "Employment Agreement"), dated as of August 28, 1998, by and
between G+G Retail, Inc., a Delaware corporation (the "Company") and Scott
Galin, an individual residing in 60 Hickory Drive, East Hills, NY 11576 ( the
"Executive").
The parties hereto desire to amend the Employment Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Capitalized terms used but not defined herein shall have the
meanings set forth in the Employment Agreement.
2. The first paragraph of Section 3.2 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"3.2 Bonus Compensation
The Company shall implement a bonus plan for the benefit of the
senior management of the Company which plan shall provide for annual bonuses to
be paid to eligible members of the Company's management based on the Company
attaining certain annual EBITDA targets to be agreed upon and specified by the
holders of a majority of the outstanding shares of Class A common stock of the
Parent Company, par value $.001 per share, and a majority of the outstanding
shares of Class B common stock of the Parent Company, par value $.001 per
share."
3. Except as specifically amended above, the Employment Agreement is
and shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects.
4. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles.
5. This Amendment No. 1 may be executed in one or more counterparts,
each of which shall be deemed to be an original copy of this Amendment No. 1 and
all of which, when taken together, shall be deemed to constitute one and the
same agreement.
<PAGE>
IN WITNESS WHEREOF the parties hereto have entered into this
Amendment No. 1 on the date first written above.
G+G RETAIL, INC.
By: /s/ Jay Galin
-------------------------------
/s/ Scott Galin
-----------------------------------
Scott Galin
2
<PAGE>
EXHIBIT 10.18
Bonus Plan
for
Senior Management Employees of G+G Retail, Inc.
I. Principles of the Plan
o The Bonus Plan is intended to recognize the critical importance of
senior management to the sustained growth of the Company by assuring
participants of an opportunity to achieve exceptional levels of
total cash compensation in years in which the Company achieves or
exceeds expectations as defined by the Board of Directors.
o Incentives are intended to reward growth in the Company's financial
performance measured by pre-tax operating income before interest,
depreciation and amortization (EBITDA.)
o Participants in the Bonus Plan will be selected at the
recommendation of the Company's President/Chief Operating Officer
and Chairman/Chief Executive Officer (and will include the CEO and
COO.)
II. Award Opportunities
o Award opportunities are established as percentages of each
participant's base salary. Each participant will have a threshold,
target and maximum level award opportunity under the Bonus Plan as
follows:
-----------------------------------------------
Performance Level Award Opportunity as
Percentage of Base
Salary Paid During
Year
-----------------------------------------------
Below Threshold Level 0%
-----------------------------------------------
At Threshold Level 20%
(but less than Target)
-----------------------------------------------
At Target Level (but 30%
less than Maximum)
===============================================
At Maximum Level or 40%
above
===============================================
Above Maximum
Bonus Level*
*(CEO & COO only) Additional 25%
-----------------------------------------------
1
<PAGE>
III. Performance Levels (as Percentages of EBITDA)
o Threshold, Target and Maximum Performance Levels are equal to sum of
(i) percentages (as set forth below) of projected EBITDA for each
fiscal year as established by the Company's Board of Directors, plus
(ii) total dollar amount of bonuses payable to all participants at
that Performance Level (i.e., total base salaries of all
participants in the Plan multiplied by Award Opportunity
(percentage) applicable to the given Performance Level.)
-------------------------------------------------
Performance Level EBITDA Amount Needed to
Pay Out Bonus
=================================================
Threshold 95% of Projected EBITDA
plus 20% of Total Base
Salaries of All Participants
-------------------------------------------------
Target 100% of Projected EBITDA
plus 30% of Total Base
Salaries of All Participants
-------------------------------------------------
Maximum 110% of Projected EBITDA
plus 40% of Total Base
Salaries of All Participants
=================================================
Above Maximum* More than 110% of Projected
(CEO and COO Only) EBITDA
plus 40% of Total Base
Salaries of All Participants
plus 25% of Total Base
Salaries of CEO and COO
-------------------------------------------------
IV. Payment of Awards
o Awards are payable in cash, subject to applicable withholding and
payroll taxes, as soon as practicable after fiscal year end audit is
complete.
o A participant must be employed through the last day of the fiscal
year in order to be eligible for payment of any award under the
Bonus Plan, except that participants leaving the Company's employ
prior to the last day of the fiscal year due to death, disability or
normal retirement with the consent of the Company will be entitled
to a bonus award based upon salary earned during the year prior to
termination of employment. Participants joining the Company or
promoted to eligible positions during the fiscal year will become
entitled to a bonus based upon salary earned during the fiscal year
from and after date of employment or eligibility.
o EBITDA targets may be reduced or adjusted in the Company's
discretion to reflect significant or unusual changes in the
Company's business.
V. Plan Amendment or Termination
o The Bonus Plan may be amended or terminated at any time upon the
recommendation of the Company's President/Chief Operating Officer
and Chairman/Chief Executive Officer.
o Upon termination of the Bonus Plan, other than as of the end of a
fiscal year, participants will be eligible to receive awards
determined in the same manner as awards made at year end, but based
upon salary earned by participants during the portion of the fiscal
year in which the Bonus Plan remained in effect.
o The Bonus Plan will be construed, interpreted and applied in the
good faith determination of the Company's Board of Directors.
o The Bonus Plan will be effective for fiscal years commencing
February 2, 1999.
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EXHIBIT 10.21
G&G RETAIL HOLDINGS, INC.
1999 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The 1999 Stock Option Plan (the "Plan") is intended (a) to encourage
Employees of G&G Retail Holdings, Inc. (the "Company") and its Subsidiaries to
acquire a proprietary interest in the Company whereby such individuals may
realize benefits from an increase in the value of the shares of Class A Common
Stock, $0.001 par value per share, of the Company (the "Common Stock"); (b) to
provide such Employees with greater incentive and to encourage their continued
service to the Company; and (c) generally, to promote the interests of the
Company and its stockholders. Under the Plan, options to purchase shares of
Common Stock may be granted from time to time prior to March 14, 2009 to such
persons as may be selected in the manner provided in the Plan on the terms and
subject to the conditions set forth herein. Capitalized terms are defined in
Article XV hereof.
ARTICLE II
ADMINISTRATION OF THE PLAN
SECTION 1. The Plan shall be administered by the Company's Board of
Directors (the "Board"). The Board is authorized to interpret the Plan and may
from time to time adopt such rules and regulations for carrying out the Plan as
it may deem best. All determinations by the Board shall be made by the
affirmative vote of a majority of its members. Subject to any applicable
provisions of the Plan, all determinations by the Board pursuant to the
provisions of the Plan, and all related orders or resolutions of the Board,
shall be final, conclusive and binding on all Persons, including the Company and
its stockholders, employees, directors and optionees.
SECTION 2. With respect to Section 16 of the 1934 Act, transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Board.
<PAGE>
ARTICLE III
STOCK SUBJECT TO THE PLAN
SECTION 1. The shares to be issued or delivered upon exercise of options
or rights granted under the Plan shall be made available, at the discretion of
the Board, either from the authorized but unissued shares of Common Stock or
from shares of Common Stock reacquired by the Company, including shares
purchased by the Company in the open market or otherwise obtained.
SECTION 2. Subject to the provisions of Article X hereof, (a) the
aggregate number of shares of Common Stock which may be purchased pursuant to
options granted under the Plan shall not exceed 7,000, all of which may be
issued by options intended to be Incentive Stock Options and (b) the maximum
number of shares of Common Stock which may be purchased by Scott Galin and Jay
Galin pursuant to options granted at any time under the Plan shall not exceed,
in the aggregate, 5,000. Shares subject to any options which are canceled, lapse
or are otherwise terminated shall be immediately available for reissuance under
the Plan.
ARTICLE IV
PURCHASE PRICE
SECTION 1. Subject to Section 2 of this Article IV and to Article X
hereof, the purchase price per share of Common Stock under options granted to
Employees shall be $300.
SECTION 2. In the case of Incentive Stock Options, the purchase price per
share of Common Stock under each option granted to Employees shall not be less
than one hundred percent of the Fair Market Value of the Common Stock at the
time such option is granted; provided, however, that in the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, such purchase price per share
shall be at least one hundred and ten percent of the Fair Market Value.
ARTICLE V
ELIGIBILITY
Options will be granted only to Employees.
ARTICLE VI
DURATION OF THE PLAN
Unless previously terminated by the Board, the Plan will terminate on
March 14, 2009. Termination of the Plan will not terminate any option then
outstanding.
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ARTICLE VII
GRANT OF OPTIONS
SECTION 1. Each option granted under the Plan shall constitute either an
Incentive Stock Option or a Non-Qualified Stock Option, as determined in each
case by the Board. With respect to Incentive Stock Options, to the extent that
the aggregate Fair Market Value (determined at the time an option is granted) of
Common Stock with respect to which such Incentive Stock Options are exercisable
for the first time by any individual during any calendar year (under the Plan
and any other stock option plan of the Company) exceeds $100,000, such Incentive
Stock Options shall be treated as Non-Qualified Stock Options to the extent of
such excess. The foregoing rule shall be applied by taking Incentive Stock
Options into account in the order in which they were granted. In the event
outstanding Incentive Stock Options become immediately exercisable under the
terms hereof, such Incentive Stock Options will, to the extent the aggregate
Fair Market Value thereof exceeds $100,000, be treated as Non-Qualified Stock
Options.
SECTION 2. The Board shall from time to time determine the Employees to be
granted options, it being understood that options may be granted at different
times to the same person subject to the limitations set forth in Section 2 of
Article III hereof. In addition, the Board shall determine, subject to the terms
of the Plan, (a) the number of shares subject to each option, (b) the time or
times when the options will be granted, (c) the time or times when each option
may be exercised, and (d) any other matters which the Board shall deem
appropriate.
SECTION 3. All instruments evidencing options granted under the Plan shall
be in such form as the Board shall from time to time determine, which form shall
be consistent with the Plan and any applicable determinations, orders,
resolutions or other actions of the Board.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Incentive Stock Option granted under the Plan shall be transferable by
the optionee otherwise than by will or by the laws of descent and distribution,
and any such Incentive Stock Option shall be exercisable during the lifetime of
the optionee solely by him or her. Any Non-Qualified Stock Option granted under
the Plan may be transferable by the optionee to the extent specifically
permitted by the Board as specified in the instrument evidencing the option as
the same may be amended from time to time. Except to the extent permitted by
such instrument, no Non-Qualified Stock Option shall be transferable except by
will or by the laws of descent and distribution.
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ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Subject to Article XII hereof, each option granted under the
Plan shall terminate on the date specified by the Board which date shall be not
later than the expiration of ten years from the date on which it was granted;
provided, however, that in the case of an Incentive Stock Option granted to an
Employee who, at the time of the grant is a Ten Percent Stockholder, such period
shall not exceed five years from the date of grant.
SECTION 2. A person electing to exercise an option then exercisable shall
give written notice to the Company of such election and the number of shares of
Common Stock such person has elected to purchase. A person exercising an option
shall at the time of purchase tender the full purchase price (except that, in
the case of an exercise arrangement approved by the Board and described in
Section 4 of this Article IX, tender may be made as soon as practicable after
the exercise) of such shares, which tender, except as provided in Section 3 of
this Article IX, shall be made in cash or cash equivalent (which may be such
person's personal check). The Company shall have no obligation to deliver shares
of Common Stock pursuant to the exercise of any option, in whole or in part,
until such payment in full of the purchase price therefor is received by the
Company.
SECTION 3. Provided that the Company shall have publicly issued shares of
Common Stock pursuant to a Qualified Public Offering, to the extent permitted by
applicable law, a person electing to exercise an option then exercisable may
tender the full purchase price of such shares in shares of Common Stock already
owned by such person (which shares shall be valued for such purpose on the basis
of their Fair Market Value on the date of exercise) or in any combination of
cash or cash equivalent (which may be such person's personal check) and shares
of Common Stock; provided, however, that payment in shares of Common Stock
already owned shall not be permitted unless the chief financial officer of the
Company determines that such payment will not require the Company to recognize a
compensation expense under applicable accounting rules. In the event of payment
in shares of Common Stock already owned, such shares shall be appropriately
endorsed for transfer to the Company.
SECTION 4. Provided that the Company shall have publicly issued shares of
Common Stock pursuant to a Qualified Public Offering, the Board may permit a
person electing to exercise an option to elect to tender the exercise price of
such shares by irrevocably authorizing a third party to sell shares of Common
Stock (or of sufficient portion of the shares) acquired upon the exercise of
such option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire exercise price and any tax withholding (based upon the minimum
statutory tax withholding requirements, unless such person elects in writing to
withhold a greater amount of tax) resulting from such exercise (a "Cashless
Exercise").
SECTION 5. Each option shall be subject to the requirement that if at any
time the Board shall in its discretion determine that the listing, registration
or qualification of the shares of Common Stock subject to such option upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition
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of or in connection with, the granting of such option or the issuance or
purchase of shares thereunder, such option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free from any conditions not reasonably
acceptable to the Board. Prior to the exercise of an option and the issuance of
Common Stock so purchased, an optionee shall deliver a certification (a)
acknowledging that such shares of Common Stock may be "restricted securities" as
defined in Rule 144 promulgated under the Act and (b) containing such optionee's
agreement that such Common Stock may not be sold or otherwise disposed of except
in compliance with applicable provisions of the Act. In the event that the
Common Stock is then listed on a national securities exchange, the Company shall
use its best efforts to cause the listing of the shares of Common Stock subject
to options upon such exchange.
SECTION 6. The Company may establish appropriate procedures to provide for
payment or withholding of such income or other taxes as may be required by law
to be paid or withheld in connection with the exercise of options or any other
matters under the Plan, and to ensure that the Company receives prompt advice
concerning the occurrence of any event which may create, or affect the timing or
amount of, any obligation to pay or withhold any such taxes or which may make
available to the Company any tax deduction resulting from the occurrence of such
event.
ARTICLE X
ADJUSTMENTS
SECTION 1. New option rights may be substituted for the options granted
under the Plan, or the Company's duties as to options outstanding under the Plan
may be assumed by a corporation other than the Company, or by a parent or
subsidiary of the Company or such corporation, in connection with any merger,
consolidation, acquisition, separation, reorganization, liquidation or other
similar corporate transaction in which the Company is involved. Notwithstanding
the foregoing or the provisions of this Article X, in the event such
corporation, or parent or subsidiary of the Company or such corporation, does
not substitute new option rights for, and substantially equivalent to, the
options granted hereunder, or assume the options granted hereunder, the options
granted hereunder shall terminate and thereupon become null and void (a) upon
dissolution or liquidation of the Company, or similar occurrence, (b) upon any
merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be a surviving entity, or (c) upon a
transfer of substantially all of the assets of the Company or more than 80% of
the outstanding common stock of the Company in a single transaction other than a
Qualified Public Offering; provided, however, that each optionee shall have the
right immediately prior to or concurrently with such dissolution, liquidation,
merger, consolidation, acquisition, separation, reorganization or other similar
corporate transaction to exercise any unexpired option granted hereunder whether
or not then exercisable. Notwithstanding the immediately preceding sentence,
upon the exchange of all of the common stock of the Company for the common stock
of another corporation (i.e., a business combination accounted for as a pooling
of interests) the options granted hereunder shall be substituted with options of
equivalent value and terms of such other corporation's common stock.
