<PAGE> 1
GENESCO
[LOGO]
--------------------------------------------------------------------------------
(Mark One) Form 10-Q
[x] Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
July 31, 1995
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
--------------------------------------
GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
--------------------------------------
Indicate by check mark whether the
registrant (1) has filed all reports
required to be filed by Section 13 or
15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months
(or such shorter period that the
registrant was required to file such
reports with the Commission) and (2)
has been subject to such filing
requirements for the past 90 days.
Yes X No
---
--------------------------------------------------------
Common Shares Outstanding September 8, 1995 - 24,343,663
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
--------------------------------------------------------------------------------------------------------------------
PAGE
--------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 1 - Financial Information 3
--------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet - July 31, 1995, January 31, 1995 and
July 31, 1994 3
--------------------------------------------------------------------------------------------------------------------
Consolidated Earnings - Three Months Ended and Six Months Ended
July 31, 1995 and 1994 4
--------------------------------------------------------------------------------------------------------------------
Consolidated Cash Flows - Three Months Ended and Six Months Ended
July 31, 1995 and 1994 5
--------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity - Year Ended
January 31, 1995 and Six Months Ended July 31, 1995 6
--------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 7
--------------------------------------------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
--------------------------------------------------------------------------------------------------------------------
Part II - Other Information 28
--------------------------------------------------------------------------------------------------------------------
Signature 30
--------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
JULY 31, JANUARY 31, JULY 31,
1995 1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 5,388 $ 10,235 $ 5,015
Accounts receivable 33,916 32,080 84,796
Inventories 89,427 82,905 153,513
Other current assets 4,133 4,277 7,228
Current assets of operations to be divested 35,482 53,891 -0-
-------------------------------------------------------------------------------------------------------------------
Total current assets 168,346 183,388 250,552
-------------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, net 28,126 28,073 41,177
Goodwill and other intangibles -0- -0- 18,517
Other noncurrent assets 13,533 13,773 16,802
Noncurrent assets of operations to be
divested 1,629 18,644 -0-
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 211,634 $ 243,878 $ 327,048
===================================================================================================================
-------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes payable $ 3,034 $ -0- $ 3,095
Current payments on capital leases 1,614 2,343 2,375
Accounts payable and accrued liabilities 57,957 61,124 60,714
Provision for discontinued operations 4,806 19,190 5,666
-------------------------------------------------------------------------------------------------------------------
Total current liabilities 67,411 82,657 71,850
-------------------------------------------------------------------------------------------------------------------
Long-term debt 75,000 75,000 114,000
Capital leases 2,065 10,057 11,367
Other long-term liabilities 23,310 25,746 33,168
Provision for discontinued operations 14,604 21,025 1,046
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,944 7,943 7,954
Common shareholders' equity:
Par value of issued shares 24,832 24,832 24,822
Additional paid-in capital 121,684 121,670 121,634
Accumulated deficit (104,746) (104,582) (26,579)
Minimum pension liability adjustment (2,613) (2,613) (9,964)
Treasury shares, at cost (17,857) (17,857) (17,857)
Foreign currency translation adjustments -0- -0- (4,393)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 29,244 29,393 95,617
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,634 $ 243,878 $ 327,048
===================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
3
<PAGE> 4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------- -----------------------
1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $109,600 $114,166 $202,825 $214,387
Cost of sales 67,101 71,279 124,789 133,324
Selling and administrative expenses 37,823 42,034 74,189 80,312
Restructuring charge 2,216 -0- 16,329 -0-
--------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations before
other income and expenses 2,460 853 (12,482) 751
--------------------------------------------------------------------------------------------------------------
Other expenses (income):
Interest expense 2,549 3,093 4,777 5,899
Gain on divestiture -0- (4,900) -0- (4,900)
Other expense (income) 1,090 3 (2,758) (512)
--------------------------------------------------------------------------------------------------------------
Total other (income) expenses, net 3,639 (1,804) 2,019 487
--------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes
and discontinued operations (1,179) 2,657 (14,501) 264
Income taxes 6 372 15 513
--------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued
operations (1,185) 2,285 (14,516) (249)
Discontinued operations:
Operating loss -0- (2,801) -0- (2,940)
Excess provision for future losses 1,699 -0- 14,352 -0-
--------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 514 $ (516) $ (164) $ (3,189)
==============================================================================================================
Earnings (loss) per common share:
Before discontinued operations $ (.05) $ .09 $ (.60) $ (.02)
Discontinued operations $ .07 $ (.11) $ .59 $ (.12)
Net earnings (loss) $ .02 $ (.02) $ (.01) $ (.14)
==============================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
4
<PAGE> 5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------- ----------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net earnings (loss) $ 514 $ (516) $ (164) $ (3,189)
Noncash charges to earnings:
Depreciation and amortization 1,751 2,454 3,587 4,947
Restructuring charge 2,216 -0- 16,329 -0-
Excess provision for future losses (1,699) -0- (14,352) -0-
Gain on divestiture -0- (4,900) -0- (4,900)
Provision for losses on accounts receivable 192 838 723 1,255
Other 83 535 261 598
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations before
working capital and other changes 3,057 (1,589) 6,384 (1,289)
Effect on cash of changes in working
capital and other assets and liabilities:
Accounts receivable 1,897 (9,964) 3,534 (20,045)
Inventories (134) 5,031 3,366 1,607
Other current assets 84 (475) 404 (1,389)
Accounts payable and accrued liabilities (2,413) (206) (8,482) (2,383)
Other assets and liabilities 402 (269) (2,327) 1,041
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 2,893 (7,472) 2,879 (22,458)
------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (2,443) (1,631) (3,528) (3,195)
Proceeds from businesses divested and asset sales 387 1,614 1,490 1,770
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,056) (17) (2,038) (1,425)
------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreement -0- 8,000 -0- 24,000
Net change in short-term borrowings 1,291 1,263 3,034 3,026
Payments on capital leases (7,964) (894) (8,722) (1,511)
Other -0- -0- -0- (242)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (6,673) 8,369 (5,688) 25,273
------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW (5,836) 880 (4,847) 1,390
Cash and short-term investments at
beginning of period 11,224 4,135 10,235 3,625
------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 5,388 $ 5,015 $ 5,388 $ 5,015
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 225 $ 814 $ 4,520 $ 5,343
Income taxes (745) 135 (767) (134)
========================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
5
<PAGE> 6
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
TOTAL
NON-REDEEMABLE
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1994 $ 8,064 $24,793 $ 121,634 $ (23,241)
------------------------------------------------------------------------------------
Exercise of options -0- 2 4 -0-
Translation adjustments:
Year-to-date adjustments -0- -0- -0- -0-
Realized in FY 1995 restructuring -0- -0- -0- -0-
Net loss -0- -0- -0- (81,192)
Minimum pension liability adjustment -0- -0- -0- -0-
Other (121) 37 32 (149)
------------------------------------------------------------------------------------
Balance January 31, 1995 $ 7,943 $24,832 $ 121,670 $(104,582)
------------------------------------------------------------------------------------
Net loss -0- -0- -0- (164)
Other 1 -0- 14 -0-
------------------------------------------------------------------------------------
BALANCE JULY 31, 1995 $ 7,944 $24,832 $ 121,684 $(104,746)
====================================================================================
<CAPTION>
------------------------------------------------------------------------------------------
FOREIGN MINIMUM TOTAL
CURRENCY PENSION SHARE-
TREASURY TRANSLATION LIABILITY HOLDERS'
STOCK ADJUSTMENTS ADJUSTMENT EQUITY
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1994 $ (17,857) $ (4,706) $ (9,964) $ 98,723
-----------------------------------------------------------------------------------------
Exercise of options -0- -0- -0- 6
Translation adjustments:
Year-to-date adjustments -0- 2,136 -0- 2,136
Realized in FY 1995 restructuring -0- 2,570 -0- 2,570
Net loss -0- -0- -0- (81,192)
Minimum pension liability adjustment -0- -0- 7,351 7,351
Other -0- -0- -0- (201)
-----------------------------------------------------------------------------------------
Balance January 31, 1995 $ (17,857) $ -0- $ (2,613) $ 29,393
-----------------------------------------------------------------------------------------
Net loss -0- -0- -0- (164)
Other -0- -0- -0- 15
-----------------------------------------------------------------------------------------
BALANCE JULY 31, 1995 $ (17,857) $ -0- $ (2,613) $ 29,244
=========================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
6
<PAGE> 7
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial
Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
INTERIM STATEMENTS
The consolidated financial statements contained in this report are unaudited
but reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods of the
fiscal year ending January 31, 1996 ("Fiscal 1996") and of the fiscal year
ended January 31, 1995 ("Fiscal 1995"). The results of operations for any
interim period are not necessarily indicative of results for the full year.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the annual report on Form 10-K.
Certain reclassifications have been made to conform prior years' data to the
current presentation. (See Note 2).
BASIS OF CONSOLIDATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, with cost determined principally by the first-in, first-out
method. Retail inventories are determined by the retail method.
PLANT, EQUIPMENT AND CAPITAL LEASES
Plant, equipment and capital leases are recorded at cost and depreciated or
amortized over the estimated useful life of related assets. Depreciation and
amortization expense is computed principally by the straight-line method.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles relate solely to operations to be divested and
consist primarily of the excess of purchase price over fair value of net assets
acquired in acquisitions. The Company periodically assesses the realizability
of intangible assets taking into consideration such factors as expected cash
flows and operating strategies.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at the exchange
rate on the balance sheet date. Income and expenses are translated at the
average exchange rates prevailing during the period.
7
<PAGE> 8
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------------------------
HEDGING CONTRACTS
In order to reduce exposure to foreign currency exchange rate fluctuations in
connection with inventory purchase commitments, the Company enters into foreign
currency forward exchange contracts (principally Dollars and Lira). At January
31, 1995 and July 31, 1995, the Company had approximately $9.7 million and $7.1
million, respectively, of such contracts outstanding. Forward exchange
contracts have an average term of approximately five months. Gains and losses
arising from these contracts offset gains and losses from the underlying hedged
transactions. The Company monitors the credit quality of the major national
and regional financial institutions with whom it enters into such contracts.
POSTRETIREMENT BENEFITS
Substantially all full-time employees are covered by pension plans. For its
defined benefit plan, the Company funds at least the minimum amount required by
the Employee Retirement Income Security Act. The Company expenses the
multiemployer plan contributions required to be funded under collective
bargaining agreements.
The Company implemented Statement of Financial Accounting Standards (SFAS) 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in the
first quarter of Fiscal 1994. This statement requires accrual of
postretirement benefits such as life insurance and health care over the period
the employee provides services to the Company.
ENVIRONMENTAL COSTS
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated and are evaluated independently of any future claims for
recovery. Generally, the timing of these accruals coincides with completion of
a feasibility study or the Company's commitment to a formal plan of action.
INCOME TAXES
Income taxes are accounted for in accordance with SFAS 109, "Accounting for
Income Taxes". Deferred income taxes are provided for all temporary
differences and operating loss and tax credit carryforwards limited, in the
case of deferred tax assets, to the amount of taxes recoverable from taxes paid
in the current or prior years.
8
<PAGE> 9
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS
--------------------------------------------------------------------------------
FISCAL 1995 RESTRUCTURING
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, the Company's board
of directors, on November 3, 1994, approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constitute its entire men's apparel
segment.
The 1995 Restructuring provides for the following:
1995 Restructuring Charge
- Liquidation of the University Brands children's shoe business,
- Sale of the Mitre Sports soccer business, and
- Facility consolidation costs and permanent work force reductions.
1995 Restructuring Provision
- Liquidation of The Greif Companies men's tailored clothing business, and
- Sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
In connection with the 1995 Restructuring, the Company took a combined charge
of $90.7 million in the third quarter of Fiscal 1995, of which $22.1 million
(the "1995 Restructuring Charge") related to University Brands and Mitre and
facility consolidation costs and permanent work force reductions and $68.6
million (the "1995 Restructuring Provision") related to Greif and GCO Apparel,
which constitute the entire men's apparel segment of the Company's business,
and is therefore treated for financial reporting purposes as a provision for
discontinued operations. No tax benefit is currently available with respect to
either the 1995 Restructuring Charge or the 1995 Restructuring Provision.