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SECTION 2. In the event that the Board determines that any dividend or
other distribution (whether in the form of cash, shares, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities of the Company, issuance
of warrants or other rights to purchase shares or other securities of the
Company, or other corporate transaction or event affects the shares such that an
adjustment is determined by the Board to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then, the Board shall, in such manner as it may
deem equitable, adjust any or all of (a) the number of shares of Common Stock or
other securities of the Company (or number and kind of other securities or
property) with respect to which options may be granted and any limitations set
forth in the Plan, (b) the number of shares of Common Stock or other securities
of the Company (or number and kind of other securities or property) subject to
outstanding options, and (c) the grant or exercise or target price with respect
to any option or, if deemed appropriate, make provision for a cash payment to an
optionee including, if necessary, the termination of such an option provided, in
each case, that with respect to Incentive Stock Options no such adjustment shall
be authorized to the extent that such authority would cause the Plan to violate
Section 422 of the Code. Without limiting the generality of the foregoing, any
such adjustment shall be deemed to have prevented any dilution and enlargement
of an optionee's rights if such optionee receives in any such adjustment rights
which are substantially similar (after taking into account the fact that the
optionee has not paid the applicable exercise price) to the rights the optionee
would have received had he exercised his outstanding options and become a
stockholder of the Company immediately prior to the event giving rise to such
adjustment.
SECTION 3. Adjustments and elections under this Article X shall be made by
the Board whose determination as to what adjustments, if any, shall be made and
the extent thereof shall be final, binding and conclusive. Adjustments required
under this Article X shall also be deemed to increase by a like number the
aggregate number of shares authorized for purchase pursuant to options granted
under the Plan as set forth in Section 2 of Article III hereof.
ARTICLE XI
PRIVILEGES OF STOCK OWNERSHIP
No optionee, or legal representative, legatee, distributee or transferee
of such optionee shall be or be deemed to be a holder of any shares of Common
Stock subject to such option or entitled to any rights of a stockholder of the
Company in respect of any shares of Common Stock covered by such option until
such shares have been paid for in full and issued or delivered by the Company.
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ARTICLE XII
TERMINATION OF EMPLOYMENT
SECTION 1. If (a) an optionee shall terminate his or her Employment
voluntarily (i) without Good Reason, and (ii) without the written consent of the
Company or a Subsidiary, which written consent expressly sets forth a statement
to the effect that options which are exercisable on the date of such termination
shall remain exercisable, or (b) the Company or a Subsidiary shall terminate an
optionee's Employment for Cause, then, unless otherwise provided in the
instrument evidencing such option, the option held by such optionee shall
terminate forthwith.
SECTION 2. If (a) an optionee shall terminate his or her Employment
voluntarily (i) with Good Reason, or (ii) with the written consent of the
Company or a Subsidiary, which written consent expressly sets forth a statement
to the effect that options which are exercisable on the date of such termination
shall remain exercisable, or (b) the Company or a Subsidiary shall terminate an
optionee's Employment for reasons other than Cause, then, unless otherwise
provided in the instrument evidencing such option, the option held by such
optionee shall be terminated, except that any option, to the extent exercisable
by the optionee at the time of such termination, may be exercised within three
months after such termination or the date of expiration of the option as fixed
at the time of grant, whichever shall first occur. Options granted under the
Plan shall not be affected by any change in the optionee's position as an
Employee so long as the holder thereof continues to be an Employee.
SECTION 3. If an optionee shall die or be deemed to have a Disability
during his or her Employment, then, unless otherwise provided in the instrument
evidencing such option, notwithstanding the foregoing provisions of Sections 1
and 2 of this Article XII, the option held by such optionee shall be terminated,
except that any option, to the extent exercisable by the optionee at the time of
such death or Disability, may be exercised on or before (i) the date which is
one year after the date of such death or Disability or (ii) the date of
expiration of the option as fixed at time of grant, whichever shall first occur,
by the optionee, or in the case of death, by the optionee's personal
representatives or by the person or persons to whom the optionee's rights under
the option shall pass by will or by the applicable laws of descent and
distribution.
ARTICLE XIII
AMENDMENTS TO THE PLAN
The Board may only terminate or from time to time amend, modify or suspend
the Plan with the prior written approval of the holders of a majority of shares
of the Class B Common Stock. The amendment or termination of the Plan shall not,
without the written consent of an optionee, adversely affect any rights or
obligations under any option theretofore granted to such optionee under the
Plan.
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ARTICLE XIV
EFFECTIVE DATE OF THE PLAN
The Plan shall be effective on March 15, 1999.
ARTICLE XV
DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated:
1934 Act: The Securities Exchange Act of 1934, as amended and the rules
and regulations promulgated thereunder.
Act: The Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Board of Directors: Such term is defined in Section 1 of Article II
hereof.
Cashless Exercise: Such term is defined in Section 4 of Article IX hereof.
Cause: (a) The failure, neglect or refusal by an Employee to perform his
or her duties (including, without limitation, such Employee's inability to
perform his or her duties as a result of alcohol abuse, chronic alcoholism or
drug addiction), (b) any willful, intentional or grossly negligent act by an
Employee having the effect of injuring the reputation or business of the Company
or a Subsidiary, (c) an Employee's conviction of a felony or a crime involving
moral turpitude (including the entry of a nolo contendere plea), and (d) any
other default, nonperformance or violation by an Employee of any of the
covenants, provisions or terms of such Employee's employment agreement with the
Company or any Subsidiary then in effect, if any. A termination for Cause as
defined in clause (a) or (d) of the preceding sentence shall become effective
only if (i) the Company or a Subsidiary shall have given such Employee notice
thereof describing the basis for such termination for Cause, and (ii) such
Employee fails to cure such Cause within 10 business days after receiving such
notice (and the termination for Cause shall be effective upon the expiration of
such 10-business-day period if such Employee fails to effect such cure); and a
termination for Cause as defined in clause (b) or (c) of the preceding sentence
shall be effective at the time the Company or a Subsidiary gives notice thereof
to such Employee.
Class B Common Stock: Class B Common Stock, $0.001 par value per share, of
the Company.
Code: The Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder.
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Common Stock: Such term is defined in Article I hereof.
Company: Such term is defined in Article I hereof.
Disability: An Employee shall be deemed to have a Disability if (a) by
reason of physical or mental incapacity, the Employee shall not be able to
perform his or her duties for a consecutive period of six months or more or for
a period in the aggregate of six months or more in any consecutive period of
twelve months, or (b) when the Employee's physician shall have determined that
he or she shall not be able, by reason of physical or mental disability, to
devote his or her time and energy to the business of the Company for a
continuous period of six months or more or for a period in the aggregate of six
months or more in a consecutive period of twelve months. In the event that the
Employee or the Company shall dispute any determination of Disability hereunder,
the matter shall be resolved by the determination of three physicians qualified
to practice medicine in the State of New York, one to be selected by each of the
Company and the Employee and the third to be selected by the designated
physicians. During the period in which the determination of the Employee's
Disability shall be under such review, the Employee shall continue to be treated
for all purposes of the Plan as an Employee.
EBITDA: Earnings before interest, taxes, depreciation and amortization as
reflected in the consolidated audited financial statements of the Company and
its consolidated subsidiaries.
Employee: Such term includes any officer as well as any full-time salaried
executive, managerial, professional, administrative or other employee of the
Company or a Subsidiary. Such term also includes an employee on approved leave
of absence provided such employee's right to continue employment with the
Company or a Subsidiary upon expiration of such employee's leave of absence is
guaranteed either by statute or by contract with or by a policy of the Company
or a Subsidiary and any consultant, independent contractor, professional advisor
or other person who is paid by the Company or a Subsidiary for rendering
services or furnishing materials or goods to the Company or a Subsidiary.
Employment: Service to the Company or a Subsidiary as an Employee.
Fair Market Value: Such term as of any date shall be determined as
follows:
(a) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq stock market, then the Fair Market Value as of
that date shall be the mean between the lowest and highest reported sale prices
of Common Stock on that date on the principal exchange on which the Common Stock
is then listed or admitted to trading.
(b) If sale prices are not available or if the principal stock
market for the Common Stock is not a national securities exchange and the Stock
is not quoted on the Nasdaq stock market, the average between the highest bid
and the lowest asked prices for the Common Stock on such day as reported on the
NASDAQ OTC Bulletin Board Service or by the National Quotation Bureau,
Incorporated or a comparable service.
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(c) If the day is not a business day, and as a result, paragraphs
(a) and (b) next above are inapplicable, the Fair Market Value of the Common
Stock shall be determined as of the last preceding business day. If paragraphs
(a) and (b) next above are otherwise inapplicable, then the Fair Market Value of
the Common Stock shall be determined in good faith by the Board.
Equity Securities: Such term shall have the meaning ascribed to it under
Rule 3a11-1 promulgated under the 1934 Act.
Good Reason: (a) The Company or a Subsidiary effects a material reduction
in an Employee's position or duties, the Company or a Subsidiary fails to
provide an Employee with any material compensation or benefits to which he or
she is entitled, or the Company or a Subsidiary commits any other material
breach of such Employee's employment agreement then in effect, if any, (b) an
Employee gives the Company or a Subsidiary notice of the event described in
clause (a) within 20 business days after its occurrence, and (c) the Company or
a Subsidiary fails to cure such event within 10 business days after receiving
notice thereof (and the termination for Good Reason shall be effective upon the
expiration of such 10-business-day period if the Company or a Subsidiary, as
applicable, fails to effect such cure).
Incentive Stock Option: An option intended to qualify under Section 422 of
the Code.
Non-Qualified Stock Option: An option which does not qualify under Section
422 of the Code.
Person: Such term shall have the meaning ascribed to it under the 1934
Act.
Plan: Such term is defined in Article I hereof and includes all amendments
hereof.
Public Offering: A registered offering and sale of Equity Securities of
the Company or an institutional private placement or an offering and sale of
such Equity Securities pursuant to Rule 144A under the Securities Act with or
without registration rights.
Qualified Public Offering: A Public Offering of common stock after the
consummation of which at least twenty percent of the then-outstanding aggregate
amount of shares of all classes of common stock of the Company are publicly held
and such common stock is listed or admitted for trading on a national securities
exchange or quoted on the Nasdaq Stock Market.
Subsidiary: A "Subsidiary Corporation" of the Company as defined in
Section 424 of the Code.
Ten Percent Stockholder: An Employee who, at the time of the grant of an
option, owns stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company.
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EXHIBIT 10.22
OPTION AGREEMENT
March 15, 1999
Mr. Jay Galin
G&G Retail Holdings, Inc.
520 Eighth Avenue
New York, NY 10018
Dear Jay:
We are pleased to inform you that on March 15, 1999 the Board of Directors
of G&G Retail Holdings, Inc. (the "Company") granted to you an option (the
"Option") to purchase 2,500 shares (the "Shares") of Common Stock at a purchase
price of $300.00 per share (the "Option Price").
This Option is subject to all of the terms and conditions of the Company's
1999 Stock Option Plan, as from time to time amended (the "Plan"), a copy of
which is attached hereto, provided, however, that no future amendment or
termination of the Plan may, without your consent, alter or impair any of your
rights or obligations under this Option. Certain provisions of the Plan are
summarized in this Option Agreement, but we suggest that you read the Plan for a
complete understanding of the terms and conditions governing this Option.
Capitalized terms used, but not defined, in this Option Agreement are defined in
the Plan.
This Option expires on March 14, 2009. This Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended.
This Option becomes exercisable with respect to 25% of the Shares
effective immediately as of the date of grant (March 15, 1999) and will become
exercisable with respect to an additional 25% of the Shares on each of the three
succeeding anniversary dates of the date of grant (March 15, 2000, March 15,
2001 and March 15, 2002).
If prior to August 28, 2000 (a) you voluntarily terminate your Employment
without Good Reason; or (b) the Company or a Subsidiary terminates your
Employment for Cause, then this Option will terminate forthwith with respect to
all Shares.
If on or after August 28, 2000 but prior to March 15, 2002 (a) you
voluntarily terminate your Employment without Good Reason; or (b) the Company or
a Subsidiary terminates your Employment for Cause, then, in either such case and
notwithstanding anything in this Option Agreement or in Sections 2 and 3 of
Article XII of the Plan to the contrary, you (or in the case of death, your
personal representative or the person or persons to whom your rights under this
Option pass by will or by applicable laws of descent and distribution) may
exercise this Option, to the extent that this Option is otherwise exercisable as
of the date of the termination of your Employment, at
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any time prior to March 14, 2009.
If prior to March 15, 2002 (a) you voluntarily terminate your Employment
with Good Reason; or (b) the Company or a Subsidiary terminates your Employment
for reasons other than for Cause; or (c) your Employment terminates by reason of
your death or Disability, then, in any such case and notwithstanding anything in
this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the
contrary, this Option shall immediately become exercisable with respect to 100%
of the Shares and you (or in the case of death, your personal representative or
the person or persons to whom your rights under this Option pass by will or by
applicable laws of descent and distribution) may exercise this Option at any
time prior to March 14, 2009.
If on or after March 15, 2002, your Employment terminates for any reason,
then, notwithstanding anything in this Option Agreement or in Sections 2 and 3
of Article XII of the Plan to the contrary, you (or in the case of death, your
personal representative or the person or persons to whom your rights under this
Option pass by will or by applicable laws of descent and distribution) may
exercise this Option with respect to 100% of the Shares at any time prior to
March 14, 2009.
As a condition to the grant of this Option, you covenant, warrant,
represent and agree that unless the Shares are covered by an effective
registration statement under the Act at the time of exercise, then the Shares
will be acquired by you for investment and not for sale or distribution and, if
the Company requests, you agree to execute and deliver to the Company a
certificate to that effect at the time this Option is exercised. The Company
will not be obligated to issue any Shares pursuant to the exercise of this
Option if, in the opinion of counsel to the Company, the Shares to be so issued
are required to be registered or otherwise qualified under the Act, or under any
other state or Federal statute, regulation or ordinance affecting the sale of
securities, until such shares have been so registered or otherwise qualified.
You understand that under existing law, unless at the time this Option is
exercised a registration statement under the Act is in effect as to the Shares,
(i) the Shares purchased by you may be required to be held indefinitely unless
such Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of Shares made in reliance upon Rule
144 promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restricts the
number of Shares which may be sold and the manner in which Shares may be sold);
(iii) certificates for the Shares will bear a legend to the effect that such
Shares have not been registered under the Act and may not be sold, hypothecated
or otherwise transferred in the absence of an effective registration statement
under the Act relating thereto or an opinion of counsel satisfactory to the
Company that such registration is not required; (iv) the Company will place an
appropriate "stop transfer" order with its transfer agent with respect to such
Shares; and (v) the Company has undertaken no obligation to include the Shares
in any registration statement which may be filed by it. In addition, you
understand and acknowledge that the Company has no obligation to you to furnish
information necessary to enable you to make sales under Rule 144.
This Option may be exercised by delivering to the Company a written notice
of election to
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exercise, in the form attached, together with an amount equal to the Option
Price of the Shares to be purchased at that time. The Option Price may be paid
as follows: (a) in cash (including check, bank draft or money order); (b)
provided that the Company shall have publicly issued shares of Common Stock
pursuant to a Qualified Public Offering, (i) by delivering shares of Common
Stock already owned by you and having a fair market value on the date of
exercise equal to the Option Price or a combination of such shares and cash; or
(ii) pursuant to a Cashless Exercise; or (c) by any other proper method
specifically approved by the Board of Directors.
This Option shall be governed and construed in accordance with the
substantive laws of the State of Delaware.
Kindly evidence your acceptance of this Option and your agreement to the
provisions of this Option Agreement and the Plan by executing below under the
words "Accepted and Agreed."
Sincerely,
G&G RETAIL HOLDINGS, INC.
By: /s/ Scott Galin
-----------------------
Scott Galin
President
ACCEPTED AND AGREED:
/s/ Jay Galin
- --------------------
Jay Galin
3
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G&G Retail Holdings, Inc.
520 Eighth Avenue
New York, NY 10018
Gentlemen:
Notice is hereby given of my election to purchase ____________ shares (the
"Stock") of Class A Common Stock of G&G Retail Holdings, Inc. (the "Company"),
at a price of $______ per share, pursuant to the provisions of an option granted
to me on March 15, 1999 under the Company's 1999 Stock Option Plan (the "Plan").
I am purchasing such shares for investment purposes only and not with a view to
the sale or distribution thereof, unless such distribution is registered under
the Securities Act of 1933, as amended.
Enclosed in payment for the Stock is:
/_____/ my check in the amount of $_____________.
/_____/ _________ shares of the Company's Class A Common Stock (endorsed
for transfer) having a total value of $__________, based on the Fair Market
Value (as defined in Article XV of the Plan) of such shares.
/_____/ subject to the provisions of the Plan, I have elected to pay for
the Stock pursuant to a Cashless Exercise (as defined in Section 4 of Article IX
of the Plan).
The following information is supplied for use in issuing and registering
the Stock:
Number of Shares: __________________________
Print Name: __________________________
Address: __________________________
Social Security Number: __________________________
Dated: ____________________
Very truly yours,
____________________________
Jay Galin
4
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EXHIBIT 10.23
OPTION AGREEMENT
March 15, 1999
Mr. Scott Galin
G&G Retail Holdings, Inc.
520 Eighth Avenue
New York, NY 10018
Dear Scott:
We are pleased to inform you that on March 15, 1999 the Board of Directors
of G&G Retail Holdings, Inc. (the "Company") granted to you an option (the
"Option") to purchase 2,500 shares (the "Shares") of Common Stock at a purchase
price of $300.00 per share (the "Option Price").
This Option is subject to all of the terms and conditions of the Company's
1999 Stock Option Plan, as from time to time amended (the "Plan"), a copy of
which is attached hereto, provided, however, that no future amendment or
termination of the Plan may, without your consent, alter or impair any of your
rights or obligations under this Option. Certain provisions of the Plan are
summarized in this Option Agreement, but we suggest that you read the Plan for a
complete understanding of the terms and conditions governing this Option.
Capitalized terms used, but not defined, in this Option Agreement are defined in
the Plan.
This Option expires on March 14, 2009. This Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended.
This Option becomes exercisable with respect to 25% of the Shares
effective immediately as of the date of grant (March 15, 1999) and will become
exercisable with respect to an additional 25% of the Shares on each of the three
succeeding anniversary dates of the date of grant (March 15, 2000, March 15,
2001 and March 15, 2002).
If prior to August 28, 2003 (a) you voluntarily terminate your Employment
without Good Reason; or (b) the Company or a Subsidiary terminates your
Employment for Cause, then this Option will terminate forthwith with respect to
all Shares.
If prior to March 15, 2003 (a) you voluntarily terminate your Employment
with Good Reason; or (b) the Company or a Subsidiary terminates your Employment
for reasons other than for Cause; or (c) your Employment terminates by reason of
your death or Disability, then, in any such case and notwithstanding anything in
this Option Agreement or in Sections 2 and 3 of Article XII of the Plan to the
contrary, this Option shall immediately become exercisable with respect to 100%
of the Shares and you (or in the case of death, your personal representative or
the person or persons to whom your rights under this Option pass by will or by
applicable laws of descent and distribution)
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may exercise this Option at any time prior to March 14, 2009.
If on or after March 15, 2003, your Employment terminates for any reason,
then, notwithstanding anything in this Option Agreement or in Sections 2 and 3
of Article XII of the Plan to the contrary, you (or in the case of death, your
personal representative or the person or persons to whom your rights under this
Option pass by will or by applicable laws of descent and distribution) may
exercise this Option with respect to 100% of the Shares at any time prior to
March 14, 2009.
As a condition to the grant of this Option, you covenant, warrant,
represent and agree that unless the Shares are covered by an effective
registration statement under the Act at the time of exercise, then the Shares
will be acquired by you for investment and not for sale or distribution and, if
the Company requests, you agree to execute and deliver to the Company a
certificate to that effect at the time this Option is exercised. The Company
will not be obligated to issue any Shares pursuant to the exercise of this
Option if, in the opinion of counsel to the Company, the Shares to be so issued
are required to be registered or otherwise qualified under the Act, or under any
other state or Federal statute, regulation or ordinance affecting the sale of
securities, until such shares have been so registered or otherwise qualified.
You understand that under existing law, unless at the time this Option is
exercised a registration statement under the Act is in effect as to the Shares,
(i) the Shares purchased by you may be required to be held indefinitely unless
such Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of Shares made in reliance upon Rule
144 promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restricts the
number of Shares which may be sold and the manner in which Shares may be sold);
(iii) certificates for the Shares will bear a legend to the effect that such
Shares have not been registered under the Act and may not be sold, hypothecated
or otherwise transferred in the absence of an effective registration statement
under the Act relating thereto or an opinion of counsel satisfactory to the
Company that such registration is not required; (iv) the Company will place an
appropriate "stop transfer" order with its transfer agent with respect to such
Shares; and (v) the Company has undertaken no obligation to include the Shares
in any registration statement which may be filed by it. In addition, you
understand and acknowledge that the Company has no obligation to you to furnish
information necessary to enable you to make sales under Rule 144.
This Option may be exercised by delivering to the Company a written notice
of election to exercise, in the form attached, together with an amount equal to
the Option Price of the Shares to be purchased at that time. The Option Price
may be paid as follows: (a) in cash (including check, bank draft or money
order); (b) provided that the Company shall have publicly issued shares of
Common Stock pursuant to a Qualified Public Offering, (i) by delivering shares
of Common Stock already owned by you and having a fair market value on the date
of exercise equal to the Option Price or a combination of such shares and cash;
or (ii) pursuant to a Cashless Exercise; or (c) by any other proper method
specifically approved by the Board of Directors.
This Option shall be governed and construed in accordance with the
substantive laws of the
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State of Delaware.
Kindly evidence your acceptance of this Option and your agreement to the
provisions of this Option Agreement and the Plan by executing below under the
words "Accepted and Agreed."
Sincerely,
G&G RETAIL HOLDINGS, INC.
By: /s/ Jay Galin
-----------------------------
Jay Galin
Chairman of the Board
and Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Scott Galin
- --------------------
Scott Galin
3
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G&G Retail Holdings, Inc.
520 Eighth Avenue
New York, NY 10018
Gentlemen:
Notice is hereby given of my election to purchase ____________ shares (the
"Stock") of Class A Common Stock of G&G Retail Holdings, Inc. (the "Company"),
at a price of $______ per share, pursuant to the provisions of an option granted
to me on March 15, 1999 under the Company's 1999 Stock Option Plan (the "Plan").
I am purchasing such shares for investment purposes only and not with a view to
the sale or distribution thereof, unless such distribution is registered under
the Securities Act of 1933, as amended.
Enclosed in payment for the Stock is:
/_____/ my check in the amount of $_____________.
/_____/ _________ shares of the Company's Class A Common Stock (endorsed
for transfer) having a total value of $__________, based on the Fair Market
Value (as defined in Article XV of the Plan) of such shares.
/_____/ subject to the provisions of the Plan, I have elected to pay for
the Stock pursuant to a Cashless Exercise (as defined in Section 4 of Article IX
of the Plan).
The following information is supplied for use in issuing and registering
the Stock:
Number of Shares: __________________________
Print Name: __________________________
Address: __________________________
Social Security Number: __________________________
Dated: ____________________
Very truly yours,
___________________________
Scott Galin
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EXHIBIT 10.24
SERVICE AGREEMENT
AGREEMENT made this 1st day of April, 1999, by and between G+G Retail,
Inc., a Delaware corporation (the "Parent"), and G & G Retail of Puerto Rico,
Inc., a Puerto Rico corporation (the "Subsidiary").
W I T N E S S E T H:
WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Parent; and
WHEREAS, the Parent currently owns and operates 42 retail stores and may
hereafter from time to time own and operate additional stores located in Puerto
Rico (the "Stores"); and
WHEREAS, the Parent desires to engage the Subsidiary to provide personnel
and administrative services in connection with the Stores, and the Subsidiary is
willing to accept such engagement, on the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. The Parent hereby engages the Subsidiary to provide store
personnel and otherwise administer the Parent's day to day business and the
operation of the Parent's Stores, subject at all times to the direction and
control of the Parent. In furtherance of its duties and responsibilities
hereunder, the Subsidiary, through its officers and employees, shall be
authorized:
(i) to sell or offer for sale on behalf of the Parent in the
Stores goods and merchandise supplied by the Parent for such purpose;
(ii) to employ all employees, agents and contractors required to
operate the Stores and to pay the salaries, wages or other compensation to such
persons;
(iii) to collect all payroll taxes and withholdings that may be
levied or imposed upon Store employees and to remit such amounts to the proper
authorities as required by applicable law; and
(iv) to enter into, execute and deliver on behalf of the Parent any
and all contracts, agreements or other instruments and to engage in any and all
transactions which the Parent may deem necessary or appropriate to carry on the
business of the Parent conducted at the Stores.
2. The Subsidiary hereby acknowledges that all of the assets located in or
associated with the Stores, including, but not limited to, the inventory, store
leases, leasehold improvements, furniture, fixtures and the proceeds from the
sale of such inventory, are and shall remain the sole and
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exclusive property of the Parent, and the Subsidiary shall have no rights
therein or thereto.
3. The Subsidiary hereby agrees to collect and promptly deposit all
proceeds from the sale of merchandise in the Stores into a bank account or
accounts of the Parent or as otherwise directed by the Parent from time to time.
4. The Subsidiary hereby accepts such engagement and throughout the term
of this Agreement shall provide the administrative and executive services of its
officers as provided herein.
5. This Agreement shall commence as of the date hereof and shall remain in
effect until the Parent, in its sole discretion, terminates this Agreement by
written notice.
6. As the Subsidiary's sole compensation for the services provided
hereunder, the Parent shall pay to the Subsidiary an amount equal to 100% of the
actual costs incurred by the Subsidiary in connection with its performance of
its obligations pursuant to this Agreement.
7. This Agreement constitutes the entire agreement of the parties hereto
and no amendment or modifications hereof shall be valid or binding unless made
in writing and signed by the party against whom enforcement thereof is sought.
8. This Agreement shall be governed by the laws of the State of New York.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, this Agreement has been executed by Parent and
Subsidiary as of the date first written above.
G+G RETAIL, INC.
By: /s/ Scott Galin
-----------------------------
G & G RETAIL OF PUERTO RICO, INC.
By: /s/ Michael Kaplan
-----------------------------
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EXHIBIT 10.25
Chase Equipment Leasing, Inc. Reference Number 00655200
--------
THIS MASTER LEASE PURCHASE AGREEMENT dated as of 5/4, 1999 (hereinafter referred
to as "Lease") by and between Chase Equipment Leasing, Inc., a New York
corporation, with a place of business located at One Chase Square, Rochester, NY
14643 (hereinafter referred to together with its assigns, if any, as "Lessor")
and G+G Retail, Inc., a corporation organized and existing under the laws of
the State of Delaware, with its mailing address and chief place of business at
520 Eighth Avenue, New York, NY 10018 (hereinafter referred to as "Lessee").
The Parties hereto for good and valuable consideration and intending to be
legally bound hereby agree as follows:
1. PROCEDURE FOR LEASING:
(a) SCHEDULES. Subject to the terms and conditions set forth herein,
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor such
unit or units of equipment (the "Equipment" and individually sometimes "Item" or
"Item of Equipment") described in any Master Lease Schedule (a "Schedule") from
time to time executed by the parties pursuant hereto, and any and all such
Schedules are deemed a part hereof. Each Schedule incorporates by reference
this Lease and shall constitute, subject to Section 9 hereof, a separate lease.
Capitalized terms not otherwise defined herein have the meaning provided for in
any Schedule.
(b) CONDITIONS PRECEDENT. The obligation of Lessor to purchase Equipment
from the manufacturer or supplier thereof ("Supplier") and to lease the same to
Lessee under any Schedule is subject to receipt by Lessor prior to the
Commencement Date with respect to the Schedule of each of the following
documents in form and substance satisfactory to Lessor: (i) a Schedule relating
to the Equipment then being leased hereunder, (ii) a purchase order assignment,
(iii) a Certificate of Acceptance and Closing Certificate, (iv) a certificate of
insurance which complies with the requirements of Section 4(f) and the Schedule,
and (v) a bill of sale transferring title to each Item to Lessor and such other
documents and conditions as Lessor may reasonably require including Lessor's
determination that there has been no material adverse change in the financial
condition of Lessee or any Guarantor. Lessor hereby appoints Lessee its agent
for inspection and acceptance of each Item from the Supplier. Upon execution by
Lessee of the Certificate of Acceptance, each Item described therein will be
deemed to have been delivered to, and irrevocably accepted by Lessee for lease
hereunder.
2. TERM AND RENT:
The lease of and rent for Equipment will commence on the day specified in
the related Schedule as the Commencement Date, and will continue for the period
specified as the "term" therein as the same may be extended pursuant to the
terms hereof. Lessee promises to make each payment of rent during the term on
the due dates and in the amounts set forth in each Schedule without notice or
demand at Lessor's address set forth above or as otherwise directed by Lessor in
writing and no payment of rent will be refunded for any cause or reason
whatsoever. The parties hereto intend that the rents and other amounts payable
by Lessee hereunder will continue to be payable in all events unless the
obligation to pay same is terminated pursuant to the terms hereof. If any
payment hereunder falls due on a day on which Lessor is not open for business,
such payment shall be due and payable on the next preceding day on which Lessor
is open for business. To secure all obligations of Lessee under each Schedule,
Lessee hereby grants to Lessor a security interest in: (i) any security deposit
or advance rent paid by Lessee hereunder, each of which shall be in all cases
non-interest bearing; and (ii) all other funds, balances, accounts, proceeds of
collateral and/or other property of any kind of Lessee or in which Lessee has an
interest now or hereafter in the possession, custody, or control of Lessor or
The Chase Manhattan Bank and any of its direct or indirect affiliates and
subsidiaries, including without limitation Chase Securities, Inc..
3. LATE CHARGE:
If any rent or any other amount due hereunder from Lessee other than the
amounts due under this Section 3 is not paid within five (5) days after the due
date, Lessee agrees to pay a late charge equal to five percent (5%) on the
amount of such delinquent rent or other payment, but not exceeding the maximum
amount permissible under applicable law. The failure of Lessor to collect any
late charge will not constitute a waiver of Lessor's right with respect thereto.
Late charges will be due and payable on the due date for the next following
payment of rent.