In the fourth quarter of Fiscal 1995 the 1995 Restructuring Provision was
positively adjusted by $10.5 million reducing the $68.6 million provision for
future losses of discontinued operations to $58.1 million. The adjustment
reflected the favorable consequences of a transfer, not anticipated at the time
the provision was recorded, of a licensing agreement for men's apparel to
another manufacturer. The transfer resulted in realization of inventory and
accounts receivable balances on more favorable terms than anticipated,
assumption of piece goods commitments by other manufacturers and cancellation
of minimum royalty requirements under the transferred license.
In the first quarter of Fiscal 1996 the Company took an additional
restructuring charge of $14.1 million relating to the 1995 Restructuring. The
additional restructuring charge reflected the lowering of anticipated proceeds
from the sale of Mitre Sports soccer business. In addition, the 1995
Restructuring Provision was adjusted by an additional reversal of $12.7
million. The reversal reflected primarily (1) an agreement during the quarter
providing for the resolution of a long-term lease liability on terms more
favorable than were anticipated when the 1995 Restructuring Provision was
established, (2) better than anticipated realization of inventories and
accounts receivable as the remaining Greif inventory was liquidated in the
first quarter of Fiscal 1996 and (3) lower than anticipated union pension
liability, which the pension fund determined and announced to the Company
during the quarter.
9
<PAGE> 10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
--------------------------------------------------------------------------------
In the second quarter of Fiscal 1996 the Company took an additional
restructuring charge of $2.2 million relating to the 1995 Restructuring. This
addition to the 1995 Restructuring Charge reflects the actual proceeds received
from the sale on August 14, 1995 of the Mitre Sports soccer business. In
addition, the Company made an additional positive adjustment of $1.7 million to
the 1995 Restructuring Provision. The adjustment reflects primarily the
reversal of reserves in connection with the final settlement of a long-term
lease liability, based on the resolution of certain contingencies at the
closing of the transaction in the second quarter more favorably than the
Company had anticipated and lower than anticipated severance payments.
The transactions provided for in the 1995 Restructuring are substantially
complete. The 1995 Restructuring Charge, as adjusted, provided for the
elimination of 464 jobs in footwear operations to be divested or consolidated
and in staff positions to be eliminated, of which 302 jobs had been eliminated
as of July 31, 1995. The divestiture of the University Brands business was
completed in February 1995. The operations of The Greif Companies have ceased,
its inventories and equipment have been liquidated and its last major remaining
long-term lease liability was resolved in June 1995. The Company's GCO Apparel
Corporation was sold effective June 9, 1995. The Company's Mitre Sports soccer
business was sold effective August 14, 1995 with cash proceeds to the Company
of approximately $19.1 million, including repayment of intercompany balances,
subject to the outcome of certain contingencies, principally a post-closing
audit. The outcome of these contingencies may require further adjustments to
the 1995 Restructuring Charge and Provision. There can be no assurance that
variations in the timing of any further adjustments will not affect the results
of operations and cash flows of the Company in the third fiscal quarter or that
some variations will not be material. While the Company is unable to predict
with certainty the extent, if any, to which the aggregate cash proceeds from
the 1995 Restructuring will exceed the cash requirements thereof, it currently
anticipates that cash proceeds will exceed requirements by approximately $10
million. Any excess cash will be reinvested in the Company's ongoing
businesses. Excess cash requirements, if any, from quarter to quarter during
the implementation of the 1995 Restructuring are expected to be funded from
cash flow from operations and, if necessary, from revolving credit borrowings.
The operating results of the men's apparel segment prior to the decision to
discontinue, classified as discontinued operations in the consolidated earnings
statement, are shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31,
--------------------------
IN THOUSANDS 1994
-----------------------------------------------------------------------------------------------------------
<S> <C>
Net sales $57,198
Cost of sales and expenses 60,138
-----------------------------------------------------------------------------------------------------------
Pretax loss (2,940)
Income tax expense (benefit) -0-
-----------------------------------------------------------------------------------------------------------
Net Loss $(2,940)
===========================================================================================================
</TABLE>
10
<PAGE> 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
--------------------------------------------------------------------------------
Discontinued operations' sales subsequent to the decision to discontinue were
$20.0 million for the six months ended July 31, 1995.
Operating results of stores identified for closure and businesses to be
divested pursuant to the 1995 Restructuring and the 1994 Restructuring referred
to below are included in the Company's sales, gross margin and selling and
administrative expenses. The net operating losses incurred by these operations
subsequent to the decision to divest are charged against the restructuring
reserves established to provide for such losses. The elimination of these
losses from the Company's results of operations for the six months ended July
31, 1995 is presented as other income in the Consolidated Earnings Statement.
Such operating losses totalled $0.9 million for the six months ended July 31,
1995.
FISCAL 1994 RESTRUCTURING
Because of developments in the fourth quarter of Fiscal 1994, the Company
changed operating strategies and made a decision to restructure certain of its
operations and reassessed the recoverability of certain assets (the "1994
Restructuring"). As a result, the Company recorded a charge of $29.4 million,
of which $17.1 million related to the men's apparel segment. This charge
reflects estimated costs of closing certain manufacturing facilities, effecting
permanent work force reductions and closing 58 retail stores. The provision
included $15.8 million in asset write-downs and $13.6 million of future
consolidation costs. The restructuring involved the elimination of
approximately 1,200 jobs (20% of the Company's total work force in Fiscal
1994). Included in the $15.8 million of asset write-downs was $7.7 million
relating to goodwill, of which $6.9 million related to the LaMar acquisition
and $800,000 related to the Toddler U Inc. acquisition.
11
<PAGE> 12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts receivable $33,657 $32,401
Miscellaneous receivables 2,835 2,258
----------------------------------------------------------------------------------------------------------
Total receivables 36,492 34,659
Allowance for bad debts (1,294) (1,127)
Other allowances (1,282) (1,452)
----------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $33,916 $32,080
==========================================================================================================
</TABLE>
* Excludes accounts receivable of operations to be divested (see Note 5).
NOTE 4
INVENTORIES*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 9,534 $ 8,856
Work in process 3,612 2,877
Finished goods 23,651 21,992
Retail merchandise 52,630 49,180
----------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $89,427 $82,905
==========================================================================================================
</TABLE>
* Excludes inventories of operations to be divested (see Note 5).
12
<PAGE> 13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NOTE 5
ASSETS OF OPERATIONS TO BE DIVESTED
--------------------------------------------------------------------------------------------------------------
JANUARY 31,
JULY 31, 1995 1995
-------------------------------------------- ----------
DISCONTINUED* OTHER**
IN THOUSANDS OPERATIONS OPERATIONS TOTALS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets:
Accounts receivable $ 3,628 $ 16,975 $ 20,603 $ 27,079
Inventory -0- 14,484 14,484 26,158
Other -0- 395 395 654
--------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 3,628 $ 31,854 $ 35,482 $ 53,891
==============================================================================================================
Noncurrent assets:
Plant and equipment $ -0- $ 1,611 $ 1,611 $ 2,647
Capitalized lease rights -0- 18 18 299
Goodwill and other intangibles -0- -0- -0- 15,698
--------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT ASSETS $ -0- $ 1,629 $ 1,629 $ 18,644
==============================================================================================================
</TABLE>
* Includes the assets of The Greif Companies and GCO Apparel Corporation
comprising the men's apparel segment (see Note 2).
** Includes the assets of University Brands and Mitre Sports (see Note 2).
<TABLE>
<CAPTION>
NOTE 6
PLANT, EQUIPMENT AND CAPITAL LEASES, NET*
--------------------------------------------------------------------------------------------------------------
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Land $ 75 $ 75
Buildings and building equipment 2,517 2,797
Machinery, furniture and fixtures 32,135 30,682
Construction in progress 1,756 672
Improvements to leased property 37,316 37,776
Capital leases:
Land 60 60
Buildings 2,126 2,195
Machinery, furniture and fixtures 7,650 7,627
--------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 83,635 81,884
Accumulated depreciation and amortization:
Plant and equipment (49,214) (48,131)
Capital leases (6,295) (5,680)
--------------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 28,126 $ 28,073
==============================================================================================================
</TABLE>
* Excludes plant, equipment and capital leases of operations to be divested
(see Note 5).
13
<PAGE> 14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROVISION FOR DISCONTINUED OPERATIONS
-------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 31, 1995 $ 25,134 $ 9,405 $ 1,415 $ 4,261 $ 40,215
Charges and adjustments, net (8,311) (9,229) 74 (3,339) (20,805)
-------------------------------------------------------------------------------------------------------------------
Balance July 31, 1995 16,823 176 1,489 922 19,410
Current portion 2,219 176 1,489 922 4,806
-------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 14,604 $ -0- $ -0- $ -0- $ 14,604
===================================================================================================================
<CAPTION>
RESTRUCTURING RESERVES
-------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 31, 1995 $ 3,965 $ 3,123 $ 555 $ 3,112 $ 10,755
Charges and adjustments, net (1,788) (1,235) 694 (1,777) (4,106)
-------------------------------------------------------------------------------------------------------------------
Balance July 31, 1995 2,177 1,888 1,249 1,335 6,649
Current portion (included in accounts
payable and accrued liabilities) 2,177 1,614 1,249 1,332 6,372
-------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ -0- $ 274 $ -0- $ 3 $ 277
===================================================================================================================
</TABLE>
14
<PAGE> 15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
CREDIT FACILITIES
--------------------------------------------------------------------------------
At July 31, 1995, the Company's English subsidiary, Mitre U.K., has a credit
facility with a credit limit equal to the lesser of (i) 5,000,000 pounds
sterling (approximately $7,985,000 at July 31, 1995) or (ii) the aggregate of
75 percent of the value of current receivables and 50 percent of the value of
inventory of Mitre U.K. The facility, which is guaranteed up to 4,300,000
pounds sterling by Genesco Inc., permits borrowings for working capital of up
to 2,000,000 pounds sterling, the issuance of letters of credit of up to
3,500,000 pounds sterling and the issuance of guarantee bonds and indemnities
of up to 500,000 pounds sterling. The facility expired in December 1994 and
has been extended by an oral agreement through July 31, 1995. The facility was
cancelled in connection with the sale of Mitre U.K. as of August 14, 1995.
NOTE 9
LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
Tennessee Environmental Proceedings
The Company is subject to several administrative orders issued by the Tennessee
Department of Environment and Conservation directing the Company to implement
plans designed to remedy possible ground water contamination and to manage
source area material which was generated by a divested operating division and
which was deposited on a site in a rural area near Nashville, Tennessee.
Substantially all source material and ground water remedial actions have been
implemented. The Company believes that it has fully provided for the costs to
be incurred with respect to these remedial actions.
New York State Environmental Proceedings
The Company is a defendant in two separate civil actions filed by the State of
New York; one against the City of Gloversville, New York, and 33 other private
defendants and the other against the City of Johnstown, New York, and 14 other
private defendants. In addition, third party complaints and cross claims have
been filed against numerous other entities, including the Company, in both
actions. These actions arise out of the alleged disposal of certain hazardous
material directly or indirectly in municipal landfills. The complaints in both
cases allege the defendants, together with other contributors to the municipal
landfills, are liable under a federal environmental statute and certain common
law theories for the costs of investigating and performing remedial actions
required to be taken with respect to the landfills and damages to the natural
resources.
15
<PAGE> 16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
--------------------------------------------------------------------------------
The environmental authorities have issued decisions selecting plans of
remediation with respect to the Johnstown and Gloversville sites which have
total estimated costs of $16.5 million and $28.3 million, respectively.
The Company has filed answers to the complaints in both the Johnstown and
Gloversville cases denying liability and asserting numerous defenses. The
Company has established a provision in the amount of $1,500,000 to cover its
estimated share of future remediation costs. Because of uncertainties related
to the ability or willingness of the other defendants, including the
municipalities involved, to pay a portion of such costs, the availability of
State funding to pay a portion of such costs, the insurance coverage available
to the various defendants, the applicability of joint and several liability and
the basis for contribution claims among the defendants, management is presently
unable to predict the outcome or to estimate the extent of any additional
liability the Company may incur with respect to either of the Johnstown or
Gloversville actions.