4. LESSEE REPRESENTATIONS AND COVENANTS:
Lessee represents and warrants, and covenants and agrees, as follows and
each such representation, warranty and covenant shall be deemed made and renewed
as of the date hereof and as of the Commencement Date under each Schedule
without the necessity of any further act or instrument:
(a) GENERAL. (i) Lessee is duly organized and validly existing under
the laws of the state indicated at the outset; this Lease and each Schedule and
all instruments delivered in connection herewith and therewith have been duly
authorized by all necessary action, and duly executed and delivered and
constitute valid, legal and binding agreements, enforceable in accordance with
their terms except to the extent limited by applicable bankruptcy and insolvency
laws; and no such document nor Lessee's performance thereunder will conflict
with Lessee's organizational documents or with any indenture, contract or
agreement by which Lessee is bound or with any statute, judgment, decree, rule
or regulation binding upon Lessee; (ii) no consent or approval of any trustee or
holder of any indebtedness or obligation of Lessee, and no consent or approval
of any governmental authority, is necessary for Lessee's execution or
performance of this Lease; (iii) there is no litigation or other proceeding
pending, or to the best of the Lessee's knowledge, threatened against or
affecting Lessee which, if decided adversely to Lessee would adversely affect or
impair the title of Lessor to the Equipment or which, if decided adversely to
Lessee would materially adversely affect the business operations or financial
condition of Lessee; (iv) all balance sheets, statements of profit and loss and
other financial data that have delivered to Lessor with respect to Lessee are
complete and correct in all material respects, fairly present the financial
condition of the Lessee on the dates for which, and the results of its
operations for the periods for which, the same have been furnished and have been
prepared in accordance with generally accepted accounting principles
consistently applied; (v) there has been no material adverse change in the
condition of Lessee, financial or otherwise, since the date of the most recent
financial statements delivered to Lessor and, (vi) any reprogramming required to
permit the proper functioning in and following the year 2000, of (i) Lessee's
computer systems and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which Lessee's systems
interface) and the testing of all such systems and equipment, as so
reprogrammed, has been completed. The cost to Lessee of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to Lessee
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a default or Event of Default hereunder
or a material adverse change in the condition of Lessee. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of Lessee and its Subsidiaries are
and, with ordinary course upgrading and maintenance, will continue for the term
of this Lease to be, sufficient to permit Lessee to conduct its business without
any material adverse change in the condition of Lessee.
(b) NO ABATEMENT. This is a net Lease and Lessee's promise to pay rent
and all other amounts hereunder is irrevocable and independent and not subject
to cancellation, termination, modification, repudiation, excuse or substitution
without the written consent of Lessor. Lessee agrees to pay all such amounts
when due by acceleration or otherwise without abatement, irrespective of any
claims, demands, set-offs, actions, suits, or proceedings that it may have or
assert against Lessor or any Supplier or manufacturer of Equipment. Lessor will
have no liability to Lessee upon the failure of any Supplier, manufacturer or
one or more others to perform any obligations at any time due to Lessor, Lessee
or any other person and, in all such events, Lessee waives any right in any
suit, action or proceeding to any exemplary, punitive or consequential damages
whatsoever.
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(c) LIENS AND ENCUMBRANCES. THE EQUIPMENT IS FREE AND CLEAR FROM ALL
CLAIMS, LIENS AND ENCUMBRANCES WHATSOEVER; LESSEE WILL DEFEND THE EQUIPMENT
AGAINST ALL LIENS AND WILL NOT SELL, ASSIGN, SUBLET, MORTGAGE, OR ALTER ANY OF
THE EQUIPMENT LEASED HEREUNDER OR ANY INTEREST IN THIS LEASE, NOR WILL LESSEE
REMOVE ANY OF THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR, AND ANY ATTEMPT TO SO SELL, ASSIGN, SUBLET,
MORTGAGE, HYPOTHECATE, ALTER OR REMOVE WILL CONSTITUTE A DEFAULT HEREUNDER AND
SUCH SALE, ASSIGNMENT, SUBLEASE, MORTGAGE, OR HYPOTHECATION WILL BE VOID AND
WITHOUT EFFECT. In order to secure all obligations of Lessee hereunder, Lessee
assigns and grants to Lessor a security interest in all rights, powers and
privileges under any sublease of the Equipment hereafter authorized in writing
by Lessor.
(d) USE AND OPERATION. Lessee will at all times use the Equipment only in
compliance with applicable laws and consistent with the instructions supplied
and use intended for such Equipment by the Supplier and manufacturer thereof.
Lessee will not use the Equipment to carry, contain or produce directly or
indirectly any hazardous substances as defined under applicable federal, state
or local law or regulation. Lessee will not without the prior written consent of
Lessor affix or install any accessory, equipment or device on any Equipment
leased hereunder if such addition will impair the originally intended function
or use of such Equipment. All additions, repairs, parts, supplies, accessories,
equipment and devices furnished, attached or fixed to any Equipment will
thereupon without further act or instrument become the property of Lessor
(except such as may be removed without in any way affecting or impairing the
originally intended function, condition or use of such Item). Further, Lessee
will not, without the prior written consent of Lessor and subject to such
conditions as Lessor may impose for its protection, affix to or install any
Equipment in any other personal property or in real property.
(e) SERVICE AND MAINTENANCE. Lessee will at its sole expense at all times
maintain all Equipment in good operating order, repair, condition and appearance
and keep all Equipment protected from the elements, except during use in the
normally contemplated manner. At Lessor's request, Lessee will at its expense
affix in a prominent position on each Item of Equipment plates, tags or other
identifying labels showing ownership of the Equipment by Lessor. Lessor will at
all reasonable times have the right to inspect the Equipment and Lessee's
maintenance records related thereto. Lessee at its sole expense will make all
alterations and modifications with respect to the Equipment that may at any time
during the term of this Lease or any Schedule hereunder be required to comply
with any applicable law or any governmental rule or regulation.
(f) INSURANCE. Lessee hereby assumes all risks of damage, loss, theft, or
destruction, partial or complete, with respect to each Item of Equipment during
the term of the Lease and during any storage period until Lessee has returned or
disposed of the Equipment as provided for herein. Lessee will at its own expense
keep each Item of Equipment insured for an amount at least equal to the Lessor's
Cost of the Equipment as set forth in the Schedule against all risks with
extended coverage and insurance companies acceptable to Lessor with Lessor named
as loss payee. Lessee agrees to obtain and maintain at its expense with
Insurance companies acceptable to Lessor general public liability insurance
naming Lessor as an additional insured together with Lessee, as their interests
may appear, in no event less than One Million Dollars ($1,000,000) or such
greater amount, if any, as specified in the related Schedule against claims for
bodily injury, death or property damage arising out of the use, ownership,
possession, operation or condition of the Equipment. Each Insurer will agree, by
endorsement upon the policy or policies issued by it, or by independent
instruments furnished to Lessor, that Lessor will have the power to file claims
against the insurer under said policy, that it will give Lessor thirty (30) days
written notice before the policy or policies in question will be altered,
expired or canceled, and that no act or default of any person other than Lessor,
its agents, or those claiming under Lessor, will affect Lessor's right to
recover under such policy or policies in case of loss. Although any and all
obligations imposed on the insured shall be obligations solely of Lessee, Lessee
will deliver to Lessor the policies or evidence of insurance satisfactory to
Lessor prior to the Commencement Date and thirty (30) days prior to each
expiration date thereof for each Item of Equipment. The failure of Lessee to
secure or maintain such Insurance will constitute a default under this Lease. In
the event of such breach, Lessor may, but will not be obligated to, obtain such
insurance. In the event that Lessor obtains such insurance, an amount equal to
the cost of such insurance will be deemed supplemental rent to be paid forthwith
by Lessee. In the event that any policies insuring against liability risks
described above shall now or hereafter provide coverage on a "claims made"
basis, Lessee shall continue to maintain such policies in effect for a period of
not less than three years after the expiration of the Lease term of any
Schedules.
(g) DISPOSITION OF EQUIPMENT: Upon termination of any Schedule under the
Lease by expiration of the term hereof, except as provided for in Section 9,
Lessor will, upon satisfaction of all Lessee's obligations to Lessor with
respect to any particular Item of Equipment and provided Lessee is not otherwise
then in default hereunder or under any other Schedule, transfer title to such
Item to Lessee.
5. TRANSFER OF WARRANTIES:
To the extent permitted by law and contract, Lessor will pass through
without representation to Lessee the benefit of all warranties, if any, of the
Supplier of the Equipment and, so long as there is no default hereunder, Lessee
will have the right to, and will, directly avail itself of all warranties by the
Supplier with respect to the Equipment. Lessor will not take any action which
prejudices Lessee's right to, or under the terms of, any such warranty. If
subsequent to the Commencement Date Lessee shall determine that the Equipment is
unsatisfactory for any reason including any failure of the Equipment to conform
to the specifications set forth in any purchase order. Lessee shall make any
claim on account thereof solely against the Supplier and Lessee will give Lessor
notice of any such claim made by Lessee against any Supplier and any cash
settlement of any such claim will be payable solely to Lessor.
6. LOSS OR DAMAGE:
(a) Lessee hereby assumes and is solely responsible for the entire risk of
use and operation of the Equipment and for each and every accident or hazard
resulting therefrom and all losses and damages associated therewith howsoever
arising.
(b) In the event of total loss, destruction, theft, confiscation or damage
beyond repair (determined without reference to the remaining term with respect
thereto) to the Equipment or any Item (a "Casualty Occurrence"), Lessee will pay
to Lessor on the next due date for rent following the Casualty Occurrence or on
the last day of the term thereof, whichever first occurs, any unpaid rent due
with respect to such Equipment plus an amount determined by application of the
liquidated damage provision in the third paragraph of Section 9 hereof. Upon
payment of such amounts, and provided no default exists hereunder, Lessee will
be entitled to recover possession of such Item and title thereto will vest in
Lessee free and clear of the right and interest of Lessor.
(c) In the event of damage to any Item of Equipment which does not amount
to a Casualty Occurrence, Lessee will give prompt notice of such damage to
Lessor and at Lessee's sole cost and expense promptly repair such Item to its
previous condition which assumes Lessee has met all of its obligations required
for maintenance hereunder. Provided Lessee is not in breach or default of this
Lease, any proceeds of insurance received by Lessor with respect to any such
loss will be paid over by Lessor to Lessee to the extent necessary to reimburse
Lessee for costs incurred and paid by Lessee in repairing such damaged
Equipment, but only upon evidence satisfactory to Lessor that such repairs have
been accomplished.
7. FIRST PRIORITY LIEN:
Lessee represents and warrants to Lessor for each Schedule that upon the
filing of the financing statements delivered to Lessor on or prior to the
respective Commencement Date in the jurisdiction(s) where the Equipment is
located as indicated in the related Schedule, then Lessor shall have a first
prior perfected security interest in the Equipment free and clear of all other
liens and encumbrances except the interest of Lessee hereunder.
8. INDEMNIFICATION:
LESSEE ACKNOWLEDGES THAT IT ALONE SELECTS THE EQUIPMENT AND THE SUPPLIER(S)
THEREOF. LESSEE UNDERSTANDS AND AGREES THAT LESSOR MAKES NO REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, WITH RESPECT TO THE EQUIPMENT
INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR ANY
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PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT AS IS. NO
DEFECT OR UNFITNESS OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO
PAY RENT OR OF ANY OTHER OBLIGATION UNDER THIS LEASE. Accordingly, Lessee agrees
to indemnify, save and keep harmless Lessor, its agents, employees, successors
and assigns from and against any and all losses, damages, expenses (including
legal expenses), penalties, injuries, claims, actions and suits of whatsoever
kind and nature, in contract or tort, howsoever arising from any cause
whatsoever including, but not limited to, Lessor's strict liability in tort, or
otherwise arising out of (i) the selection, manufacture, purchase, financing,
acceptance or rejection of Equipment, the ownership of Equipment during the term
of the Lease, and the delivery, lease, possession, maintenance, uses, condition,
return or operation of Equipment (including without limitation, latent and other
defects, whether or not discoverable by Lessor or Lessee and any claim for
patent, trademark or copyright infringement); or (ii) the condition of Equipment
sold or disposed of after use by Lessee, any sublessee or employee of Lessee.
Lessee will, upon request, at its expense, defend any and all actions based on,
or arising out of, any of the foregoing. This indemnification shall survive the
expiration or cancellation of the Lease.
9. DEFAULT; REMEDIES:
Each of the following will constitute a default hereunder; (a) Lessee fails
to pay rent within five (5) days from and after the date such payment of rent is
due and payable or Lessee fails to pay any other amount when due under any
Schedule; (b) Lessee fails to maintain the insurance required hereunder or
breaches any other term, provision, obligation or covenant hereof (including
without limitation any Schedule) or commits any other act of default specified
in this Lease; (c) any representation or warranty of Lessee contained herein or
in any other document or instrument delivered in connection herewith or made
from time to time hereafter is false or misleading when made; (d) Lessee or any
guarantor, surety, endorser or pledgor of property given to secure Lessee's
obligations hereunder ("Guarantor") becomes insolvent, ceases to do business as
a going concern, or transfers or sells all or substantially all of its assets
without the prior written consent of Lessor; (e) the Equipment or any Item is
abused, illegally used, or misused; (f) the death, dissolution, merger,
consolidation or reorganization of Lessee or any Guarantor; (g) Lessee or any
Guarantor makes any assignment for the benefit of creditors, or if a petition in
bankruptcy, reorganization, insolvency, receivership or the like is filed with
respect to Lessee or any Guarantor or property of Lessee or any Guarantor is
attached or a receiver, trustee or liquidator is appointed for Lessee or any
Guarantor or any of Lessee's or Guarantor's property or whenever Lessor may deem
itself insecure hereunder; (h) the transfer of more than a 25% ownership
interest in Lessee or any Guarantor by shareholders, partners, members or
proprietors thereof in any year without Lessor's prior written consent, (i)
Lessee or any Guarantor (x) incurs any accumulated funding deficiency within the
meaning of the Employee Retirement Income Security Act of 1974, as amended from
time to time and the regulations thereunder, equal to 5% of Lessee's
consolidated tangible net worth (as defined by generally accepted accounting
principles), or (y) incurs any liability of comparable size to the pension
Benefit Guaranty Corporation, (j) Lessee or any material subsidiary or any
Guarantor fails to comply with the provisions of the Fair Labor Standards Act of
1938, as amended, (k) Lessee or any Guarantor fails to pay or perform or observe
any term, covenant, agreement or condition contained in, or there shall occur
any payment or other default under or as defined in, any other agreement
applicable to Lessee or any Guarantor or by which Lessee or any Guarantor is
bound (as used herein, an "Other Agreement") involving a liability, indebtedness
or performance obligation of Lessee or any Guarantor with potential liability to
Lessee or any Guarantor in an amount equal to or in excess of $50,000, which
shall not be remedied within the period of time (if any) within which such Other
Agreement permits such default to be remedied, regardless of whether such
default (i) is waived by any other party to such Other Agreement or (ii)
produces or results in the cancellation of such Other Agreement or the
acceleration of such liability, indebtedness or other obligation; (l)
attachment, distraint, levy, execution or final judgment for the payment of
money aggregating in excess of $50,000 will be outstanding against Lessee or its
property for more than sixty (60) days from the date of entry and will not have
been discharged in full or stayed or fully bonded; (m) Lessee or any Guarantor
shall suffer the loss of any material license or franchise when Lessor shall
reasonably conclude that such loss fairly impairs Lessee's or such Guarantor's
ability to perform its obligations required hereunder or with respect hereto; or
(n) Lessee or any Guarantor shall violate any financial covenant contained in
any agreement for borrowed money applicable to Lessee or Guarantor as of the
Commencement Date of any Schedule and all such financial covenants shall survive
the satisfaction of debt applicable thereto and shall be deemed incorporated
herein by reference and remain fully applicable to Lessee's obligations
hereunder.
Upon any such default, Lessor, at its option, may do any one or more of the
following: (1) declare this Lease and any or all Schedules in default upon
notice to Lessee, whereupon the entire amount of rent and all other amounts
remaining to be paid over the balance of the term of all Equipment then leased
thereunder, computed from the date of Lessee's default, will become immediately
due and payable and be accelerated; (2) proceed by appropriate court action or
actions to enforce Lessee's performance of this Lease and/or to recover damages
for the breach thereof; (3) cancel this Lease and any or all Schedules upon
notice to Lessee; (4) whether or not this Lease or any Schedules be so
cancelled, and without notice to Lessee, repossess the Equipment wherever found,
with or without legal process, and for this purpose Lessor and/or its agents may
enter upon any premises of or under control or jurisdiction of Lessee or any
agent of Lessee without liability for suit, action or other proceeding by Lessee
(any damages occasioned by such repossession being hereby expressly waived by
Lessee except for damages occasioned by gross negligence or willful misconduct)
and remove the Equipment therefrom. Lessor's remedies as provided herein are not
exclusive but are cumulative and in addition to all other remedies in Lessor's
favor at law, in equity or in bankruptcy. The receipt and acceptance by Lessor
of any rent or other payment after a default will not be deemed to be a waiver
of such default by Lessor. Lessor shall not, by any act, delay, omission, or
otherwise, be deemed to have waived any default or any of its rights or remedies
hereunder unless such waiver be in writing, signed by the Lessor, and then only
to the extent therein set forth. In the event that any court determines that any
provision in this Lease is invalid or unenforceable in whole or in part, such
determination will not prohibit Lessor from establishing its damages as a result
of any breach of this Lease in any action in which Lessor seeks to recover such
damages. Any repossession or resale of any Equipment will not bar an action for
damages for breach of this Lease, and the bringing of an action or the entry of
judgment against Lessee will not bar Lessor's right to repossess any or all
Equipment. Upon cancellation of any Schedule upon default, Lessee will, at its
sole cost and expense, cease using the Equipment for up to ninety (90) days
while maintaining the insurance required above, and promptly return the
Equipment to Lessor when directed to do so F.O.B. the destination specified by
Lessor, in the same condition as received, reasonable wear and tear and normal
depreciation excepted. Lessee shall pay on demand holdover rent equal to a full
monthly rent for each month or any day thereof during which Lessee fails to
return the Equipment when so directed by Lessor and this obligation is without
limitation to any consequential damages for which Lessee may be responsible as a
result of such failure to return the Equipment.
With respect to any Equipment returned to Lessor, or repossessed by Lessor
pursuant to provision (4) above, Lessor may hold or use such Equipment for any
purpose whatsoever or either sell same at private or public sale, for cash or
credit, or re-lease same for such term and upon such rental as will be solely
determined by Lessor. In the event the Lessor is able to sell or re-lease all or
any Equipment returned to Lessor then the proceeds of any sale or re-leasing of
such Equipment, after first deducting therefrom all costs and expenses of
repossession, storage, repairs, reconditioning, sale, re-leasing, attorneys'
fees and collection fees with respect to such Equipment, shall be deducted from
the damages for which Lessee is obligated hereunder. In the event of the sale or
releasing by Lessor of any such Equipment after default hereunder or in the
event of a Casualty Occurrence under Section 6 hereof, then Lessee will be
liable for, and Lessor may forthwith recover from Lessee as liquidated damages
for breach or termination of this Lease, and not as a penalty, an amount equal
to the sum of (X) the entire amount of rent which would have accrued for the
balance of the term for such Equipment computed from the date of Lessee's
default or, in the case of a Casualty Occurrence, computed as of the rent
payment date immediately preceding the date of the Casualty Occurrence
discounted in each case as provided for hereinafter, plus (Y) any final payment
due under the Schedule discounted as provided for hereinafter, less (Z) the
proceeds, if any, of any sale or re-leasing of such Equipment, after first
deducting therefrom all costs and expenses of repossession, storage, repairs,
reconditioning, sale, re-leasing, attorneys' fees and collection fees with
respect to such Equipment provided, however, the amount for which Lessee shall
be obligated as liquidated damages
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shall in no event be an amount less than 10% of Lessor's Cost. If Lessee fails
to deliver any Equipment to Lessor or Lessor is unable, for any reason, to
effect repossession of any Equipment, then with respect to such Equipment,
Lessee will be liable for, and Lessor may forthwith recover from Lessee as
liquidated damages for breach or termination of this Lease, and not as a
penalty, an amount equal to the sum of the amounts specified in items (X) and
(Y) above for such Equipment. Whether or not any Equipment is returned to, or
repossessed by Lessor, as aforesaid, Lessee will also be liable for, and Lessor
may forthwith recover from Lessee, all unpaid rent and other unpaid sums that
accrued prior to the date of Lessee's default. In addition to the foregoing,
Lessor may also recover from Lessee all costs and expenses, including without
limitation fees of collection agencies and reasonable attorneys' fees, including
the allocated costs and fees of Lessor's in-house legal counsel, incurred by
Lessor in exercising any of its rights or remedies hereunder. Since pursuant to
the foregoing Lessor may receive or recover payment of the amounts specified in
clause (1) of the preceding paragraph or the amounts specified in items (X) and
(Y) above earlier than Lessor would otherwise be entitled to receive or recover
same but for Lessee's default, such amounts will be discounted to their then
present value at the rate of six percent (6%) per annum, and there will be added
to such amounts, after such discount, interest at the rate specified in Section
12 hereof from the date of Lessee's default up to the date of the payment of
such amounts to Lessor. Lessee irrevocably consents to the in personam
jurisdiction of the federal and/or state courts located in the State of New York
over controversies arising from or relating to this Lease or any obligation with
respect thereto and waives the right to impose any counterclaim or offset of any
nature in any such litigation. Lessee irrevocably appoints each and every owner,
partner, member and/or officer of Lessee as its attorney upon whom may be served
by certified mail any process, notice or pleading in any action or proceeding
against it under this Lease or related thereto.
10. ASSIGNMENTS:
LESSOR MAY WITHOUT LESSEE'S CONSENT ASSIGN OR OTHERWISE TRANSFER OR GRANT A
SECURITY INTEREST IN ITS RIGHT AND INTEREST IN ANY ITEM OR SCHEDULE AND THE RENT
DUE OR TO BECOME DUE THEREUNDER AND WHEN SO ASSIGNED, TRANSFERRED OR ENCUMBERED,
EACH SCHEDULE WILL BE FREE OF ANY COUNTERCLAIM, SET-OFF, DEFENSE, OR CROSSCLAIM
BY LESSEE AS AGAINST LESSOR OR SUCH ASSIGNEE WHENEVER ARISING, BEFORE OR AFTER
SUCH SALE, ASSIGNMENT, TRANSFER OR SECURITY GRANT BUT NO SUCH ACTION WILL
INCREASE LESSEE'S OBLIGATIONS HEREUNDER, EXCEPT THAT UPON NOTICE TO LESSEE
THEREOF, LESSEE AGREES TO DIRECT ALL PAYMENTS HEREUNDER, IF REQUESTED, TO
LESSOR'S ASSIGNEE. Lessor may provide lease information on a confidential basis
to any prospective purchaser, assignee or participant.
11. PAYMENT OF TAXES:
Lessee agrees to pay promptly when due, and to Indemnify and hold Lessor
harmless from, all license, title and registration fees whatsoever, all levies,
imposts, duties, charges or withholdings whatsoever, and all sales, use,
personal property, franchise (however calculated), and other taxes whatsoever
(together with any penalties, fines or interest thereon) whether assessed,
levied or imposed by any governmental or taxing authority against or upon Lessor
or otherwise, with respect to any Equipment or the purchase, acquisition,
ownership, delivery, leasing, possession, use, operation, control, return or
other disposition thereof, or the rents, receipts or earnings arising therefrom,
or with respect to this Lease, excluding, however, (i) any such taxes or charges
to the extent they are included in Lessor's Cost, (ii) any federal taxes levied
on Lessor's net income, or (iii) state or local taxes levied on Lessor's net
income, as net income is determined under, and at rates which do not exceed
those originally imposed by the jurisdiction in which the Equipment is located
as specified in the related Schedule. In the event any such fees, levies,
imposts, duties, charges or taxes are paid by Lessor, or if Lessor be required
to collect or pay any thereof. Lessee will reimburse Lessor therefor (plus any
penalties, fines or interest thereon) promptly upon demand. Until Lessor
notifies Lessee to the contrary, Lessee will promptly before any penalty
attaches, prepare and file in Lessor's name or on Lessor's behalf all personal
property tax returns covering the Equipment and Lessee will pay the personal
property taxes levied or assessed thereon directly to the levying authority. If
Lessor timely notifies Lessee that Lessor will prepare and/or file any such
return, Lessee will, promptly upon being invoiced by Lessor, reimburse Lessor
for the full amount of such personal property taxes so paid by Lessor. If any
capital adequacy requirements are imposed upon Lessor or its parent which
require the maintenance of additional capital or impose additional expenses as a
result of this Lease, and the effect of such requirements is to reduce Lessor's
expected rate of return hereunder, Lessee shall pay to Lessor such amount or
amounts as may be necessary to compensate Lessor for such reduction. The
indemnification obligations of Lessee under this Section will continue in full
force and effect notwithstanding the expiration or other cancellation hereof.
Lessee will either provide Lessor a copy of all property and other tax returns
filed hereunder by Lessee in Lessor's name or on Lessor's behalf or provide to
Lessor an affidavit of a responsible corporate officer certifying that the
property taxes so identified therein have been reported and are current. The
amount which Lessee shall be required to pay Lessor with respect to any
obligation which is subject to indemnification under this Section 11 shall be an
amount sufficient to restore Lessor to the same position, after considering the
effect of the receipt of such indemnification on its United States federal
income taxes and state and city income taxes or franchise taxes based on net
income, that it would have been in had such indemnification not been required
hereunder.
12. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS:
In case of failure of Lessee to comply with any provision of this Lease or
any Schedule, Lessor will have the right, but will not be obligated, to effect
such compliance in whole or in part, and all money spent by and expenses of
Lessor will be paid by Lessee forthwith and will bear interest at the daily
equivalent of eighteen percent (18%) per annum from the date said obligation was
due. Lessor's action in effecting such compliance will not be a waiver of
Lessee's default. All such money spent by and expenses of Lessor and any other
obligation assumed or incurred by Lessor in effecting such compliance will
constitute additional rent payable to Lessor with the next rent payment.
13. NOTICES:
All notices required or permitted to be given hereunder will be in writing
and will be deemed given and received three (3) days after first deposit in the
United States mail if sent by registered or certified mail to the address of
Lessor or Lessee stated herein or in any Schedule or to such other place as
either party may in writing direct pursuant to this Section. Notice by hand
delivery shall be deemed given and received upon delivery. Notice by overnight
courier shall be deemed given and received on the date scheduled for delivery.
14. FINANCIAL INFORMATION AND REPORTING:
(a) Lessee shall annually, within ninety (90) days after the close of
Lessee's fiscal year, furnish to Lessor an audit report of financial statements
of Lessee (including a balance sheet as of the close of such year and statements
of income, changes in financial condition and shareholder's equity for such
year) prepared in accordance with generally accepted accounting principles and
certified by Lessee's independent public accountants. Lessee shall also provide
quarterly financial statements of Lessee similarly prepared for each of the
first three quarters of each fiscal year, which shall be certified (subject to
normal year-end adjustments) by Lessee's chief financial officer and furnished
to Lessor within forty-five (45) days following the end of the quarter.
(b) Lessee will furnish Lessor with any and all information regarding
Lessee's business, condition or operations, financial or otherwise, which Lessee
furnishes to any other creditor. This information shall be furnished to Lessor
at the same time it is furnished to such other creditor.
(c) or Lessee will immediately furnish Lessor with such further
information regarding Lessee's business, condition, property, assets or
operations, financial otherwise, as Lessor may from time to time reasonably
request, all prepared in form and detail reasonably satisfactory to Lessor.
(d) Lessee will at all times maintain true and complete records and books
of account including, without limiting the generality of the foregoing,
appropriate reserves for possible losses and liabilities, all in accordance with
generally accepted accounting principles consistently applied.
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(e) Lessee shall permit, and cause any subsidiary to permit,
representatives of Lessor to visit and inspect any of the properties of Lessee
or any Subsidiary, to examine its or their corporate or partnership books and
records, to make extracts or copies of such books and records, and to discuss
its or their affairs, finances and accounts with its or their officers or
partners, as applicable. The foregoing may be done at any time within regular
business hours.
(f) Lessee will promptly notify Lessor in writing of the commencement of
any litigation to which Lessee or any of its subsidiaries or affiliates may be a
party (except for litigation in which Lessee's (or the affiliate's) contingent
liability is fully covered by insurance) which, if decided adversely to Lessee
would adversely affect or impair the title of Lessor to the Equipment or which,
if decided adversely to Lessee would materially adversely affect the business
operations or financial condition of Lessee. In addition, Lessee will
immediately notify Lessor, in writing, of any judgment against Lessee if such
judgment would have the effect described in the preceding sentence.
15. ADDITIONAL DOCUMENTS:
Lessee agrees to execute or obtain and deliver to Lessor at Lessor's
request such additional documents as Lessor may reasonably deem necessary to
protect Lessor's interest in the Equipment and this Lease including, without
limitation, financing statements, and Lessee hereby authorizes Lessor to execute
in Lessee's name as Lessee's attorney-in-fact any financing statements and
amendments thereto necessary or appropriate to protect Lessor's interest
hereunder. Lessee will pay, or reimburse Lessor on demand, for any filing fees
or expenses incurred by Lessor in connection with any such additional documents.
Lessee will obtain, at Lessee's sole expense, from each owner, landlord,
mortgagee or other person having an encumbrance, lien or other interest on or in
the premises in which the Equipment is or will be located, all necessary
consents to the installation and use of the Equipment therein and the removal
thereof in accordance with the terms of this Lease, together with waivers of
claim with respect to the Equipment, and record the same when and where
necessary. Lessee hereby designates Lessor its attorney-in-fact and authorizes
and empowers Lessor to execute, endorse and complete in Lessee's name and on
Lessee's behalf all instruments representing the proceeds of any security or
insurance for the Lease or Equipment thereunder, all financing statements and
other documents including Schedules and Riders and to insert thereon all dates,
amounts and serial numbers as necessary or appropriate to provide to Lessor the
benefits anticipated by any Schedule.
16. MISCELLANEOUS:
The validity, construction and performance of this Lease and each Schedule
will in all respects be governed by the laws of the State of New York without
reference to conflict of law provisions. The Lease will not be binding on Lessor
until executed by an authorized officer of Lessor. LESSOR AND LESSEE WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR RELATED HERETO.
Any provision herein contained which may be illegal, unenforceable, or
inconsistent with applicable law or any governmental rule or regulation will be
deemed modified or altered to conform thereto, or otherwise omitted but shall in
no way impair the legality or enforceability of the remaining Lease provisions.