Whitehall Environmental Sampling
The Michigan Department of Natural Resources ("MDNR") has performed sampling
and analysis of soil, sediments, surface water, groundwater, and waste
management areas at the Company's Volunteer Leather Company facility in
Whitehall, Michigan. MDNR advised the Company that it would review the results
of the analysis for possible referral to the EPA for action under the
Comprehensive Environmental Response Compensation and Liability Act. However,
the Company is cooperating with MDNR and has been advised by MDNR that no EPA
referral is presently contemplated. Neither MDNR nor the EPA has threatened or
commenced any enforcement action. In response to the testing data, the Company
has submitted a conceptual work plan for approval by MDNR. The plan provides,
among other things, for fencing a waste disposal area to reduce the likelihood
of human contact with any hazardous substances which may be in the area,
installing an erosion barrier along a portion of the shore of White Lake
adjoining the facility, and performing additional testing and analysis to
determine what additional remediation may be necessary. The Company does not
believe that the installation of an erosion barrier and fencing and the
additional testing anticipated by the conceptual work plan will have a material
effect on its financial condition or results of operations, but is unable to
determine whether additional remediation activities, if any, would have a
material effect on its financial condition or results of operations.
16
<PAGE> 17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
--------------------------------------------------------------------------------
Preferred Shareholder Action
On January 7, 1993, 23 former holders of the Company's series 2, 3 and 4
subordinated serial preferred stock filed a civil action against the Company
and certain officers in the United States District Court for the Southern
District of New York (the "U.S. District Court Action"). The plaintiffs allege
that the defendants misrepresented and failed to disclose material facts to
representatives of the plaintiffs in connection with exchange offers which were
made by the Company to the plaintiffs and other holders of the Company's series
1, 2, 3 and 4 subordinated serial preferred stock from June 23, 1988 to August
1, 1988. The plaintiffs contend that had they been aware of the
misrepresentations and omissions, they would not have agreed to exchange their
shares pursuant to the exchange offers. The plaintiffs allege breach of
fiduciary duty and fraudulent and negligent misrepresentations and seek damages
in excess of $10 million, costs, attorneys' fees, interest and punitive damages
in an unspecified amount. By order dated December 2, 1993, the U.S. District
Court denied a motion for judgement on the pleadings filed on behalf of all
defendants. On July 6, 1994, the court denied a motion for partial summary
judgement filed on behalf of the plaintiffs. The Company and the individual
defendants intend to vigorously defend the U.S. District Court Action. The
Company is unable to predict if the U.S. District Court Action will have a
material adverse effect on the Company's results of operations or financial
condition.
17
<PAGE> 18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
SIGNIFICANT DEVELOPMENTS
Fiscal 1995 Restructuring
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, the Company's board
of directors, on November 3, 1994, approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constitute its entire men's apparel
segment. The ongoing businesses, after implementation of the 1995
Restructuring, include the manufacture or sourcing, marketing and distribution
of footwear under the Johnston & Murphy, J. Murphy, Domani, Laredo, Code West,
Dockers and Nautica brands, the tanning and distribution of leather by the
Volunteer Leather division and the operation of Jarman, Journeys, Johnston &
Murphy, J. Murphy, Boot Factory and Factory To You retail footwear stores.
The 1995 Restructuring provides for the following:
1995 Restructuring Charge
- Liquidation of the University Brands children's shoe business,
- Sale of the Mitre Sports soccer business, and
- Facility consolidation costs and permanent work force reductions.
1995 Restructuring Provision
- Liquidation of The Greif Companies men's tailored clothing business, and
- Sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
In connection with the 1995 Restructuring, the Company took a combined charge
of $90.7 million in the third quarter of Fiscal 1995, of which $22.1 million
(the "1995 Restructuring Charge") related to University Brands and Mitre and
other costs described below and $68.6 million (the "1995 Restructuring
Provision") related to Greif and GCO Apparel, which constitute the entire men's
apparel segment of the Company's business, and is therefore treated for
financial reporting purposes as a provision for discontinued operations. No
tax benefit is currently available with respect to either the 1995
Restructuring Charge or the 1995 Restructuring Provision.
In the fourth quarter of Fiscal 1995 the 1995 Restructuring Provision was
positively adjusted by $10.5 million, reducing the $68.6 million provision for
future losses of discontinued operations to $58.1 million. The adjustment
reflected the favorable consequences of a transfer, not anticipated at the time
the provision was recorded, of a licensing agreement for men's apparel to
another manufacturer. The transfer resulted in realization of inventory and
accounts receivable balances on more favorable terms than anticipated,
assumption of piece goods commitments by other manufacturers and cancellation
of minimum royalty requirements under the transferred license.
18
<PAGE> 19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
In the first quarter of Fiscal 1996 the Company took an additional
restructuring charge of $14.1 million relating to the 1995 Restructuring. The
additional restructuring charge reflected the lowering of anticipated proceeds
from the sale of the Mitre Sports soccer business. In addition, the 1995
Restructuring Provision was adjusted by an additional reversal of $12.7
million. The reversal reflected primarily (1) an agreement during the quarter
providing for the resolution of a long-term lease liability on terms more
favorable than were anticipated when the 1995 Restructuring Provision was
established, (2) better than anticipated realization of inventories and
accounts receivable as the remaining Greif inventory was liquidated in the
first quarter of Fiscal 1996 and (3) lower than anticipated union pension
liability, which the pension fund determined and announced to the Company
during the quarter.
In the second quarter of Fiscal 1996 the Company took an additional
restructuring charge of $2.2 million relating to the 1995 Restructuring. This
addition to the 1995 Restructuring Charge reflects the actual proceeds received
from the sale on August 14, 1995 of the Mitre Sports soccer business. In
addition, the Company made an additional positive adjustment of $1.7 million to
the 1995 Restructuring Provision. The adjustment reflects primarily the
reversal of reserves in connection with the final settlement of a long-term
lease liability, based on the resolution of certain contingencies at the
closing of the transaction in the second quarter more favorably than the
Company had anticipated and lower than anticipated severance payments.
The transactions provided for in the 1995 Restructuring are substantially
complete. The 1995 Restructuring Charge, as adjusted, provided for the
elimination of 464 jobs in footwear operations to be divested or consolidated
and in staff positions to be eliminated, of which 302 jobs had been eliminated
as of July 31, 1995. The divestiture of the University Brands business was
completed in February 1995. The operations of The Greif Companies have ceased,
its inventories and equipment have been liquidated and its last major remaining
long-term lease liability was resolved in June 1995. The Company's GCO Apparel
Corporation was sold effective June 9, 1995. The Company's Mitre Sports soccer
business was sold effective August 14, 1995 with cash proceeds to the Company
of approximately $19.1 million, including repayment of intercompany balances,
subject to the outcome of certain contingencies, principally a post-closing
audit. The outcome of these contingencies may require further adjustments to
the 1995 Restructuring Charge and Provision. There can be no assurance that
variations in the timing of any further adjustments will not affect the results
of operations and cash flows of the Company in the third fiscal quarter or that
some variations will not be material. While the Company is unable to predict
with certainty the extent, if any, to which the aggregate cash proceeds from
the 1995 Restructuring will exceed the cash requirements thereof, it currently
anticipates that cash proceeds will exceed requirements by approximately $10
million. Any excess cash will be reinvested in the Company's ongoing
businesses. Excess cash requirements, if any, from quarter to quarter during
the implementation of the 1995 Restructuring are expected to be funded from
cash flow from operations and, if necessary, from revolving credit borrowings.
19
<PAGE> 20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales from continuing operations in the second quarter ended
July 31, 1995 decreased 4.0% from the previous year reflecting primarily lower
sales from the operations divested as part of the 1995 Restructuring. Net
sales from ongoing operations increased 3.8% from the previous year. Total
gross margin for the quarter decreased .9% but increased as a percentage of net
sales from 37.6% to 38.8%. Selling and administrative expenses decreased 10.0%
and decreased as a percentage of net sales from 36.8% to 34.5%. The pretax
loss in the second quarter ended July 31, 1995 was $1,179,000, compared to
pretax earnings of $2,657,000 for the quarter ended July 31, 1994. The pretax
loss for the second quarter ended July 31, 1995 includes the $2.2 million
increase in the 1995 Restructuring Charge. Last year's pretax earnings
includes the recognition of $4.9 million of additional gain on the sale in 1987
of the Company's Canadian operations following the settlement in the second
quarter of Fiscal 1995 of certain claims arising out of that transaction. The
Company reported net earnings of $514,000 ($0.02 per share) for the second
quarter ended July 31, 1995 compared to a net loss of $516,000 ($0.02 per
share) in the second quarter ended July 31, 1994. The second quarter ended
July 31, 1995 net earnings includes, in addition to the 1995 Restructuring
Charge adjustment, the positive adjustment of $1.7 million to the 1995
Restructuring Provision. See Note 2 to the Consolidated Financial Statements
and "Significant Developments - Fiscal 1995 Restructuring."
Footwear Retail
<TABLE>
<CAPTION>
Three Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . $54,581 $52,999 3.0%
Operating Income . . . . . . . . . . . . . . . . . $ 2,979 $ 2,104 41.6%
Operating Margin . . . . . . . . . . . . . . . . . 5.5% 4.0%
</TABLE>
Primarily due to an increase in comparable store sales of approximately 5%, net
sales from footwear retail operations increased 3% in the quarter ended July
31, 1995 compared to the previous year, despite the operation of 4% fewer
stores in the second quarter ended July 31, 1995. As part of a restructuring
plan adopted in the fourth quarter of Fiscal 1994 (the "1994 Restructuring"),
the Company completed the closing of 7 retail stores in the second quarter of
last fiscal year, which resulted in increased discounting. Consequently, the
average price per pair in the quarter ended July 31, 1995 increased 8% as
compared to the same period last year, while unit sales were down 4%.
Gross margin as a percentage of net sales decreased from 50.7% to 49.0%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating
20
<PAGE> 21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
expenses decreased 5.3%, primarily due to the operation of fewer stores as a
result of the 1994 Restructuring and other store closings (see Note 2 to the
Consolidated Financial Statements) and decreased as a percentage of net sales
from 47.4% to 43.5%. In addition to the operation of fewer stores, expenses
are down due to job eliminations as part of the 1995 Restructuring and lower
selling salaries and advertising expenses.
The increase in operating income in the second quarter ended July 31, 1995
compared to the same period last year was due to sales growth and a decrease in
operating expenses.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Three Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . $ 55,019 $61,167 (10.1)%
Operating Income before
Restructuring Charges . . . . . . . . . . . . . $ 2,710 $ 2,742 (1.2)%
Restructuring Charges . . . . . . . . . . . . . . $ 2,216 $ -0- 100.0%
Operating Income . . . . . . . . . . . . . . . . $ 494 $ 2,742 (82.0)%
Operating Margin . . . . . . . . . . . . . . . . 0.9% 4.5%
</TABLE>
Net sales from footwear wholesale and manufacturing operations were $6.1
million (10.1%) lower in the second quarter ended July 31, 1995 than in the
same period last year, reflecting primarily lower sales from the operations
divested as part of the 1995 Restructuring. Sales from ongoing operations were
up 4.6%, reflecting primarily increased tanned leather sales and men's branded
footwear sales, which more than offset decreased sales of western boots,
primarily attributable to lower selling prices.
Gross margin as a percentage of net sales increased from 26.2% to 28.6%
primarily from improved overhead absorption due to the closing of a footwear
plant in February as part of the 1995 Restructuring.
Operating expenses decreased 12.3% and decreased as a percentage of net sales
from 22.3% to 21.7%, primarily because of the lower sales in operations to be
divested, the sale of University Brands in January 1995 and job eliminations as
part of the 1995 Restructuring.
The increase in operating income from ongoing operations before Restructuring
Charge excluding $1,027,000 of divested operating income for the three months
ended July 31, 1994 is due primarily to increased sales of tanned leather and
improvements in gross margin and expense reductions due to the 1995
Restructuring.
21
<PAGE> 22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
The net sales and operating income before Restructuring Provision for the three
months ended July 31, 1994 of the University Brands and Mitre Sports businesses
that are being disposed of in the 1995 Restructuring were $26,542,000 and
$1,027,000, respectively. The operating results subsequent to October 31, 1994
have been charged against the Restructuring Provision.
Discontinued Operations
On November 3, 1994, in response to worsening trends in the Company's men's
apparel business, the Company's board of directors approved a plan to exit the
men's apparel business. See "Significant Developments-Fiscal 1995
Restructuring" and Note 2 to the Consolidated Financial Statements for
information regarding the discontinuation of this business segment. Net sales
and operating loss of the men's apparel segment for the three months ended July
31, 1994, which was prior to the decision to discontinue, were $26.8 million
and $2.8 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the three months ended July 31, 1995 were $2.1
million, compared to $4.0 million last year, a decrease of approximately 47%.
Included in last year's corporate and other expenses is a $700,000 provision
for environmental litigation. The decrease in corporate expenses, excluding
the provision for environmental litigation, is attributable primarily to lower
professional fees and to lower compensation expenses due to layoffs related to
the Restructurings and to other staff reductions.
Interest expense decreased $544,000, or 18%, from last year, because of a
decrease in borrowings. Borrowings under the Company's Revolving Credit
Facility during the three months ended July 31, 1995 averaged $44,000 compared
to average borrowings of $34.5 million last year.
Other Income
Operating results of stores identified for closure and businesses to be
divested pursuant to the 1994 and 1995 Restructurings are included in the
Company's sales, cost of sales and selling and administrative expenses. The
net operating losses or gains incurred by these operations subsequent to the
decision to divest are charged against the restructuring reserves established
to provide for such losses or gains. The elimination of these gains from the
Company's results of operations for the three months ended July 31, 1995 is
presented as an other expense in the Consolidated Earnings Statement. Such
operating gains totalled $1.1 million for the three months ended July 31, 1995.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JULY 31 FISCAL 1996 COMPARED TO FISCAL
1995
The Company's net sales from continuing operations for the six months ended
July 31, 1995 decreased 5.4% from the previous year reflecting primarily lower
sales from the operations divested as part of the 1995 Restructuring. Net
sales from ongoing operations increased 1.7% from the previous year. Total
gross margin for the six months decreased 3.7% but increased as a percentage
22
<PAGE> 23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
of net sales from 37.8% to 38.5%. Selling and administrative expenses
decreased 7.6% and decreased as a percentage of net sales from 37.5% to 36.6%.
The pretax loss in the six months ended July 31, 1995 was $14.5 million,
compared to pretax earnings of $264,000 for the six months ended July 31, 1994.
The pretax loss for the six months ended July 31, 1995 includes a $16.3 million
increase in the 1995 Restructuring Charge and recognition of a $1.8 million
gain from the favorable resolution of a claim relating to import duties.
Included in last year's pretax earnings is the recognition of $4.9 million of
additional gain on the sale in 1987 of the Company's Canadian operations
following the settlement in the second quarter of certain claims arising out of
that transaction. The Company reported a net loss of $164,000 ($0.01 per
share) for the six months ended July 31, 1995 compared to a net loss of $3.2
million ($0.14 per share) in the six months ended July 31, 1994. The six
months ended July 31, 1995 net loss includes, in addition to the 1995
Restructuring Charge adjustment, a positive adjustment of $14.4 million to the
1995 Restructuring Provision. See Note 2 to the Consolidated Financial
Statements and "Significant Developments - Fiscal 1995 Restructuring."
Footwear Retail
<TABLE>
<CAPTION>
Six Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . $102,339 $100,771 1.6%
Operating Income . . . . . . . . . . . . . . . . . $ 4,200 $ 3,412 23.1%
Operating Margin . . . . . . . . . . . . . . . . . 4.1% 3.4%
</TABLE>
Primarily due to an increase in comparable store sales of approximately 5%, net
sales from footwear retail operations increased 1.6% in the six months ended
July 31, 1995 compared to the previous year even though the Company operated 5%
fewer stores in the six months ended July 31, 1995. As part of the 1994
Restructuring, the Company completed the closing of 34 retail stores in the
first six months of last fiscal year, which resulted in increased discounting.
Consequently, the average price per pair increased 10% in the first half this
year, while unit sales were down 7% as compared to the same period last year.
Gross margin as a percentage of net sales decreased from 51.1% to 49.5%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating expenses
decreased 4.7%, primarily due to the operation of fewer stores as a result of
the 1994 Restructuring (see Note 2 to the Consolidated Financial Statements)
and decreased as a percentage of net sales from 48.5% to 45.6%. In addition to
the operation of fewer stores, expenses are down due to job eliminations as
part of the 1995 Restructuring and lower selling salaries and advertising
expenses.
23
<PAGE> 24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
The increase in operating income in the six months ended July 31, 1995 compared
to the same period last year was due to sales growth and a decrease in
operating expenses.
Footwear Wholesale & Manufacturing
<TABLE>
<CAPTION>
Six Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . $ 100,486 $113,616 (11.6)%
Operating Income before
Restructuring Charges . . . . . . . . . . . . . $ 6,507 $ 4,667 39.4%
Restructuring Charges . . . . . . . . . . . . . . $ 16,329 $ -0- 100.0%
Operating Income . . . . . . . . . . . . . . . . $ (9,822) $ 4,667
Operating Margin . . . . . . . . . . . . . . . . (9.8)% 4.1%
</TABLE>
Net sales from footwear wholesale and manufacturing operations were $13.1
million (11.6%) lower in the six months ended July 31, 1995 than in the same
period last year, reflecting lower sales from the operations divested as part
of the 1995 Restructuring. Sales from ongoing operations were up 1.6%,
reflecting primarily increased tanned leather and men's branded footwear sales,
which more than offset decreased sales of western boots, primarily attributable
to lower selling prices.
Gross margin as a percentage of net sales increased from 26.0% to 27.3%
primarily from improved overhead absorption due to the closing of a footwear
plant in February 1995 as part of the 1995 Restructuring.
Operating expenses decreased 7.2% but increased as a percentage of net sales
from 22.3% to 23.4%, primarily because of the lower sales in operations to be
divested, the sale of University Brands in January 1995 and job eliminations as
part of the 1995 Restructuring.
Included in the operating income from ongoing operations before Restructuring
Charge for the six months ended July 31, 1995 is a one-time gain of $1.8
million from the favorable resolution of a claim relating to import duties.
The increase in operating income before Restructuring Charge and the import
duty claim excluding $1.2 million of divested operating income for the six
months ended July 31, 1994 is due primarily to increased sales of tanned
leather and men's branded products and improvements in gross margin and expense
reductions due to the 1995 Restructuring.
The net sales and operating income before Restructuring Provision for the six
months ended July 31, 1994 of the University Brands and Mitre Sports businesses
that are being disposed of in the 1995 Restructuring were $43.4 million and
$1.2 million, respectively. The operating results subsequent to October 31,
1994 have been charged against the Restructuring Provision.
24
<PAGE> 25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
Discontinued Operations
On November 3, 1994, in response to worsening trends in the Company's men's
apparel business, the Company's board of directors approved a plan to exit the
men's apparel business. See "Significant Developments-Fiscal 1995
Restructuring" and Note 2 to the Consolidated Financial Statements for
information regarding the discontinuation of this business segment. Net sales
and operating loss of the men's apparel segment for the six months ended July
31, 1994, which was prior to the decision to discontinue, were $57.2 million
and $2.9 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the first six months ended July 31, 1995 were
$4.1 million, compared to $6.8 million last year, a decrease of approximately
40%. Included in last year's corporate and other expenses is a $700,000
provision for environmental litigation. The decrease in corporate expenses,
excluding the provision for environmental litigation, is attributable primarily
to lower professional fees and to lower compensation expenses due to layoffs
related to the Restructurings and to other staff reductions.
Interest expense decreased $1,122,000, or 19%, from last year, because of a
decrease in borrowings. Borrowings under the Company's Revolving Credit
Facility averaged $22,000 during the six months ended July 31, 1995 compared to
$29.1 million last year.
Other Income
Operating results of stores identified for closure and businesses to be
divested pursuant to the 1994 and 1995 Restructurings are included in the
Company's sales, cost of sales and selling and administrative expenses. The
net operating losses incurred by these operations subsequent to the decision to
divest are charged against the restructuring reserves established to provide
for such losses. The elimination of these losses from the Company's results of
operations for the six months ended July 31, 1995 is presented as other income
in the Consolidated Earnings Statement. Such operating losses totalled $0.9
million for the six months ended July 31, 1995. Also included in other income
for the six months ended July 31, 1995 is a $1.8 million gain from the
favorable resolution of a claim relating to import duties.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
<TABLE>
<CAPTION>
July 31,
------------------
1995 1994
------- ------
<S> <C> <C>
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.4 $ 5.0
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100.9 $178.7
Long-term debt (includes current
maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 $114.0
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5x 3.5x
---------------
</TABLE>
25
<PAGE> 26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and
fall of each year. Cash flow from operations is ordinarily generated
principally in the fourth quarter of each fiscal year.
Cash provided by operating activities was $2.9 million in the first six months
of Fiscal 1996 compared to $22.5 million used by operating activities for the
same period last year. The $25.4 million improvement in cash flow from
operating activities between the first six months of Fiscal 1996 and the first
six months of Fiscal 1995 reflects primarily cash inflows from the liquidation
of assets included in the 1995 Restructuring and lower seasonal requirements
from the disposition of businesses included in the 1995 Restructuring.
A $3.4 million decrease in inventories from January 31, 1995 levels reflected
in the Consolidated Statement of Cash Flows was due primarily to liquidation of
inventories in connection with the 1995 Restructuring, which more than offset
planned seasonal increases, while the $4.9 million decrease in ongoing
inventories compared with July 31, 1994 reflects lower inventory levels in the
Company's boot business.
As reflected in the Consolidated Statement of Cash Flows, accounts receivable
at July 31, 1995 decreased $3.5 million compared to January 31, 1995, primarily
from collection of receivables in the operations being divested in the 1995
Restructuring. Ongoing accounts receivable at July 31, 1995 were $1.2 million
greater than at July 31, 1994, primarily due to increased sales in men's
branded footwear and tanned leather and extended terms to meet competitive
pressures.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Statement of Cash Flows at July 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
Six Months Ended July 31,
--------------------------
(In Thousands) 1995 1994
-------- --------
<S> <C> <C>
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 1,872 $ 1,066
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . (10,354) (3,449)
-------- --------
$ (8,482) $ (2,383)
======== ========
</TABLE>
The fluctuations in accounts payable are due to changes in buying patterns,
payment terms negotiated with individual vendors and changes in inventory
levels.
The change in accrued liabilities was due primarily to payment of severance
costs and liabilities related to the Restructurings.
26
<PAGE> 27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
There were only minimal revolving credit borrowings during the six months ended
July 31, 1995 as cash generated from the 1995 Restructuring more than offset
seasonal working capital increases in the remaining operations. Revolving
credit agreement borrowings increased by $24 million during the six months
ended July 31, 1994 to finance seasonal working capital increases, to finance
operations and to fund approximately $4.1 million of costs associated with the
Company's 1994 Restructuring.
Capital Expenditures
Total capital expenditures in Fiscal 1996 are expected to be approximately $8.0
million of which the Company has spent $3.5 million for the six months ended
July 31, 1995. These include expected retail expenditures of $4.1 million to
open approximately 22 new retail stores and to complete 31 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other purposes are expected to be approximately $3.9 million.
Future Capital Needs
The Company expects that cash provided by operations and by the sale of assets
employed in operations to be divested pursuant to the 1995 Restructuring will
be sufficient to fund all of its capital expenditures through Fiscal 1996. The
approximately $11.2 million of costs associated with the 1994 Restructuring and
the 1995 Restructuring that are expected to be incurred during the next 12
months are expected to be fully offset by cash inflows from sales of assets
employed in operations to be divested pursuant to the 1995 Restructuring.
The Company believes it will be able to comply with the financial covenants
contained in its revolving credit agreement, as amended as of October 31, 1994,
and that the commitments under that agreement will be adequate to meet the
Company's credit needs for Fiscal 1996. However, the financial covenants
contained in the revolving credit agreement are restrictive and the Company is
considering various alternatives in meeting its credit needs, including the
negotiation of a new revolving credit facility to replace the existing one.
There were $12.8 million of letters of credit outstanding under the revolving
credit agreement at July 31, 1995.
The restricted payments covenant contained in the Company's revolving credit
agreement and restricted payment covenant in the indenture under which the
Company's 10 3/8% senior notes were issued prohibits the Company from declaring
dividends on the Company's capital stock. The aggregate of annual dividend
requirements on the Company's Subordinated Serial Preferred Stock, $2.30 Series
1, $4.75 Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative
Preferred Stock is $302,000. The Company is unable to predict when dividends
may be reinstated.