Lessee shall promptly pay (or reimburse, as Lessor may elect) all costs and
expenses including reasonable attorneys' fees, including the allocated costs and
fees of Lessor's in-house legal counsel, which Lessor has or may hereafter incur
in connection with the negotiation and preparation of this Lease and any
amendment, modification, consent or waiver hereunder. If more than one party
executes this Lease as Lessee, each such party shall be jointly and severally
bound by the terms and provisions of this Lease. Any person who signs as an
officer or agent for a corporation, partnership or other entity warrants that he
has authority from such corporation, partnership or other entity to enter into
this Lease on its behalf. Each Item of Equipment delivered pursuant to this
Lease to a subsidiary of Lessee or to any entity or person designated by Lessee,
whether at the request of Lessee or such subsidiary, entity or person shall be
Equipment for all purposes of this Lease, and Lessee shall be and remain
primarily liable for the obligations under this Lease with respect to such
Equipment. Lessor shall not be obligated to purchase and deliver any Item of
Equipment unless Lessor has executed a Schedule covering the Equipment.
17. ENTIRE AGREEMENT:
The Lease and any instrument referred to herein together with any
Schedule(s), Attachment(s) or Rider(s) signed by the parties or delivered in
connection herewith constitute the entire agreement of the parties with respect
to the subject matter hereof and will collectively constitute the Lease with
respect to an Item of Equipment and supersede all negotiations and prior written
or oral agreement of the parties with respect thereto. No agent or employee of
the Supplier is authorized to bind Lessor to the Lease, to waive or alter any
term or condition herein or add any provision hereto. No modification of the
Lease or waiver of any of its provisions or conditions will be valid unless in
writing and signed by Lessor and Lessee.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
date set forth above.
Chase Equipment Leasing, Inc. (Lessor) G+G Retail, Inc. (Lessee)
By: /s/ Janice Schawille By: /s/ Scott Galin
---------------------------- ----------------------------
Contract Administrator President and Chief
Operating Officer
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Master Lease Schedule
---------------------
None.
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EXHIBIT 10.26
Chase Equipment Leasing, Inc. Addendum
To Master Lease Purchase Agreement dated 5/4/99
(as indicated above, hereinafter the "Lease")
Chase Equipment Leasing, Inc.
One Chase Square
Rochester, NY 14643
This Addendum is incorporated by reference into the above referenced Lease as if
set forth at length and Lessee and Lessor confirm all the terms and provisions
thereof except as specifically set forth herein to the contrary. The Lease shall
be amended as follows:
1. Section 2. TERM AND RENT: Delete part (ii) in its entirety.
2. Section 4. LESSEE REPRESENTATIONS AND COVENANTS:
Part (c) LIENS AND ENCUMBRANCES, is rewritten in its entirety as follows:
THE EQUIPMENT IS FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES
WHATSOEVER ON THE PART OF LESSEE (I.E. OTHER THAN AS A RESULT OF LESSOR'S
ACTIONS OR IN FAVOR OF LESSOR); LESSEE WILL DEFEND THE EQUIPMENT AGAINST ALL
LIENS (OTHER THAT LIENS IMPOSED BY REASON OF LESSOR'S ACTIONS) AND WILL NOT
SELL, ASSIGN, SUBLET, MORTGAGE, OR ALTER ANY OF THE EQUIPMENT LEASED
HEREUNDER OR ANY INTEREST IN THIS LEASE, AND ANY ATTEMPT TO SO SELL, ASSIGN,
SUBLET, MORTGAGE, HYPOTHECATE OR ALTER WILL CONSTITUTE A DEFAULT HEREUNDER
AND SUCH SALE, ASSIGNMENT, SUBLEASE, MORTGAGE OR HYPOTHECATION WILL BE VOID
AND WITHOUT EFFECT. FURTHERMORE, LESSEE MAY, FROM TIME TO TIME, REMOVE ANY
OF THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR PROVIDED, HOWEVER, IN NO EVENT SHALL MORE
THAT FIFTEEN PERCENT (15%) OF THE AGGREGATE VALUE OF THE EQUIPMENT BE
LOCATED IN PUERTO RICO AT ANY ONE TIME. In order to secure all obligations
of Lessee hereunder, Lessee assigns and grants to Lessor a security
interest in all rights, powers and privileges under any sublease of the
Equipment hereafter authorized in writing by Lessor.
Part (d) USE AND OPERATION. The last sentence, beginning with "Further,
Lessee will not," and ending with "in real property," is deleted in its
entirety.
3. Section 6. LOSS OR DAMAGE:
Part (c) At the beginning of the first sentence, after "In the event of",
insert the word "material". In the same sentence, replace "Item of
Equipment" with material Item or Items of Equipment.
4. Section 8. INDEMNIFICATION: At the end of the fourth sentence, insert the
word "reasonable" before "losses". In the same sentence, in the parenthesis,
insert the word "reasonable" before "legal expenses".
5. Section 9. DEFAULT; REMEDIES:
In the first paragraph, part (a), change five (5) days to fifteen (15)
days.
<PAGE>
In part (c), after the word "misleading", insert "in any material respect".
In part (e), delete "or any item" and substitute "or any material portion of
the Equipment".
Part (f) is rewritten in its entirety as follows: Lessee or any Guarantor shall
liquidate, dissolve, reorganize, merge into or with, or consolidate with any
other person, or purchase or otherwise acquire all or substantially all of the
assets of any other person or of any division thereof (each such liquidation,
dissolution, merger, consolidation, or acquisition being herein called a "
"Transaction") unless:(a) the surviving or acquiring person (the "Surviving
Corporation") is the Lessee and, if the Surviving Corporation is not the Lessee,
then the Surviving Corporation (x) is a corporation organized and existing under
the laws of the United States of America or any state thereof, substantially all
of the assets of which are located in the United States of America and (y)
expressly assumes, by an instrument in writing satisfactory to the Lessor, in
its reasonable determination, the obligations of the Lessee under this
Agreement; (b) none of the assets of the Lessee (other than assets, which may
not include any of the Equipment, representing the consideration delivered for
any person acquired by the Surviving Corporation in such Transaction) are
transferred to a person other than the Surviving Corporation; (c) no default has
occurred hereunder and is continuing or would result therefrom; and (d) in
Lessor's reasonable but exclusive discretion, there has been no material adverse
change in financial condition of the Surviving Corporation as compared to the
financial condition of the Lessee prior to the Transaction;
In part (g), at the end of the sentence, after the word "property", insert "(and
in the case where such filing is involuntary, the resulting proceeding shall not
have been dismissed within sixty (60) days)" and delete in its entirety the
phrase "or whenever Lessor may deem itself insecure hereunder".
Part (h) is rewritten in its entirety as follows: the transfer of more than
25% ownership interest in Lessee or any Guarantor by Shareholders, partners,
members or proprietors thereof in any year without Lessor's written consent;
provided, however, this subsection shall not apply to (x) such a transfer to any
existing shareholder, partner, member or proprietor or affiliate thereof or to
an immediate family member of such person or (y) a completed distribution in a
"public offering" (as that term is defined in the federal and applicable state
securities laws) of the securities issued by Lessee or any Guarantor and any
public trading of such securities subsequent to such public offering;
At the end of part (i), after "as amended" add "and such failure results in a
material adverse affect on the condition of Lessee or any material subsidiary or
any Guarantor, financial or otherwise"
In Part (k), in the second line, after "any other agreement", insert "with
respect to indebtedness for borrowed money". Also, in this part, change $50,000
to $500,000.
In part (j), change $50,000 to $500,000.
Part (n) is rewritten in its entirety as follows: Lessee or any Guarantor
shall violate any financial covenant contained in any agreement for borrowed
money in excess of $500,000, applicable to Lessee or Guarantor as of the
Commencement Date of any Schedule [and such default is not waived by any other
party to such agreement:] and all such financial covenants contained in any
agreement with The Chase Manhattan Bank shall survive the satisfaction of debt
applicable thereto and shall be deemed incorporated herein by reference and
remain fully applicable to Lessee's obligations hereunder.
In the second paragraph, part (4), after the word "cancelled", replace "and
without notice to Lessee" with "provided such claimed default is not remedied
within the specified cure period set forth herein, and with
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prior notice to Lessee".
Insert a new paragraph at the end of the second paragraph to read as
follows: "Notwithstanding anything to the contrary in the preceding
paragraph, in no event shall Lessee be deemed in default under (b), (i),
(j), (m), or (n) unless and until it shall have received fifteen days'
notice to cure any claimed default as specified, delivered in writing by
(i) overnight courier or (ii) confirmed receipt of fax to Lessee. The
fifteen day period shall commence from the date of the delivery of the
notice of default.
In the third paragraph, the second to the last sentence, after the word
"counterclaim", insert "(other than any compulsory counterclaim)". The last
sentence beginning with "Lessee irrevocably appoints" and ending with
"under this Lease or related thereto" is deleted in its entirety.
6. Section 14. FINANCIAL INFORMATION AND REPORTING:
Part (b) is rewritten in its entirety as follows: Lessee will furnish
Lessor with any and all information regarding Lessee's business, condition
or operations, financial or otherwise as Lessor may reasonably request from
time to time. Lessee will also furnish to Lessor any public filings Lessor
may submit in the process of becoming, or as, a public company.
Part (e), in the last sentence, after "at any time", insert "upon
reasonable notice".
7. Section 16. MISCELLANEOUS: In the sixth (6th) line, insert "reasonable"
between "all" and "costs". At the end of this section, insert a new
paragraph as follows: "Notwithstanding anything to the contrary herein, in
any litigation involving a dispute hereunder, the successful party shall be
entitled to reimbursement of its reasonable costs and attorneys fees
incurred in connection with such litigation".
Except as expressly modified hereby, all terms and provisions of the Lease shall
remain in full force and effect. The parties hereto have caused their duly
authorized officers to execute this Rider on the dates set forth below and,
unless otherwise specifically provided herein, this Rider shall operate to amend
the Lease only as it is incorporated by reference into Schedules
executed on or after the dates set forth below and not otherwise.
Chase Equipment Leasing, Inc. G+G Retail, Inc.
(Lessor) (Lessee)
By: /s/ Janice Schawille By: /s/ Scott Galin
---------------------- ------------------
Title: Contract Admin. Title: President and Chief
------------------- Operating Officer
--------------------
Dated: 5/6/99 Dated: 5/4/99
--------------------------- --------------------------
3
<PAGE>
EXHIBIT 12.01
G+G Retail, Inc.
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
February 1, August 29, Pro
Fiscal Year 1998 1998 Forma
------------------------------- To August 28, To January 30, Fiscal
1995 1996 1997 1998 1998 1999 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest expense - - - - - 7,520 13,919
Rent expense included in fixed charges 6,942 6,849 6,771 7,052 4,279 3,359 7,639
------------------------------------------------------------------------
Total Fixed Charges 6,942 6,849 6,771 7,052 4,279 10,879 21,558
------------------------------------------------------------------------
Earnings
Income before provision for (benefit from) income taxes (2,691) 1,045 18,516 24,982 4,592 3,594 3,011
Plus: fixed charges 6,942 6,849 6,771 7,052 4,279 10,879 21,558
------------------------------------------------------------------------
Total Earnings 4,251 7,894 25,287 32,034 8,871 14,473 24,569
------------------------------------------------------------------------
Ratio of earnings to fixed charges (A) 1.2x 3.7x 4.5x 2.1x 1.3x 1.1x
<CAPTION>
First Quarter
-------------------------------
Pro Forma
Fiscal Fiscal Fiscal
1999 2000 2000
-------------------------------
<S> <C> <C> <C>
Fixed Charges
Interest expense - 3,277 3,309
Rent expense included in fixed charges 1,879 2,035 2,035
-------------------------------
Total Fixed Charges 1,879 5,312 5,344
-------------------------------
Earnings
Income before provision for (benefit from) income taxes 3,241 (710) (742)
Plus: fixed charges 1,879 5,312 5,344
-------------------------------
Total Earnings 5,120 4,602 4,602
-------------------------------
Ratio of earnings to fixed charges 2.7x (A) (A)
</TABLE>
(A) Earnings were insufficient to cover fixed charges by approximately
$2.7 million, $710,000 and $742,000 respectively in fiscal 1995, the first
quarter of fiscal 2000 and pro forma first quarter of fiscal 2000.
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF G+G RETAIL, INC.
Subsidiaries Jurisdiction of Incorporation D/B/A Names
------------ ----------------------------- -----------
G & G Retail of Puerto Rico, Inc. Puerto Rico None
<PAGE>
EXHIBIT 23.01
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 14, 1999, in the Registration Statement on
Form S-4 and related Prospectus of G+G Retail, Inc. for the registration of $107
million of 11% Senior Notes due 2006.
/s/ Ernst & Young LLP
MetroPark, New Jersey
June 16, 1999
<PAGE>
EXHIBIT 25.01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------
FORM T - 1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
13-3781471
(I. R. S. Employer
Identification No.)
100 Wall Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
----------------------
For Information, contact:
Dennis Calabrese, President
U.S. Bank Trust National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telephone: (212) 361-2506
G + G Retail, Inc.
(Exact name of obligor as specified in its charter)
Delaware 22-3596083
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
520 Eighth Avenue 10018
New York, New York
(Address of principal executive offices) (Zip Code)
-------------------
DEBT SECURITIES
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee --
(a) Name and address of each examining or supervising authority to which
it is subject.
Name Address
---- -------
Comptroller of the Currency Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits.
Exhibit 1. Articles of Association of U.S. Bank Trust National
Association, incorporated herein by reference to
Exhibit 1 of Form T-1, Registration No. 333- 51961.
Exhibit 2. Certificate of Authority to Commence Business for First
Trust of New York, National Association now known as
U.S. Bank Trust National Association, incorporated herein
by reference to Exhibit 2 of Form T-1, Registration
No. 33-83774.
Exhibit 3. Authorization to exercise corporate trust powers for U.S.
Bank Trust National Association, incorporated herein by
reference to Exhibit 3 of Form T-1, Registration
No. 333-51961.
Exhibit 4. By-Laws of U.S. Bank Trust National Association,
incorporated herein by reference to Exhibit 4 of Form T-
1, Registration No. 333-51961.
Exhibit 5. Not applicable.
Exhibit 6. Consent of First Trust of New York, National Association
now known as U.S. Bank Trust National Association,
required by Section 321(b) of the Act, incorporated
herein by reference to Exhibit 6 of Form T-1,
Registration No. 33-83774.
2
<PAGE>
Exhibit 7. Report of Condition of U.S. Bank Trust National Association,
as of the close of business on March 31, 1999, published
pursuant to law or the requirements of its supervising or
examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, U.S. Bank Trust National Association, a national banking
association organized and existing under the laws of the United States, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 22nd day of June, 1999.