27
<PAGE> 28
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At July 31, 1995 Genesco was in arrears with respect to dividends payable on
the following classes of preferred stock:
<TABLE>
<CAPTION>
ARREARAGE
-------------------------------------------
DATE DIVIDENDS BEGINNING THIS END OF
CLASS OF STOCK PAID TO OF QUARTER QUARTER QUARTER
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2.30 Series 1 October 31, 1993 $128,511 $ 21,409 $149,920
$4.75 Series 3 October 31, 1993 139,878 23,313 163,191
$4.75 Series 4 October 31, 1993 116,935 19,490 136,425
$1.50 Subordinated Cumulative
Preferred October 31, 1993 67,464 11,256 78,720
-----------------------------------------------------------------------------------------------------------
TOTALS $452,788 $ 75,468 $528,256
===========================================================================================================
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on June 28, 1995, shares
representing a total of 24,546,902 votes were outstanding and entitled to vote.
At the meeting, shareholders of the Company:
(1) elected seven directors nominated by the board of directors by the
following votes:
<TABLE>
<CAPTION>
Votes
Votes "For" "Withheld"
----------- ----------
<S> <C> <C>
David M. Chamberlain 20,045,573 729,539
W. Lipscomb Davis, Jr. 20,042,128 732,984
John Diebold 20,019,527 755,585
Harry D. Garber 19,942,241 832,871
Joel C. Gordon 20,055,632 719,480
William A. Williamson, Jr. 20,058,404 716,708
William S. Wire II 19,861,651 913,461
</TABLE>
(2) ratified the appointment of Price Waterhouse LLP as independent
accountants for the fiscal year ending January 31, 1996 by a vote of
20,145,784 for, 397,729 against, with 231,599 abstentions: and
(3) ratified employee stock purchase plan by a vote of 19,389,073 for,
1,062,590 against, with 323,449 abstentions: and
(4) defeated a shareholder proposal requesting the board to take steps
to provide for cumulative voting in the election of directors by a
vote of 4,337,983 for, 8,225,729 against, with 544,623 abstentions
and 7,666,777 not voted: and
(5) defeated a shareholder proposal regarding the repealing of the
Company's Shareholder Rights Plan by a vote of 4,484,037 for,
8,089,880 against, with 534,418 abstentions and 7,666,777 not voted.
28
<PAGE> 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(10) z. Asset Purchase Agreement dated as of August 11, 1995 between the
Company and Pentland Sports Group, LTD.
aa. Share Purchase Agreement dated as of August 14, 1995 between the
Company and Pentland Industries Limited.
(11) Computation of earnings per common and common share equivalent.
(27) Financial Data Schedule (for SEC use only)
--------------------
REPORTS ON FORM 8-K
None
29
<PAGE> 30
SIGNATURE
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
James S. Gulmi
Chief Financial Officer
September 14, 1995
30
<PAGE> 1
EXHIBIT (10) z.
LLFB
8/11/95
Execution Copy
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into as of the 11th day of August, 1995, between PENTLAND SPORTS GROUP, LTD.,
a Delaware corporation ("Purchaser"), and GENESCO INC., a Tennessee corporation
("Seller").
W I T N E S S E T H:
WHEREAS, Purchaser desires to acquire from Seller, and Seller desires
to transfer to Purchaser, certain of the assets, properties and business used
or useful in the Seller's Mitre Sports (US) Division which conducts its
business in the United States of America, its territories and possessions,
Canada and Mexico (the "Mitre Business"), upon the terms and conditions herein
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties agree as follows:
SECTION 1. Transactions on Closing Date
In accordance with the terms of this Agreement and upon satisfaction
of the closing conditions set forth in Sections 6 and 7, the parties agree to
consummate, on the Closing Date (as defined in Section 2), the following
transactions:
1.1 Sale and Purchase of Assets. (a) Subject to the terms and
conditions set forth in this Agreement and on the basis of and in reliance upon
the representations, warranties, obligations and agreements set forth in this
Agreement, on the Closing Date, effective as of August 11th, 1995, Seller shall
sell, assign, transfer, convey and deliver to Purchaser and Purchaser shall
purchase, acquire and accept those of Seller's assets and properties, as each
of the foregoing shall exist on the Closing Date and as set forth in Section
1.1(b) herein (the "Assets"), free and clear of all liens, charges and
encumbrances.
(b) The Assets to be conveyed to Purchaser are all the
assets and properties which are owned by Seller and used or useful exclusively
in the Mitre Business on the Closing Date, which shall include, and be limited
to:
(i) All inventories, materials and supplies of or
relating to the Mitre Business, including, without limitation, raw materials,
work in process, and finished goods (including those in the possession of
suppliers and those in transit) which are listed in an inventory report to be
delivered by Seller to Purchaser at the Closing (the "Inventory Report");
<PAGE> 2
(ii) All the Seller's rights, claims and interests
to and with respect to any pending or executory contracts (other than those
relating to employees and independent sales representatives) relating to the
Mitre Business and the Assets, including the purchase of materials, supplies
and services, the sale of products or services and rights and claims and
interests of every kind, including, without limitation, sales orders, service
contracts, supply contracts, purchase orders, commitments, licenses, permits,
instruments, and other documents to which Seller is a party or by which it has
rights, in each case to the extent they relate to the Mitre Business, are
assignable to Purchaser and are listed on Schedule 1.1(b)(ii) hereto.
Purchaser assumes all liabilities of Seller set forth in such contracts (except
as specifically excluded herein) and agrees to indemnify and hold harmless
Seller from the same;
(iii) Those fixed assets used in the Mitre Business
and listed in Schedule 1.1(b)(iii) attached hereto;
(iv) All records, files and papers relating
exclusively to the Mitre Business and the Assets, wherever located, including,
without limitation, any drawings, engineering information, P.C. computer
programs (to the extent not prohibited) and manuals and data, catalogues,
slogans, quotations, sales and advertising materials, sales and purchase
correspondence, trade association memberships, if any, in the name of the
Seller, research and development records, lists of present and former customers
and suppliers, customer credit information, customer pricing information,
business plans and personnel, employment and other records relating to the
Assets or the Mitre Business now or heretofore conducted by Seller (Seller may
retain copies of all such records, files and papers);
(v) All of Seller's rights under or pursuant to
all warranties, representations and guarantees made by suppliers in connection
with products or services furnished to Seller for use in the Mitre Business in
connection with the Assets to the extent such warranties and guarantees are
transferable and to the extent Purchaser has assumed the related liability;
(vi) All of Seller's interest in the trade names
and slogans used in the Mitre Business, including, without limitation, those
listed in Schedule 1.1(b)(vi) attached hereto, and any variations or
transliteration of such names;
(vii) All of Seller's rights and interest in and to
any licenses, license agreements, permits, patents, copyrights, tradenames,
trademarks, trademark registration applications (including all reissues,
divisions, continuations and extensions thereof), patent applications, and
patent disclosures docketed and used in the Mitre Business and listed in
Schedule 1(b)(vii).
(viii) The operation of the Mitre Business and all
intangible property and rights of Seller directly applicable to the Mitre
Business, including goodwill.
2
<PAGE> 3
1.2 Retention of Liabilities by Seller and Assumption of Letter of
Credit Liability and Purchase Orders by Purchaser.
(a) Notwithstanding the Closing and transfer of the
assets to the Purchaser, and except as set forth in Section 1.2(b) below,
Seller shall remain responsible for payment of and shall fully and timely pay
(i) all its liabilities, actual or contingent, with respect to the Assets and
the Mitre Business, including, without limitation, (a) claims, actual or
contingent, arising out of events prior to the Closing Date, including the sale
of goods from inventory of the Mitre Business manufactured and sold prior to
the Closing Date, (b) claims relating to Seller's default or breach of
representation or warranty of or relating to any of the Assets described in
subclauses (i) and (ii) of Section 1.1(b) claims, if any, for severance or
termination payments to hourly or salaried employees, or any payments of any
kind, due or which may become due, to sales representatives, resulting from the
sale of the Mitre Business to the Purchaser, pursuant to this Agreement.
(b) Obligations under the contracts as set forth in
Section 1.1(b)(ii) shall be assumed by Purchaser, which includes all purchase
orders described in Schedules 1.3(b)(A) and 1.3(b)(B).
1.3 Payments, Adjustment thereof and Retention.
(a) The price to be paid for the Assets acquired pursuant to
Section 1.1 hereof (the "Purchase Price") shall be an amount equal to the
aggregate of:
(i) 62.5% of the Value (as defined in Section
3.12) of the inventory identified on the Inventory Report delivered pursuant to
Section 1.1(b)(i) hereof which has been paid for ($6,609,316 x .625 =
$4,130,823), plus;
(ii) the agreed value of all fixed Assets in
accordance with the schedules attached hereto ($134,395).
(b) The Purchase Price as determined in accordance with
Section 1.3(a), shall be reduced by:
(i) the sum of $179,758 being 25% of the
aggregate amounts open and not drawn on or after the Closing Date under the
Letters of Credit listed on Schedule 1.3 and purchase orders listed on Schedule
1.3(b)(A) (whether or not included in inventory) provided that if the aggregate
amount actually drawn on the letters of credit listed on Schedule 1.3 and the
purchase orders listed on Schedule 1.3(b)(A) is less than the aggregate amounts
thereof reflected on said Schedules, Purchaser shall forthwith refund Seller an
amount calculated on the formula(B - A)/B x $179,758 where A is the amount
actually drawn and B is the aggregate amount reflected on said Schedules and
furnish Seller with an accounting reflecting the said computation; and
3
<PAGE> 4
(ii) the sum of $13,900 with respect to the
purchase orders listed on Schedule 1.3(b)(B); and
(iii) the sum of $225,000 with respect to return of
inventory related to sales made by Seller prior to Closing Date, which sales
are reflected as open accounts receivable on Seller's books on the Closing
Date.
Seller and Purchaser each represent, warrant, covenant, and
agree with each other that, for tax purposes, the Purchase Price shall be
allocated among the Assets pursuant to Section 1060 of the Internal Revenue
Code of 1986, as amended, and that all income tax returns and reports shall be
filed consistent with such allocation.
(c) At the Closing, the Purchaser shall cause (i) the Purchase
Price specified in Section 1.3(a) hereof (less $750,000) to be paid to the
Seller by wire transfer in immediately available funds; and (ii) the sum of
$750,000 (the "Retention") to be paid into the Escrow Account (as hereafter
defined).
(d) The parties shall, within twenty-one (21) days of the
Closing review the Schedules of Assets for accuracy as to the number and Value
(as defined in Section 3.12) of the Assets. Any undisputed amounts at the end
of twenty-one (21) days shall be paid immediately to Seller out of the Escrow
Account. In the event that the Schedules have to be adjusted, based solely on
number or to reflect Value, an amount equal to the difference between the total
dollar amount on the Schedules as attached hereto and the total dollar amount
on the Schedules, as adjusted (the "Shortfall"), shall be paid to the Purchaser
(together with all interest accrued thereon) from the Escrow Account upon the
determination of the Shortfall and the balance, if any, shall be paid to the
Seller. In the event the Shortfall exceeds $750,000, Seller shall pay the
amount of such excess to Purchaser on demand. In the event it is agreed (or
determined) that the Schedules, as adjusted, reflect an aggregate amount
greater than the aggregate dollar amount on the Schedules (the "Excess"), the
entire Escrow Account shall be delivered to Seller and Purchaser shall pay the
Seller the excess on demand. In the event the parties are unable to agree
within sixty (60) days of date hereof on the Shortfall or the Excess, any
undisputed amounts shall be released from the Escrow Account and the dispute
between the parties shall be resolved by informal arbitration in Atlanta by the
senior partner for the time being of the Atlanta office of Ernst & Young whose
decision shall be final and binding on the parties.
(e) The Retention shall be paid into a designated
interest-bearing account with Chemical Bank, 270 Park Avenue, New York, New
York in the joint names of the Seller's counsel and the Purchaser's counsel
(the "Escrow Account") immediately after Closing and the Retention (together
with interest accrued thereon) shall be applied in accordance with the
provisions of this paragraph.
(f) The Retention shall be held in the Escrow Account until
the determination of the Shortfall.
4
<PAGE> 5
(g) The Seller and the Purchaser shall promptly give to the
Seller's counsel and the Purchaser's counsel respectively, all such written
instructions as shall be necessary to give effect to the provisions of this
clause and shall execute such escrow agreements as may reasonably be required
by such counsel.
1.4 Leases. Seller shall execute on or prior to the Closing Date,
a written lease (the "Lease"), for the offices in Nashville, Tennessee used in
the Mitre Business, in accordance with the lease form attached hereto as
Schedule 1.4.
1.5 Services Agreement. Seller and Purchaser shall execute and
deliver a Services Agreement in the form of Schedule 1.5 hereto. Seller shall
provide Purchaser with the services set forth therein.
1.6 Warehousing Agreement. Seller and Purchaser shall execute and
deliver a Warehousing Agreement in the form of Schedule 1.6.
SECTION 2. Closing
Subject to the fulfillment of the conditions precedent specified in
Sections 6 and 7, the transactions contemplated by this Agreement shall be
consummated at a closing (the "Closing") as follows:
2.1 Closing Date. The Closing shall be held at 10:00 A.M. local
time at the offices of Lowenthal, Landau, Fischer & Bring, P.C. on August 11,
1995, or such other date or place as shall be mutually agreed to by the parties
(such date, together with any adjournment thereof is hereinafter referred to as
the "Closing Date").
2.2 Closing Deliveries of Seller. On the Closing Date, Seller
shall deliver to Purchaser, in a form reasonably satisfactory to counsel for
Purchaser, the following:
(a) A Bill or Bills of Sale, substantially in the form
attached hereto as Schedule 2.2(a), conveying title to Purchaser of all of the
Assets, and any other instruments of sale, conveyances, transfers and
assignments, documents, instruments, certifications, notices or assurances as
counsel for Purchaser may reasonably require, as necessary or desirable to
transfer, assign and convey to Purchaser as of the Closing Date, good title to
all of the Assets, or as otherwise may be reasonably requested by counsel to
Purchaser for purposes of this Agreement.
(b) All documents, instruments and opinions required to
be delivered to it under Section 6.
2.3 Closing Deliveries of Purchaser. On the Closing Date,
Purchaser shall deliver, in a form reasonably satisfactory to counsel for
Seller, the following:
5
<PAGE> 6
(a) To Seller, the amount required to be paid to Seller
pursuant to Section 1.3(a) hereof; and
(b) To Seller, all documents, instruments and opinions
required to be delivered to it under this Agreement.
SECTION 3. Representations, Warranties and Agreements
of the Seller.
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated herein, the Seller represents and
warrants to Purchaser and agrees as follows, each such representation, warranty
and agreement to be effective as of the Closing Date. No investigation or due
diligence examination conducted by or on behalf of Purchaser, or any
information elicited as a result thereof shall in any way affect or limit the
representations, warranties and agreements hereinafter set forth unless
Purchaser has actual knowledge that a representation or warranty is untrue.
3.1 Organization of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee and has full corporate power to own its properties and conduct the
business presently being conducted by it, and is duly qualified to transact
business as a foreign corporation and is in good standing in the State of
Tennessee and all other states in which the failure to qualify and be in good
standing would have a material adverse effect upon the Mitre Business.
3.2 Corporate Authority. (i) The execution, delivery and
performance of this Agreement by Seller has been duly authorized and approved
by all requisite corporate action on the part of Seller, and neither the
execution nor the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby nor compliance with or fulfillment by Seller
of the terms and provisions of this Agreement, will (a) conflict with or result
in a breach of the terms, conditions or provisions of or constitute a default
under the Certificate of Incorporation or By-laws of Seller or any instrument,
agreement, mortgage, lease, judgment, order, award, decree or other instrument
or restriction to which Seller is a party or by which Seller is bound or to
which the Assets are subject, (b) require any affirmative approval,
authorization or other order or action of any creditor of the Seller which has
not been obtained, or (c) give any party with rights under any instrument,
agreement, mortgage, judgment, order, award, decree or other restriction
referred to in subsection (a) above the right to terminate, modify or otherwise
change the rights or obligations of the Seller under such instrument,
agreement, mortgage, judgment, order, award, decree or other restriction.
(ii) Seller has full power and authority to do and perform
all acts and things required to be done by it under this Agreement.
(iii) This Agreement constitutes, and such other
agreements and instruments, as required, when duly executed and delivered by
Seller, will constitute, valid and
6
<PAGE> 7
binding obligations of Seller enforceable in accordance with their respective
terms, subject to all laws affecting creditors' rights and the discretion of
courts to fail to grant equitable remedies.
3.3. Sales History. The unaudited income statements of the Mitre
Business for the fiscal years ending January 31, 1993, 1994 and 1995, and for
the fiscal four months through May 26, 1995 (individually and collectively, the
"Historical Sales Statements") are attached as Schedule 3.3. Each such
Historical Sales Statement presents fairly the sales of the Mitre Business in
all material respects and, except for the reporting of discounts, in conformity
with generally accepted accounting principles, consistently applied, as of, or
for the period then ended.
3.4 Patents, Trademarks, Copyrights, etc. (i) Schedule 3.4
attached hereto sets forth a list of all of Seller's United States patents,
patent applications, copyrights, trademark registrations and applications
therefor, patent, trademark or trade name licenses, contracts with employees or
others relating in whole or in part to disclosure, assignment or patenting of
any inventions, discoveries, improvements, processes, formulae or other
know-how, and all patent, trademark or trade names or copyright licenses which
are in force which are owned in the name of Seller and used in the Mitre
Business (referred to collectively as Intellectual Property Rights). Seller
represents that the Intellectual Property Rights are, to the best of Seller's
knowledge and belief, fully valid and are in full force and effect, except as
noted on the schedules hereto.
(ii) Seller owns outright all of the Intellectual
Property Rights listed on Schedule 3.4 attached hereto free and clear of all
liens and encumbrances and pays no royalty to anyone under or with respect to
any of them.
(iii) Seller has not licensed anyone to use any of
such Intellectual Property Rights and has no knowledge of the infringing use by
Seller of any intellectual property rights.
(iv) All rights of Seller in and to each of the
foregoing Intellectual Property Rights are transferable and will be transferred
or assigned to Purchaser as herein contemplated.
(v) Seller has no knowledge of, nor has Seller
received any notice of (a) any conflict with the asserted rights of others with
respect to any Intellectual Property Rights used in, or useful to, the
operation of the business owned by Seller or with respect to any license
relating to the Assets under which Seller is licensor or licensee; or (b) that
the Intellectual Property Rights infringe upon the rights of any third party.
3.5 Employees. Schedule 3.5 sets forth a list of the names and
current annual salary rates of each of the present employees of Seller who are
engaged in primarily in the Mitre Business and who will be terminated by the
Seller at Seller's expense as of the Closing Date, together with a summary of
the bonuses, additional compensation and other like benefits, if any, paid or
payable to such persons as of the date hereof.
7
<PAGE> 8
3.6 Compliance with Laws. (a) The Mitre Business is and has been
operated in material compliance with all applicable statutes, orders, rules and
regulations promulgated by governmental authorities and no allegation of non-
compliance with such applicable statutes, orders, rules and regulations made by
any person is pending or threatened or has been made.
(b) Set forth on Schedule 3.6(b)(i) is a complete list of all
permits, licenses, variances, exemptions, orders and approvals from
governmental authorities which are held by or have been issued to Seller in
connection with the Mitre Business and are reasonably necessary for the conduct
of the Mitre Business as presently conducted (collectively, "Permits"). Seller
is in compliance in all material respects with the terms of the Permits and has
made all notifications and applications to governmental authorities required
under law to continue operations of the Mitre Business as presently conducted.
3.7 Litigation. Schedule 3.7 sets forth a brief description of
each pending lawsuit, civil proceeding instituted by a governmental agency,
criminal proceeding, indictment, administrative proceeding, governmental
investigation or arbitration with respect to the Mitre Business or to which the
Assets are subject, specifying the damage or relief sought, the name of counsel
for Seller in charge of such matter and the current status of such action.
Except as set forth in Schedule 3.7, there is no lawsuit, proceeding,
indictment, governmental investigation or arbitration with respect to the Mitre
Business to which the Assets are subject, pending, or, to the knowledge of
Seller, threatened.
3.8 Assets. Seller owns, all of the Assets to be acquired
hereunder. Seller has good title to all of the Assets, which shall be conveyed
free and clear of all liens, mortgages, pledges, encumbrances, conditional
sales agreements, security interests, title retention devices or charges of any
kind.
3.9 Material Changes Since January 31, 1995. Since January 31,
1995, Seller has not (a) sold or otherwise disposed of any of the Assets,
except for inventory in the ordinary course; (b) entered into any contract,
license, franchise, or commitment relating to the Mitre Business other than in
the ordinary course of business or as contemplated by this Agreement or waived
any rights relating to the Mitre Business other than in the ordinary course of
business; or (c) been made aware of and is not aware of any termination or
threatened termination by any of the top ten suppliers or of the top ten
customers of its relationship with the Mitre Business, subject to the knowledge
and inquiry standards of Section 3.13.
3.10 Investment Banking and Other Fees. Except for fees payable to
Donaldson, Lufkin & Jenrette, Seller has no obligation to pay any investment
banking or other fee as a result of the consummation of the transactions
contemplated hereby.
3.11 Disclosure. No representation or warranty by Seller herein
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein not misleading with
respect to the matters covered thereby, taken as a whole.
8
<PAGE> 9
3.12 Inventory. All items of inventory to be acquired by Purchaser
pursuant to this Agreement and described in the Inventory Report, to which any
value is attributed in determining the Purchase Price, have been valued at
their book value (i.e. to reflect the lower of cost or market value in
accordance with generally accepted accounting principles ("GAAP") after taking
into account all reserves ("Value").
3.13 Customers and Suppliers. Listed on Schedule 3.13(A) are all
customers of the Mitre Business in terms of sales for the fiscal year ending
January 31, 1995, showing the approximate total sales to each customer for such
period. To the best of Seller's knowledge based solely upon inquiry of the
President, Chief Financial Officer and Director of Sales of the Seller's Mitre
Division, there has not been any material adverse change in the business
relationship of Seller with any of its top ten customers or top ten suppliers
listed on Schedule 3.13(A), except as disclosed on Schedule 3.13(B). These
Schedules also set forth and briefly describe all material contracts and
commitments for the purchase by Seller of inventory and supplies that relate to
the Mitre Business as of the date of this Agreement; the status of all accepted
and unfilled orders placed by sales representatives for the Mitre Business; the
aggregate dollar value of all accepted and unfilled orders for the sale of
products relating to the Mitre Business. All of the orders and commitments
were made in the ordinary and usual course of business.
3.14 No Interest in Suppliers, etc. The Seller has no ownership
interest, direct or indirect, in any supplier or consultant to or customer,
agent or adviser of the Mitre Business other than Mitre Sports International
Limited.
3.15 Insurance Coverage. Attached as Schedule 3.15 and subject to
information and notations thereon is a correct and complete list of all
policies of insurance in effect at the date of this Agreement, providing
coverage with respect to risks of product liability, environmental liability or
any other liability or risk involving the Mitre Business of the Seller. All
such policies are dated as set forth in such schedule; there has been no
failure to pay any premiums in a timely fashion as required by such policies;
and at the date of this Agreement, no notice of cancellation or non-renewal
with respect to any such policy has been received by the Seller. There has
been no material default by the Seller with respect to any provision contained
in any policy.
SECTION 4. Representations, Warranties and Agreements of
Purchaser.
Purchaser hereby represents and warrants to Seller and agrees as
follows:
4.1 Organization of Purchaser. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Corporate Authority. (a) The execution, delivery and
performance by Purchaser of this Agreement has been duly authorized and
approved by all requisite corporate action on
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the part of Purchaser, and neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby or
thereby, nor compliance by Purchaser with, or fulfillment by Purchaser, of the
terms and provisions of this Agreement, will (i) conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
the Certificate of Incorporation or By-Laws of Purchaser or any instrument,
agreement, mortgage, lease, judgment, order, award, decree or other instrument
or restriction to which either is a party or by which either is bound, or (ii)
require any affirmative approval, consent or authorization of, or registration
or filing with, any court, governmental authority or regulatory body of
Purchaser or any other person.
(b) Purchaser has full power and authority to do and
perform all acts and things required to be done by it under this Agreement.
(c) This Agreement constitutes and such other agreements and
instruments, when duly executed and delivered by Purchaser, will constitute,
valid and binding obligations of Purchaser enforceable in accordance with their
respective terms.
4.3 Investment Banking and Other Fees. The Purchaser does not
have any obligation to pay any investment banking or other fee as a result of
the consummation of the transactions contemplated hereby.
4.4 Disclosures. No representation or warranty by Purchaser
herein contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein not misleading
with respect to matters covered thereby, taken as a whole.
SECTION 5. Certain Matters Pending the Closing.