U.S. BANK TRUST
NATIONAL ASSOCIATION
By: /s/ Glenn W. Andersen
-----------------------------
Glenn W. Andersen
Vice President
3
<PAGE>
Exhibit 7
---------
U.S. Bank Trust National Association
Statement of Financial Condition
As of 3/31/99
($000'S)
<TABLE>
<CAPTION>
3/31/99
-----------
<S> <C>
Assets
Cash and Due From Depository Institutions $ 44,844
Federal Reserve Stock 3,378
Fixed Assets 481
Intangible Assets 66,457
Other Assets 6,336
-----------
Total Assets $121,496
Liabilities
Other Liabilities $ 9,247
-----------
Total Liabilities $ 9,247
Equity
Common and Preferred Stock $ 1,000
Surplus 120,932
Undivided Profits (9,683)
-----------
Total Equity Capital $112,249
Total Liabilities and Equity Capital $121,496
</TABLE>
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
U.S. Bank Trust National Association
By:/s/ Glenn W. Andersen
---------------------
Vice President
Date: June 22, 1999
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> AUG-29-1998
<PERIOD-END> JAN-30-1999
<CASH> 13,129
<SECURITIES> 0
<RECEIVABLES> 718
<ALLOWANCES> 0
<INVENTORY> 12,578
<CURRENT-ASSETS> 27,864
<PP&E> 22,560
<DEPRECIATION> 0
<TOTAL-ASSETS> 167,664
<CURRENT-LIABILITIES> 25,823
<BONDS> 90,000
0
0
<COMMON> 0
<OTHER-SE> 51,841
<TOTAL-LIABILITY-AND-EQUITY> 167,664
<SALES> 131,567
<TOTAL-REVENUES> 131,567
<CGS> 79,267
<TOTAL-COSTS> 36,170
<OTHER-EXPENSES> 5,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,520
<INCOME-PRETAX> 3,594
<INCOME-TAX> 1,581
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,013
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 5,332
<SECURITIES> 0
<RECEIVABLES> 452
<ALLOWANCES> 0
<INVENTORY> 21,897
<CURRENT-ASSETS> 31,579
<PP&E> 23,590
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,650
<CURRENT-LIABILITIES> 30,206
<BONDS> 90,000
0
0
<COMMON> 0
<OTHER-SE> 51,444
<TOTAL-LIABILITY-AND-EQUITY> 171,650
<SALES> 72,733
<TOTAL-REVENUES> 72,733
<CGS> 46,374
<TOTAL-COSTS> 20,728
<OTHER-EXPENSES> 3,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,277
<INCOME-PRETAX> (710)
<INCOME-TAX> (313)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.01
LETTER OF TRANSMITTAL
G+G RETAIL, INC.
Offer to Exchange All Outstanding 11% Senior Notes due 2006 for 11% Senior
Notes due 2006 which have been Registered under the Securities Act of 1933
Pursuant to the Prospectus, dated , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M. , NEW YORK CITY TIME, ON , 1999
(THE "EXPIRATION DATE") UNLESS EXTENDED.
This Letter of Transmittal and any other required documentation may be
delivered to the addresses as set forth below, except where facsimile
transmission is specifically authorized (e.g., Notices of Guaranteed Delivery).
The Exchange Agent is:
U.S. Bank Trust National Association
By Hand Delivery:
By Registered or Certified Mail:
U.S. Bank Trust National Association
U.S. Bank Trust National Association Fourth Floor--Bond Drop Window
P.O. Box 64485 180 East 5th Street
St. Paul, Minnesota 55164-9549 St. Paul, Minnesota 55101
Attn: Specialized Finance Attn: Specialized Finance
By Overnight Courier: By Facsimile:
U.S. Bank Trust National Association U.S. Bank Trust National Association
Fourth Floor--Bond Drop Window (651) 244-1537
180 East 5th Street
St. Paul, Minnesota 55101 Confirm by Telephone:
Attn: Specialized Finance (651) 244-4512
Delivery of this Letter of Transmittal to an address other than as set forth
above or transmission via facsimile to a number other than as set forth above
will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated , 1999 (the
"Prospectus") of G+G Retail, Inc. (the "Company") and this Letter of
Transmittal, which together describe the Company's offer (the "Exchange Offer")
to exchange its 11% Senior Notes due 2006, which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") (the "Exchange
Notes") for each of its outstanding 11% Senior Notes due 2006 (the "Outstanding
Notes" and, together with the Exchange Notes, the "Notes") from the holders
thereof.
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Outstanding Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are freely transferable by holders
thereof (except as provided herein or in the Prospectus).
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Prospectus.
The Registration Statement on Form S-4 (File No. 333- ) which includes the
Prospectus was declared effective by the Securities and Exchange Commission on
, 1999.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
1
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE COMPLETING ANY BOXES BELOW.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers
and aggregate principal amounts should be listed on a separate signed schedule
affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES TENDERED
<TABLE>
<CAPTION>
Certificate Aggregate Principal
Number(s) Principal Amount of
of Outstanding Amount of Outstanding
Name(s) and Address(es) of Registered Notes Outstanding Notes
Holder(s) (Please fill in) Tendered* Notes* Tendered**
- -------------------------------------------------------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
<S> <C> <C> <C>
Total
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the holder will be deemed to
have tendered the full aggregate principal amount of such holder's
Outstanding Notes. See Instruction 2.
Holders of Outstanding Notes whose Outstanding Notes are not immediately
available or who cannot deliver all other required documents to the Exchange
Agent on or prior to the Expiration Date or who cannot complete the procedures
for book-entry transfer on a timely basis, must tender their Outstanding Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
2
<PAGE>
Unless the context otherwise requires, the term "holder" for purposes of this
Letter of Transmittal means any person in whose name Outstanding Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder or any person whose Outstanding Notes are held of
record by The Depository Trust Company ("DTC").
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Name of Eligible Institution that Guaranteed Delivery ______________________
Date of Execution of Notice of Guaranteed Delivery _________________________
If Delivered by Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
[_]CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON OTHER THAN THE
PERSON SIGNING THIS LETTER OF TRANSMITTAL:
Name _______________________________________________________________________
Address ____________________________________________________________________
[_]CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name _______________________________________________________________________
Address ____________________________________________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND
WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name _______________________________________________________________________
Address ____________________________________________________________________
You are entitled to as many copies of the Prospectus, and any amendments or
supplements thereto, as you may reasonably request. If you need more than 10
copies, please so indicate by a notation on this page.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of all or any portion of the Outstanding Notes tendered
herewith in accordance with the terms and conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Outstanding Notes. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent as its true and
lawful agent and attorney-in-fact of the undersigned (such power of attorney
being deemed to be an irrevocable power coupled with an interest) (with full
knowledge that the Exchange Agent also acts as the agent of the Company, in
connection with the Exchange Offer) to cause the Outstanding Notes to be
assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and authority
to tender, exchange, assign and transfer the Outstanding Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Outstanding Notes,
and that, when the same are accepted for exchange, the Company will acquire
good and unencumbered title to the tendered Outstanding Notes, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or
the Company to be necessary or desirable to complete the exchange, assignment
and transfer of the tendered Outstanding Notes or transfer ownership of such
Outstanding Notes on the account books maintained by the book-entry transfer
facility. The undersigned further agrees that acceptance of any and all validly
tendered Outstanding Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the A/B Exchange Registration Rights Agreement, dated May 17,
1999, among the Company, U.S. Bancorp Investments, Inc. and CIBC World Markets
Corp. (the "Registration Rights Agreement"), and that the Company shall have no
further obligations or liabilities thereunder except as provided in Section
4(a) of such agreement. The undersigned will comply with its obligations under
the Registration Rights Agreement. The undersigned has read and agrees to all
terms of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these
conditions (which may be waived, in whole or in part, by the Company), as more
particularly set forth in the Prospectus, the Company will not be required to
exchange any of the Outstanding Notes tendered hereby and the Company may
terminate the Exchange Offer before accepting any Outstanding Notes for
exchange. In such event, the Outstanding Notes not exchanged will be returned
to the undersigned at the address shown above, promptly following the
expiration or termination of the Exchange Offer. In addition, the Company may
extend the period of time during which the Exchange Offer is open and may amend
the Exchange Offer at any time prior to the Expiration Date if any of the
conditions set forth under "The Exchange Offer--Certain Conditions to the
Exchange Offer" occur.
4
<PAGE>
The undersigned understands that tenders of Outstanding Notes pursuant to any
one of the procedures described in the Prospectus and in the instructions
attached hereto will, upon the Company's acceptance for exchange of such
tendered Outstanding Notes, constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned recognizes that, under circumstances set forth
in the Prospectus, the Company may not be required to accept for exchange any
of the Outstanding Notes.
By tendering shares of Outstanding Notes and executing this Letter of
Transmittal, the undersigned represents that (i) Exchange Notes acquired in the
Exchange Offer will be obtained in the ordinary course of business of the
undersigned, (ii) the undersigned has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such Exchange Notes, (iii) the undersigned is not an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act and (iv) if the
undersigned or the person receiving such Exchange Notes, whether or not such
person is the undersigned, is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned or the person receiving such Exchange Notes,
whether or not such person is the undersigned, is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Outstanding Notes
that were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
A broker-dealer may not participate in the Exchange Offer with respect to
Outstanding Notes acquired other than as a result of market-making activities
or other trading activities.
Any holder of Outstanding Notes using the Exchange Offer to participate in a
distribution of the Exchange Notes and any holder of Outstanding Notes who is
an "affiliate" of the Company (i) cannot rely on the position of the staff of
the Securities and Exchange Commission enunciated in its interpretive letters
with respect to Morgan Stanley and Co., Inc., Exxon Capital Holdings
Corporation or similar interpretive letters and (ii) must comply with the
registration and prospectus requirements of the Securities Act in connection
with a secondary resale transaction and such secondary resale transaction must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Outstanding Notes may be withdrawn at
any time prior to the Expiration Date in accordance with the terms of this
Letter of Transmittal. Except as stated in the Prospectus, this tender is
irrevocable.
Certificates for all Exchange Notes delivered in exchange for tendered
Outstanding Notes and any Outstanding Notes delivered herewith but not
exchanged, and registered in the name of the undersigned, shall be delivered to
the undersigned at the address shown below the signature of the undersigned.
5
<PAGE>
The undersigned, by completing the box entitled "Description of Outstanding
Notes Tendered" above and signing this letter, will be deemed to have tendered
the Outstanding Notes as set forth in such box.
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9 or obtain and complete a Form W-8,
as applicable)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Outstanding Notes hereby tendered or in whose name(s)
Outstanding Notes are registered on the books of DTC or one of its
participants, or by any person(s) authorized to become the registered holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person. See Instruction 3.
Signature(s) of Holder(s) ______________________________________________________
Date ___________________________________________________________________________
Name(s) ________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
____________________________________________________________________________
(Including Zip Code)
Daytime Area Code and Telephone No. ____________________________________________
Taxpayer Identification No. ____________________________________________________
GUARANTEE OF SIGNATURE(S)
(If Required -- See Instruction 3)
Authorized Signature ___________________________________________________________
Dated __________________________________________________________________________
Name ___________________________________________________________________________
Title __________________________________________________________________________
Name of Firm ___________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ____________________________________________________
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if Exchange To be completed ONLY if Exchange
Notes or Outstanding Notes not Notes or Outstanding Notes not
tendered are to be issued in the tendered are to be sent to someone
name of someone other than the other than the person(s) signing
person(s) signing this Letter of this Letter of Transmittal whose
Transmittal whose name(s) name(s) appear(s) above, or such
appear(s) above. person(s) signing this Letter of
Transmittal at an address other
than that shown above.
Issue
[_] Outstanding Notes not tendered to: Mail
[_] Exchange Notes to: [_] Outstanding Notes not tendered
to:
Name(s) ___________________________
[_] Exchange Notes to:
(Please Print)
Name(s) ___________________________
Address ___________________________
___________________________________ (Please Print)
(Including Zip Code) Address ___________________________
Daytime Area Code and Telephone ___________________________________
No. _______________________________ (Including Zip Code)
Taxpayer Identification No. _______ Area Code and Telephone No. _______
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures.
A holder of Outstanding Notes may tender the same by (i) properly completing
and signing this Letter of Transmittal or a facsimile hereof (all references in
the Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and mailing or delivering the same, together with the
certificate or certificates, if applicable, representing the Outstanding Notes
being tendered and any required signature guarantees and any other documents
required by this Letter of Transmittal, to the Exchange Agent at its address
set forth above on or prior to the Expiration Date, or (ii) complying with the
procedure for book-entry transfer described below, or (iii) complying with the
guaranteed delivery procedures described below.
Holders of Outstanding Notes may tender Outstanding Notes by book-entry
transfer by crediting the Outstanding Notes to the Exchange Agent's account at
DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by
complying with applicable ATOP procedures with respect to the Exchange Offer.
DTC participants that are accepting the Exchange Offer should transmit their
acceptance to DTC, which will edit and verify the acceptance and execute a
book-entry delivery to the Exchange Agent's account at DTC. DTC will then send
a computer-generated message (an "Agent's Message") to the Exchange Agent for
its acceptance in which the holder of the Outstanding Notes acknowledges and
agrees to be bound by the terms of, and makes the representations and
warranties contained in, this Letter of Transmittal, and the DTC participant
confirms on behalf of itself and the beneficial owners of such Outstanding
Notes all provisions of this Letter of Transmittal (including any
representations and warranties) applicable to it and such beneficial owner as
fully as if it had completed the information required herein and executed and
transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the
Agent's Message by DTC will satisfy the terms of the Exchange Offer as to
execution and delivery of a Letter of Transmittal by the participant identified
in the Agent's Message. DTC participants may also accept the Exchange Offer by
submitting a Notice of Guaranteed Delivery through ATOP.
The method of delivery of this Letter of Transmittal, the Outstanding Notes
and any other required documents to the Exchange Agent is at the holder's
election and risk. Rather than mail these items, the Company recommends that
holders use an overnight or hand delivery service. In all cases, holders should
allow sufficient time to assure delivery to the Exchange Agent before the
Expiration Date. Holders should not send this Letter of Transmittal or
Outstanding Notes to the Company. Holders may request their respective brokers,
dealers, commercial banks, trust companies or other nominees to effect the
transactions contemplated in the Exchange Offer. Delivery will be deemed made
only when actually received or confirmed by the Exchange Agent.
Holders whose Outstanding Notes are not immediately available or who cannot
deliver their Outstanding Notes and all other required documents to the
Exchange Agent on or prior to the Expiration Date or comply with book-entry
transfer procedures on a timely basis must tender their Outstanding Notes
pursuant to the guaranteed delivery procedures set forth in the Prospectus.
Pursuant to such procedure: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) prior to the Expiration Date, the
Exchange Agent must have received from such Eligible Institution either a
properly completed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) or a properly transmitted Agent's Message and Notice of
Guaranteed Delivery setting forth the name and address of the holder, the
registered number(s) of such Outstanding Notes and the principal amount of
Outstanding Notes tendered, stating that the tender is being made hereby and
guaranteeing that, within three New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) within three New York Stock
Exchange trading days after the Expiration Date, the Exchange Agent
8
<PAGE>
must receive this Letter of Transmittal (or facsimile hereof) properly
completed and executed, as well as all tendered Outstanding Notes in proper
form for transfer or a book-entry confirmation, and all other documents
required by this Letter of Transmittal, all as provided in the Prospectus.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance
of the Outstanding Notes for exchange.
2. Partial Tenders; Withdrawals.
If less than the entire principal amount of Outstanding Notes evidenced by a
submitted certificate is tendered, the tendering holder must fill in the
aggregate principal amount of Outstanding Notes tendered in the box entitled
"Description of Outstanding Notes Tendered." A newly issued certificate for the
Outstanding Notes submitted but not tendered will be sent to such holder as
soon as practicable after the Expiration Date. All Outstanding Notes delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
clearly indicated.
If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn
prior to the Expiration Date.