5.1 Conduct of Business. During the period from February 1, 1995
to the Closing Date, Seller has:
(a) satisfied its obligations under all agreements and
commitments material to the Mitre Business except those which Seller in good
faith elects to contest or dispute;
(b) maintained the books of account and records relating
to the Mitre Business in the usual, regular and ordinary manner in a manner
consistent with past practices;
(c) continued to withhold and deposit all payroll
withholding and related employer taxes of those of Seller's employees primarily
engaged in the Mitre Business as and when due;
(d) subject to disclosures in this Agreement, maintained
all patents, registered trademarks, and trade names used in connection with the
Mitre Business, prosecute all applications pending in relation thereto and take
all steps reasonably appropriate to prevent any
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infringement of any such patents, trademarks or trade names by third parties
consistent with past practices with respect to such matters; and
(e) continued to operate the Mitre Business at a level of
activity sufficient to meet contractual commitments for delivery of goods;
5.2 Prohibited Action. During the period from February 1, 1995 to
the Closing Date, except as disclosed on Schedule 3.13(B), Seller did not, in
connection with the Mitre Business:
(a) except to the best of Seller's knowledge based solely
upon inquiry of the President, Chief Financial Officer and Director of Sales of
the Seller's Mitre Division, extend credit on sales other than sales of
merchandise in the ordinary course of business;
(b) to the best of Seller's knowledge based solely upon
inquiry of President, Chief Financial Officer and Director of Sales of the
Seller's Mitre Division, except in the ordinary course of business consistent
with sound business practice, alter or modify its pricing policies with respect
to the sales of merchandise or the terms of any such sales; or
(c) allow any liens, charges, mortgages or security
interests, except for leased equipment, to attach to the Assets;
5.3 Preservation of Relationships. Seller will use its best
efforts to preserve its relationship with customers of and suppliers to the
Mitre Business and will generally assist Purchaser in arranging for the orderly
transfer and reception of the Assets from Seller to Purchaser.
5.4 No Default. Except for the failure to obtain any required
consents to assignment under any of the contracts or leases relating to the
Mitre Business to which it is a party, Seller has not done any act or omitted
to do any act, or permit any act or omission to act, which would cause a breach
of any of the contracts relating to the Mitre Business.
5.5 Publicity. The initial general notices, releases, statements
and communications to employees, suppliers, representatives and customers of
the Mitre Business and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by Purchaser and Seller unless
either party is, in the opinion of its respective counsel, required by law to
make any filing, notice or report, in which event it may do so without mutual
agreement but only after notice to and consultation with the other party.
5.6 Cooperation. Purchaser and Seller will cooperate in all
respects and shall use their respective best efforts in connection with
securing any consents of third parties necessary for the transfer of the Assets
from Seller to Purchaser or the assumption of liabilities by Purchaser, and
giving any notices to any governmental authority, or securing the permission,
approval, determination, consent or waiver of any governmental authority,
required by law in
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connection with the transfer of the Assets from Seller to Purchaser or the
assumption of the liabilities by Purchaser, and to bring about the satisfaction
of the conditions required to be performed, fulfilled and complied with by
Seller pursuant to this Agreement. Seller shall, to the extent requested,
cooperate with and assist Purchaser, at Purchaser's expense, in obtaining all
licenses, permits and the authorizations required to be obtained by Purchaser
in connection with the ownership of the Assets and the operation of the Mitre
Business.
SECTION 6. Conditions Precedent to Obligations of Purchaser.
The obligations of Purchaser under this Agreement shall be subject to
the satisfaction, on or prior to the Closing Date, of all the following
conditions, any or all of which may be waived in writing by Purchaser:
6.1 Misrepresentations or Breach of Warranties. All
representations and warranties of the Seller in this Agreement shall be deemed
to have been made at and as of the time of the Closing and shall then, except
as submitted in writing at the Closing, be true and correct in all material
respects, and there shall have been no breach by the Seller in the performance
of their representations or warranties herein.
6.2 Absence of Certain Changes. There shall not have occurred
prior to the Closing Date (a) any material adverse change in the Assets taken
as a whole, (b) damage or destruction in the nature of a casualty loss which
materially affects the operation of the Mitre Business; provided, however, that
in the event of such a loss which is fully or partially covered by insurance,
Seller shall (i) offer to assign or otherwise make available to Purchaser the
proceeds of such insurance on the condition that Purchaser shall consummate the
transactions contemplated hereby or (ii) Seller may terminate this Agreement in
writing within seven (7) days of the occurrence of an event of loss whereafter
neither Seller nor Purchaser shall have any claim against the other, (c) the
legal inability of the Seller to convey, assign and transfer to Purchaser any
of the Assets which will have the effect of materially affecting the ability of
Purchaser to operate the Assets, or (d) any work stoppage, strike or materially
adverse change in the composition of Seller's work force.
6.3 Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation
of the transactions contemplated hereby.
6.4 Performance by Seller. Seller shall have performed and
complied in all material respects with agreements and conditions required by
this Agreement to be performed and complied with by it prior to or on the
Closing Date.
6.5 Approvals. All material government approvals necessary to be
obtained by Purchaser to consummate the transactions contemplated hereunder,
including, without limitation,
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all material permits, licenses or similar permissions, shall have been obtained
prior to the Closing Date and Purchaser shall use its reasonable best efforts
to obtain the same.
6.6 Purchase of Mitre Sports International Limited.
Simultaneously herewith, Pentland Industries Limited is purchasing all of the
issued and outstanding shares of capital stock of Mitre Sports International
Limited, an English corporation registered in England, in accordance with the
terms of that certain Stock Purchase Agreement dated as of August 11, 1995 by
and among Seller and Pentland Industries Limited and the Completion as defined
in such agreement shall have occurred.
6.7 Deliveries by Seller. At Closing, Seller shall execute and
deliver to Purchaser, or cause third parties to execute and deliver to
Purchaser, in form and content satisfactory to Purchaser and its counsel:
(a) the instruments of sale, conveyance, transfer and
assignment pursuant to Sections 1 and 2 of this Agreement;
(b) the Lease duly executed by Seller which Lease shall
commence on the Closing Date;
(c) the Services Agreement and Warehousing Agreement duly
executed by the Seller which shall commence on the Closing Date;
(d) an assignment of Seller's rights ("Rights") to occupy
space at the Atlanta Supershow, if assignable. In the event the Rights are not
assignable, Seller will, with appropriate indemnities from Purchaser and at
Purchaser's cost, renew its contract with the Atlanta Supershow and make the
space available to Purchaser; and
(e) such other documents and instruments as Purchaser
shall reasonably request.
6.8 Opinion of Counsel for Seller. At Closing, Boult, Cummings,
Conners & Berry, counsel for the Seller, shall deliver to Purchaser a written
opinion, dated the Closing Date, in substantially the form of Schedule 6.8
SECTION 7. Conditions Precedent to Obligations of Seller.
The obligations of Seller under this Agreement shall be subject to the
fulfillment, on or prior to the Closing Date, of the following conditions, any
or all of which may be waived in writing by Seller:
7.1 No Misrepresentation or Breach of Covenants and Warranties.
All representations and warranties of Purchaser in this Agreement shall be
deemed to have been made at and as of
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the time of the Closing and shall then be true and correct in all material
respects, and there shall have been no breach by Purchaser in the performance
of any of its obligations herein and therein.
7.2 Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation
of the transactions contemplated hereby.
7.3 Performance by Purchaser. The Purchase Price shall have been
paid in accordance with Section 1.3(b) and Purchaser shall have performed and
complied with all other agreements and conditions required by this Agreement to
be performed and complied with by it prior to or on the Closing Date.
7.4 Deliveries by Purchaser and Affiliates. The Purchaser shall
execute and deliver to Seller in form and content satisfactory to Seller and
its counsel:
(i) instruments of assignment in the form of
Schedule 7.4(i) attached hereto;
(ii) such other documents and instruments as Seller
shall reasonably request; and
(iii) the Purchase Price.
7.5 Opinion of Counsel for Purchaser. Seller shall receive from
Lowenthal, Landau, Fischer & Bring, P.C., counsel to Purchaser, a written
opinion dated the Closing Date, in substantially the form of Schedule 7.5.
SECTION 8. Transfer Expense. Purchaser will pay and indemnify and
hold harmless Seller from any sales or transfer taxes payable in connection
with the transactions contemplated hereby. At the Closing, Purchaser shall
deliver a check in the amount, if any, shown as due on the sales tax return to
be prepared by Seller reporting the sale contemplated herein. In connection
with the transfer of inventory, Purchaser shall register as a Tennessee vendor
and furnish Seller with a properly completed resale certificate at the Closing.
In the event that the sales tax liability is subsequently adjusted, Purchaser
shall pay any amount due (including interest and penalties, if any) and shall
be entitled to any overpayment. Purchaser will also pay any filing or
recording fees, license, transfer fees and similar asset transfer expenses
relating to the transactions contemplated hereby in connection with the
instruments of transfer herein.
SECTION 9. Indemnification.
9.1 Indemnification by Seller. Seller indemnifies and holds
Purchaser, its officers and directors harmless against and in respect of any
breach of covenant or representation by Seller,
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including costs, reasonable attorneys' fees and expenses incident to such
liabilities. This indemnity agreement is in addition to any other specifically
enumerated liability which Seller may otherwise have under this Agreement.
9.2 Indemnification by Purchaser. Purchaser indemnifies and holds
Seller, its officers and directors harmless against and in respect of any
breach of covenant or representation by Seller, including costs, reasonable
attorneys' fees and expenses incident to such liabilities. This indemnity
agreement is in addition to any other specifically enumerated liability which
Seller may otherwise have under this Agreement.
9.3 Third Party Claims. If a claim by a third party is made
against an indemnified party, and if the indemnified party intends to seek
indemnity with respect thereto under this Section 9, such indemnified party
shall promptly notify the indemnifying party of such claim. The indemnifying
party shall have thirty (30) days after receipt of such notice to undertake,
conduct and control, through counsel of its own choosing (subject to the
consent of the indemnified party, such consent not to be unreasonably withheld)
and at its expense, the settlement or defense thereof, and the indemnified
party shall co-operate with it in connection therewith; provided that: (i) the
indemnifying party shall not thereby permit to exist any lien, encumbrance or
other adverse charge upon any assets of any indemnified party, (ii) the
indemnifying party shall permit the indemnified party to participate in such
settlement or defense through counsel chosen by the indemnified party, provided
that the fees and expenses of such counsel shall be borne by the indemnified
party, and (iii) the indemnifying party shall promptly reimburse the
indemnified party for the full amount of any loss resulting from such claim and
all related expense incurred by the indemnified party within the limits of this
Section 9. So long as the indemnifying party is reasonably contesting any such
claim in good faith, the indemnified party shall not pay or settle any such
claim. Notwithstanding the foregoing, the indemnified party shall have the
right to pay or settle any such claim, provided that in such event it shall
waive any right to indemnity therefor by the indemnifying party. If the
indemnifying party does not notify the indemnified party within thirty (30)
days after receipt of the indemnified party's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof, the indemnified
party shall have the right to contest, settle or compromise the claim in the
exercise of its exclusive discretion at the expense of the indemnifying party.
9.4 Limitations on Amounts. The provisions for indemnity under
Sections 9.1 and 9.2 shall (i) be effective only when the aggregate amount of
all claims made by the Seller against the Purchaser or by the Purchaser against
the Seller for which such other party has an indemnification obligation
hereunder exceeds $50,000 (the "Basket"), provided that if the aggregate of
claims made exceeds the Basket, the indemnifying party shall be liable for the
aggregate of such claims without giving any credit for the Basket; (ii) not
apply with respect to any single claim of $750 or less, provided that such
claims shall be taken into account when computing the aggregate of claims for
purposes of the Basket; and (iii) not exceed, in the aggregate, the amount of
the Purchase Price.
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9.5 Failure to Pay. Should any party fail to pay any amount due
under the terms of this Agreement when due, such party shall also be liable for
the payment of interest at the Wall Street Journal Prime Rate, costs of
collection, and reasonable attorneys fees.
SECTION 10. Other Provisions
10.1 Further Assurances. At its own expense, each party will, at
such time and from time to time on and after the Closing Date, upon reasonable
request by the other party, execute, acknowledge and deliver, or will cause to
be done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances that may
be reasonably required for the conveying, transferring, assigning, delivering,
assuring and confirming to Purchaser, or to its respective successors and
assigns, or for aiding and assisting in collecting or reducing to possession,
any or all of the properties and assets of the Seller sold hereunder or for the
carrying out of the purposes of this Agreement.