For a withdrawal to be effective with respect to the tender of Outstanding
Notes, either (A) holders of the Outstanding Notes being tendered must comply
with the appropriate ATOP procedures or (B) a written notice of withdrawal
(which may be by facsimile transmission or letter) must (i) be received by the
Exchange Agent at one of the addresses for the Exchange Agent set forth above
before the Company notifies the Exchange Agent that it has accepted the tender
of Outstanding Notes pursuant to the Exchange Offer; (ii) specify the name of
the person who tendered the Outstanding Notes to be withdrawn; (iii) identify
the Outstanding Notes to be withdrawn (including the principal amount of such
Outstanding Notes); (iv) where certificates for Outstanding Notes have been
transmitted, specify the name(s) in which such Outstanding Notes were
registered, if different from that of the withdrawing holder; and (v) be signed
by the holder in the same manner as the original signature on this Letter of
Transmittal (including any required signature guarantee). If certificates for
Outstanding Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. The
Exchange Agent will return the properly withdrawn Outstanding Notes promptly
following receipt of notice of withdrawal. If Outstanding Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Outstanding Notes or
otherwise comply with the book-entry transfer facility's procedures. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Company, and such determination will be
final and binding on all parties.
Any Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Outstanding Notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Outstanding Notes tendered by book-entry transfer into the
Exchange Agent's account at DTC pursuant to the book-entry transfer procedures
described above, such Outstanding Notes will be credited to an account
maintained with DTC for Outstanding Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Outstanding Notes may be retendered by following one of the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus at any time prior to the Expiration Date.
9
<PAGE>
3. Signatures on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder(s) of the
Outstanding Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration,
enlargement or any change whatsoever.
If any of the Outstanding Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any Outstanding Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Outstanding
Notes.
When this Letter of Transmittal is signed by the registered holder or holders
(which term, for the purposes described herein, shall include the book-entry
transfer facility whose name appears on a security listing as the owner of the
Outstanding Notes) of Outstanding Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the registered
holder or holders of the Outstanding Notes listed, such Outstanding Notes must
be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the
registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Outstanding Notes.
Endorsements on certificates or signatures on separate written instruments of
transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution, unless Outstanding Notes are tendered: (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on this Letter of Transmittal; or (ii) for the
account of an Eligible Institution.
In the event that the signatures in this Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of a firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or another "eligible institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution").
10
<PAGE>
4. Special Issuance and Delivery Instructions.
Tendering holders should indicate, as applicable, the name and address to
which the Exchange Notes or certificates for Outstanding Notes not exchanged
are to be issued or sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the Tax Identification Number ("TIN") or Social Security Number of the
person named must also be indicated. Holders tendering Outstanding Notes by
book-entry transfer may request that Outstanding Notes not exchanged be
credited to such account maintained at the book-entry transfer facility as such
holder may designate.
5. Transfer Taxes.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Outstanding Notes to the Company or its order pursuant to the
Exchange Offer. If, however, a transfer tax is imposed for any reason other
than the transfer and exchange of Outstanding Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering holder.
6. Waiver of Conditions.
The Company reserves the absolute right to amend, waive or modify, in whole
or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
7. Mutilated, Lost, Stolen or Destroyed Securities.
Any holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated above for
further instructions.
8. Substitute Form W-9 or Form W-8
Each holder of Outstanding Notes whose Outstanding Notes are accepted for
exchange (or other payee) is, except as described below with respect to foreign
holders, required to provide a correct TIN, generally the holder's social
security or federal employer identification number, and certain other
information, on Substitute Form W-9, which is provided under "Important Tax
Information" below, and to certify that the holder (or other payee) is not
subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty
imposed by the Internal Revenue Service and 31% federal income tax backup
withholding on payments made in connection with the Outstanding Notes. The box
in Part 3 of the Substitute Form W-9 may be checked if the holder (or other
payee) has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked and a TIN is not
provided by the time any payment is made in connection with the Outstanding
Notes, 31% of all such payments will be withheld until a TIN is provided.
In the case of a foreign holder of Outstanding Notes, such holder must submit
a Form W-8, signed under penalties of perjury, attesting to such holder's
exempt status in order to qualify as exempt from backup withholding. A Form W-8
can be obtained from U.S. Bank Trust National Association.
9. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering or the Exchange Offer , as
well as requests for assistance or additional copies of the Prospectus and this
Letter of Transmittal, may be directed to the Exchange Agent at the address and
telephone number set forth above.
IMPORTANT: This Letter of Transmittal or a facsimile or copy thereof
(together with certificates of Outstanding Notes or confirmation of book-entry
transfer and all other required documents) or a Notice of Guaranteed Delivery
must be received by the Exchange Agent on or prior to the Expiration Date.
11
<PAGE>
10. Incorporation of Letter of Transmittal
This letter of Transmittal shall be deemed to be incorporated in and
acknowledged and accepted by any tender through DTC's ATOP procedures by any
DTC participant on behalf of itself and the beneficial owners of any book-entry
interests representing Outstanding Notes so tendered.
IMPORTANT TAX INFORMATION
Under U.S. federal income tax law, a holder of Outstanding Notes whose
Outstanding Notes are accepted for exchange may be subject to backup
withholding unless the holder provides U.S. Bank Trust National Association, as
Paying Agent (the "Paying Agent"), through the Exchange Agent, with either (i)
such holder's correct TIN on Substitute Form W-9 attached hereto, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such holder of
Outstanding Notes is awaiting a TIN) and that (A) the holder of Outstanding
Notes has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of a failure to report all interest
or dividends or (B) the Internal Revenue Service has notified the holder of
Outstanding Notes that he or she is no longer subject to backup withholding or
(ii) an adequate basis for exemption from backup withholding. If such holder of
Outstanding Notes is an individual, the TIN is such holder's Social Security
Number. If the Paying Agent is not provided with the correct TIN, the holder of
Outstanding Notes may be subject to certain penalties imposed by the Internal
Revenue Service.
Certain holders of Outstanding Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. However, exempt holders of Outstanding
Notes should indicate their exempt status on Substitute Form W-9. For example,
a corporation must complete the Substitute Form W-9, providing its TIN and
indicating that it is exempt from backup withholding. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for more instructions.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Outstanding Notes has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the box
in Part 3 is checked, the holder of Outstanding Notes or other payee must also
complete the Certificate of Awaiting Taxpayer Identification Number below in
order to avoid backup withholding. Notwithstanding that the box in Part 3 is
checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Paying Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the Paying Agent.
The holder of Outstanding Notes is required to give the Paying Agent the TIN
(e.g., Social Security Number or Employer Identification Number) of the record
owner of the Outstanding Notes. If the Outstanding Notes are in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
In order for a foreign holder to qualify as exempt from backup withholding,
the holder must submit a Form W-8, signed under penalties of perjury, attesting
to that holder's exempt status. A Form W-8 can be obtained from the Paying
Agent.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Outstanding Notes or other payee.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
12
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number for the Payee
(You) to Give the Payer.-- Social Security Numbers have nine digits separated
by two hyphens: i.e., 000-00-0000. Employee Identification Numbers have nine
digits separated by only one hyphen: i.e., 00-0000000. The table below will
help determine the number to give the payer. All "Section" references are to
the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
Give the
SOCIAL SECURITY
For this type of account: NUMBER of--
- ----------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner
(joint account) of the account or,
if combined funds,
the first
individual on the
account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4.a The usual revocable The grantor-
savings (grantor is trustee(1)
also trustee)
b So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
account
6. Sole proprietorship The owner(3)
account
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Give the EMPLOYER
IDENTIFICATION
For this type of account: NUMBER of--
--
<S> <C>
7. A valid trust, estate, The legal
or pension trust entity(4)
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt
organization account
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your Social Security
Number or your Employer Identification Number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the Taxpayer Identification Number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9--Continued
Obtaining a Number
If you don't have a Taxpayer Identification Number or you don't know your
number, obtain Form SS-5. Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from withholding include:
. An organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under Section 403(b)(7),
if the account satisfies the requirements of Section 401(f)(2).
. The United States or a state thereof, the District of Columbia, a
possession of the United States, or a political subdivision or wholly-
owned agency or instrumentality of any one or more of the foregoing.
. An international organization or any agency or instrumentality thereof.
. A foreign government and any political subdivision, agency or
instrumentality thereof.
Payees that may be exempt from backup withholding include:
. A corporation.
. A financial institution.
. A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
. A real estate investment trust.
. A common trust fund operated by a bank under Section 584(a).
. An entity registered at all times during the tax year under the Investment
Company Act of 1940.
. A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
. A futures commission merchant registered with the Commodity Futures
Trading Commission.
. A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
. Payments to nonresident aliens subject to withholding under Section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
. Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct Taxpayer Identification Number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in Section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under Section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041,
6041A, 6042, 6044, 6045, 6049, 6050A and 6050N.
Exempt payees described above must file Form W-9 or a Substitute Form W-9 to
avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS,
OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Privacy Act Notice.--Section 6109 requires you to provide your correct
Taxpayer Identification Number to payers, who must report the payments to the
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a Taxpayer Identification Number to payer. Certain penalties
may also apply.
Penalties
(1) Failure to Furnish Taxpayer Identification Number.--If you fail to furnish
your Taxpayer Identification Number to a payer, you are subject to a penalty
of $50 for each such failure unless your failure is due to reasonable cause
and not to willful neglect.
(2) Civil Penalty for False Information With Respect To Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
14
<PAGE>
PAYER'S NAME:
Part 1--PLEASE PROVIDE YOUR ----------------------
TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND OR
DATING BELOW.
SUBSTITUTE
Form W-9 ----------------------
Employer Identification
Number
Department of Part 2--Certification--Under the
the Treasury penalties of perjury, I certify that:
Internal Part 3 --
Revenue --------------------------------------------------------
Service (1) The number shown on this form is Awaiting
my correct Taxpayer TIN [_]
Identification Number (TIN) (or I
am waiting for a number to be
issued to me), and
Payer's Request for Taxpayer Identification Number (TIN)
(2) I am not subject to backup
withholding because (a) I am
exempt from backup withholding,
or (b) I have not been notified
by the Internal Revenue Service
(the "IRS") that I am subject to
backup withholding as a result of
a failure to report all interest
or dividends, or (c) the IRS has
notified me that I am no longer
subject to backup withholding.
--------------------------------------------------------
CERTIFICATE INSTRUCTIONS--You must cross out item (2)
in Part 2 above if you have been notified by the IRS
that you are currently subject to backup withholding
because of under-reporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you were subject to backup withholding
you received another notification from the IRS that
you are no longer subject to backup withholding, do
not cross out such item (2).
SIGNATURE ________________ DATE _____
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% ON ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number by the
time of payment, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature _______________________________________ Date , 1999
15
<PAGE>
EXHIBIT 99.02
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF ALL OUTSTANDING
11% SENIOR NOTES DUE 2006 IN EXCHANGE FOR
NEW 11% SENIOR NOTES DUE 2006
OF
G+G RETAIL, INC.
Registered holders of G+G Retail, Inc.'s (the "Company") outstanding 11%
Senior Notes due 2006 (the "Outstanding Notes"), who wish to tender their
Outstanding Notes in exchange for a like principal amount of new 11% Senior
Notes due 2006 of the Company (the "Exchange Notes"), and whose Outstanding
Notes are not immediately available or who cannot deliver their Outstanding
Notes and Letter of Transmittal (and any other documents required by the Letter
of Transmittal) to U.S. Bank Trust National Association (the "Exchange Agent")
prior to 5:00 p.m., New York City time, on , 1999, unless extended (the
"Expiration Date"), may use this Notice of Guaranteed Delivery or one
substantially equivalent hereto.
This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) or mail to the Exchange Agent as set
forth below. See "The Exchange Offer--Procedures for Tendering" in the
Prospectus dated , 1999 of the Company (the "Prospectus"). Capitalized
terms not defined herein shall have the meanings ascribed to them in the
Prospectus.
THE EXCHANGE OFFER (THE "EXCHANGE OFFER") WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U.S. BANK TRUST NATIONAL ASSOCIATION
By Hand Delivery:
By Mail:
U.S. Bank Trust National U.S. Bank Trust National Association
Association. P.O. Box 64485
St. Paul, Minnesota 55164-9549
Fourth Floor--Bond Drop Window Attn: Specialized Finance
180 East 5th Street
St. Paul, Minnesota 55101 By Facsimile:
Attn: Specialized Finance U.S. Bank Trust National Association
By Overnight Courier:
(651) 244-1537
U.S. Bank Trust National Association
Confirm by Telephone:
Fourth Floor--Bond Drop Window
180 East 5th Street (651) 244-4512
St. Paul, Minnesota 55101
Attn: Specialized Finance
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission via a facsimile transmission to a number other
than as set forth above will not constitute a valid delivery.
1
<PAGE>
This Notice of Guaranteed Delivery is not to be used to guarantee signatures.
If a signature on a Letter of Transmittal is required to be guaranteed by an
eligible institution (as defined in the Letter of Transmittal), such signature
guarantee must appear in the applicable space provided on the Letter of
Transmittal for guarantee of signatures.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Outstanding Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus, receipt of which is hereby acknowledged, and contained in
Instruction 1 of the Letter of Transmittal.
The undersigned understands that tenders of Outstanding Notes pursuant to the
Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Outstanding Notes may be withdrawn if the Exchange
Offer is terminated without any such Outstanding Notes being exchanged
thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed
Delivery shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
DESCRIPTION OF OUTSTANDING NOTES TENDERED
<TABLE>
<CAPTION>
Certificate
Name and Address Number(s) of
of Registered Outstanding Notes Principal
Name of Holder as they Tendered (or Account Amount of
Tendering appear on the Number at Outstanding
Holder Outstanding Notes Book-Entry Facility) Notes Tendered
- --------- ----------------- -------------------- --------------
<S> <C> <C> <C>
</TABLE>
PLEASE COMPLETE AND SIGN
Name(s) of Registered Holder(s): _______________________________________________
Signature(s)*: _________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number:_______________________________________________________________
Date: __________________________________________________________________________
If shares of Outstanding Notes will be tendered by book-entry transfer at The
Depository Trust Company ("DTC"), provide the following information:
DTC Account Number: ________________________________________________________
Date: ______________________________________________________________________
*See instructions below.
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This Notice of Guaranteed Delivery must be signed by (i) the holder(s) of
Outstanding Notes exactly as its/their name(s) appears on the
Certificate(s) for Outstanding Notes being tendered, (ii) the holder(s) of
Outstanding Notes exactly as its/their name(s) appear on a security
position listing maintained by DTC as the owner of Outstanding Notes or
(iii) person(s) authorized to become holder(s) by documents transmitted
with this Notice of Guaranteed Delivery. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s):__________________________________
_______________________________
Capacity:_________________________________
Address(es):______________________________
_______________________________
_______________________________
Note: Do not send Outstanding Notes with this form. Outstanding Notes
should be sent to the Exchange Agent together with a properly completed
and duly executed Letter of Transmittal.
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a member of a recognized signature guarantee program within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, hereby guarantees to deliver to the Exchange Agent at one of its
addresses set forth above, the certificates representing the Outstanding Notes
(or a confirmation of book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at the book-entry transfer facility), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, and any other documents
required by the Letter of Transmittal within three (3) New York Stock Exchange
trading days after the Expiration Date.
Name of Firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
Title: _________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code and Telephone Number: ________________________________________________
Date: __________________________________________________________________________
NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
OUTSTANDING NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH YOUR
LETTER OF TRANSMITTAL.
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