10.2 Bulk Sales Law. Purchaser and the Seller hereby waive
compliance with the provisions of Article 6 of the Uniform Commercial Code as
it is in effect in the states where the Seller owns Assets to be transferred to
Purchaser hereunder. Seller hereby agrees to indemnify and hold Purchaser
harmless from any loss, cost or liability (including reasonable attorneys'
fees) incurred by Purchaser as a result of such non-compliance, provided,
however, that nothing herein shall prevent Seller from contesting any liability
in good faith. The indemnification under this Section 10.2 shall not apply to
any Assumed Liabilities assumed hereunder by the Purchaser.
10.3 Complete Agreement. This Agreement, including the Exhibits
and Schedules attached hereto and the documents referred to herein shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and shall supersede all previous negotiations,
commitments, and writings with respect to such subject matter.
10.4 Hiring of Employees. (a) Seller shall use its best efforts to
comply fully with all applicable plant closing laws, if any, of or relating to
the Mitre Business and taken by Seller at or prior to the Closing. Seller
acknowledges its full responsibility for any severance pay liabilities to
employees or any payments of any kind, due, or which may become due, to sales
representatives of Seller as well as for accrued vacation pay to any of
Seller's employees engaged primarily in the Mitre Business.
(b) Purchaser shall be entitled, but not obliged, to
extend on the Closing Date, an offer of employment on such terms and conditions
as Purchaser may decide, to those of Seller's employees engaged primarily in
the Mitre Business and identified on Schedule 3.5 as of the Closing Date as
purchaser may decide. Purchaser shall have no obligations whatsoever with
respect to any employees of Seller not hired by Purchaser, except for
commitments or promises Purchaser may have made to such employees. Schedule
3.5(b) lists those employees of Seller to be hired by Purchaser on the Closing
Date
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10.5 Survival of Representations and Warranties. The
representations and warranties and indemnities set forth in this Agreement
shall survive the Closing for a period of twenty (20) months.
10.6 Waiver, Discharge, etc. This Agreement may not be released,
discharge, abandoned, changed or modified in any manner, except by an
instrument in writing signed on behalf of each of the parties hereto by their
duly authorized representatives.
10.7 Notices. All notices, requests, demands and communications
under or in respect hereof shall be deemed to have been duly given and made if
in writing (including telex or fax) if delivered by hand or left at or posted
by pre-paid registered or certified mail (airmail if dispatched to a foreign
country) to the party concerned at its address appearing below or sent by fax
or telex to the number and with copy as below indicated. Service shall be
deemed to be effective: so far as delivery by hand is concerned when handed to
the recipient or left at the recipient's address; by post three days after
posting (seven days if sent to a foreign country); by fax or telex on the same
day as dispatch. The said addresses and fax and telex numbers shall continue
in force until alternatives are notified and receipt of such notification has
been acknowledged:
(a) If to Seller:
Genesco Inc.
Genesco Park
Suite 410
1415 Murfreesboro Road
Nashville, Tennessee 37217
Attn: Roger Sisson, Esq.
Fax: (615)367-7073
with a copy to:
Boult, Cummings, Conners & Berry
414 Union Street
Suite 1600
P.O. Box 198062
Nashville, TN 37219
Attn: E. Berry Holt, Esq.
Fax: (615)252-2380
(b) If to Purchaser:
Pentland Sports Group, Ltd.
3333 New Hyde Park Road
New Hyde Park, New York 11042
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Fax: (516)365-3451
Attn: Nahum G. Shar
with copies to:
Lowenthal, Landau, Fischer & Bring, P.C.
250 Park Avenue
New York, New York 10177
Attn: George N. Abrahams, Esq.
Fax: (212)986-0604, and
Pentland Group plc
The Pentland Centre,
Lakeside Squires Lane
Finchley, London N32QL
Attn: John McLaren, Esq.
Fax: 01144181-343-4876
10.8 Expenses. Seller's professional and other fees and expenses
(including the fees and expenses to be paid to Boult, Cummings, Conners &
Berry) incident to this Agreement shall be paid by Seller and Purchaser's
professional and other fees and expenses incident to this Agreement (including
the fees and expenses to be paid to Price Waterhouse and to Lowenthal, Landau,
Fischer & Bring, P.C.) shall be paid by Pentland.
10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to the rules of conflict of laws.
10.10 Assignment. Except for an assignment to an affiliate of
either party, neither party may assign its rights and/or obligations to any
other party without the express written consent of the other party. In the
event of a permitted assignment, the assigning party shall remain liable for
all obligations hereunder.
10.11 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their successors or
assigns.
10.12 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each party and delivered to the other party.
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10.13 Filing of Tax Returns. Seller agrees to file on a timely
basis all tax returns relating to the Mitre Business that Seller may be
required to file by any law or regulation to file in respect of all periods
prior to or including the Closing Date.
10.14 Name. From and after the Closing Date, neither the Seller nor
any other company in which the Seller or any of its subsidiaries or affiliates,
has any direct or indirect equity interest shall use the name "Mitre" or
"Absolute Performance" or any variation, transliteration, translation, or
confusingly similar names in connection with any enterprise or business at any
time.
10.15 Agreements Not to Interfere with Business. From and after the
Closing Date and for a period of three years thereafter, Seller shall not take
any action, whether directly or indirectly, except with prior written approval
of Purchaser, to solicit or hire any present or future employees of Purchaser
so long as they are employed by Purchaser.
10.16 Conflict. In the event of any conflict between the terms and
conditions of this Agreement and the agreement between the Seller and Pentland
Industries Limited dated August 11th, 1995 (the "Share Purchase Agreement"),
the provisions of this Agreement shall control with respect to the purchase of
the Assets and the Mitre Business and all matters ancillary thereto, and the
provisions of the Share Purchase Agreement shall control with respect to the
purchase of the shares of Mitre Sports International Limited.
10.17 Collection of Accounts Receivable. (a) Seller is retaining
all accounts receivable of the Mitre Business arising prior to the Closing Date
("Seller Accounts Receivable") and shall service such receivables in accordance
with its credit and collection policies as heretofore in effect and applied by
Seller to its customers. Pursuant to the terms of the Services Agreement,
Seller has agreed to service, credit check, and collect Purchaser's accounts
receivable arising from the sale of inventory of the Mitre Business on or after
the Closing Date ("Purchaser Accounts Receivable"), in accordance with Seller's
credit and collection policies as heretofore in effect and applied by Seller to
its customers and subject to Purchaser's supervision and direction. In
fulfilling its obligations under the Services Agreement, Seller shall use its
reasonable best efforts (using appropriate staff and facilities) to cause the
Purchaser Accounts Receivable to be collected. Seller Accounts Receivable and
Purchaser Accounts Receivable shall be collected in a commercially reasonable
manner. Seller shall not allow any Purchaser Accounts Receivable to be settled
for less than the face amount thereof or issue credit notes or otherwise take
action, or omit to take any action, that would reduce the value of the
Purchaser Accounts Receivable without the prior written consent of Purchaser.
If Seller makes a written request to Purchaser for the consent referred to in
the immediately preceding sentence, such request shall be made in writing and
transmitted to Purchaser by facsimile. If Purchaser does not respond to such
facsimile within five (5) business days of such dispatch thereof, Purchaser
shall be deemed to have given its consent. Purchaser's customers shall be
instructed that all payments made by such customers with respect to the
Purchaser Accounts Receivable shall be made directly to Purchaser's lock box;
provided however, that if Seller or its affiliate or agents receives any
payment relating to any of the Purchaser Accounts Receivable, such payment
shall
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be the property of, and shall be on the Monday following receipt forwarded and
remitted to the Purchaser. All payments made by customers with respect to the
Seller Accounts Receivable shall be made directly to Seller's lock box;
provided however, that if Purchaser or its affiliates or agents receives any
payment relating to any of the Seller Accounts Receivable, such payment shall
be the property of, and shall be on the Monday following receipt forwarded and
remitted to the Seller.
(b) Beginning with the Closing Date and continuing until all Seller
Accounts Receivable have been collected, Seller shall cause separate accounts
receivable lists to be maintained for Seller Accounts Receivable on the one
hand, and Purchaser Accounts Receivable on the other hand. Subject to Section
10.16(a) above, if Seller or Purchaser receives any payments from customers who
have both outstanding Seller Accounts Receivable and outstanding Purchaser
Accounts Receivable, the recipient shall direct such payments in the following
order: (i) first, to those invoices, if any, designated by the customer;
provided that neither Seller nor Purchaser nor the employees or agents of
either of them, shall instruct or request any customer to make any such
designation; and (ii) second, if there is no designation from the customer,
then such payments shall be allocated to the oldest invoices owing to Seller or
Purchaser on account of Mitre products. All monies owing from one party to the
other hereunder shall be paid on the Monday following receipt.
(c) Seller shall provide Purchaser with a monthly statement of the
aging and collection status of the Purchaser Accounts Receivable and the Seller
Accounts Receivable at least seven (7) days after the end of each calendar
month. Seller shall service and collect the Purchaser Accounts Receivable as
Purchaser's non-exclusive agent, and Seller shall receive no compensation for
such services (except for the compensation provided in the Services Agreement)
and acquire no ownership or financial interest whatsoever in the Purchaser
Accounts Receivable, all right, title and interest therein belonging
exclusively to the Purchaser.
(d) Seller shall notify Purchaser as soon as reasonably practicable
if any customer disputes any Purchaser Accounts Receivable or if any customer
that has invoices outstanding from both Purchaser and Seller disputes any
Seller Accounts Receivable. Purchaser, in its discretion, may direct Seller
to cease servicing any Purchaser Accounts Receivable from time to time for
whatever reason, including, but not limited to, the desire of Purchaser to
initiate litigation to collect such Purchaser Account Receivable, but the
provisions of Sections 10.17(a) and (b) above shall continue to apply to
receipts of one party belonging to the other. Seller may from time to time
initiate litigation to collect any Seller Accounts Receivable if such Sellers
Accounts Receivable is not paid within the Sellers usual and normal credit term
for such customers or the customer has filed or had filed against it a petition
in bankruptcy or the customer has engaged in fraud, provided however, that
notice of the proposed commencement of such litigation shall be given to
Purchaser three days prior to the commencement thereof.
10.18 Returns. All returns of inventory shall be for the account of
Purchaser and on receipt by Purchaser of returned inventory, Purchaser shall
pay Seller the amount of the Credit issued which will not exceed the face value
of the invoice relating to the inventory returned.
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10.19 Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provision
of this Agreement, and this Agreement shall be construed and reformed as if any
such illegal, invalid or unenforceable provision were not contained herein.
10.20 Headings. Article and Section headings in this Agreement are
included for convenience of reference only and shall not constitute a part of
this Agreement for any purpose.
10.21 Amendments and Waivers. This Agreement may be amended or
modified in whole or in part, only by a writing signed by both Buyer and
Sellers. No provision of or right under this Agreement may be waived, except
in writing signed on behalf of the party against whom such waiver is asserted.
No waiver by any party of any breach or right of this Agreement shall be held
to constitute a waiver of any other breach or right or a continuation of the
same breach.
10.22 Exhibits and Schedules. The exhibits and schedules included
or referred to in this Agreement are made a part of this Agreement as fully as
if set forth in the body hereof.
SECTION 11. Agreement not to Compete.
11.1 Agreement not to Compete.
11.1 In this Section 11, unless the context or subject
matter otherwise requires, the following expressions shall have the following
meanings:
(a) "Restricted Business" means the business of
manufacturing, importing (other than for Seller's own retail network),
distributing, selling wholesale, designing, advertising and promoting (in each
case other than for retail sale) sports balls and the following items indicated
by a "X":
<TABLE>
<CAPTION>
==========================================================================================================
Soccer Rugby Cricket Netball Baseball Basketball
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
Bags X
----------------------------------------------------------------------------------------------------------
Footwear X X X X
----------------------------------------------------------------------------------------------------------
Equipment X X X X X X
----------------------------------------------------------------------------------------------------------
Apparel X X X
----------------------------------------------------------------------------------------------------------
Accessories X X X
==========================================================================================================
</TABLE>
But shall not include the retail sale of such products, nor the manufacture,
import, distribution, sale (retail or wholesale), designing, advertising or
promotion of footwear resembling soccer footwear but not being for sporting
use,
21
<PAGE> 22
(b) "Restricted Area" means the United States of America,
its territories and possessions, Canada and Mexico,
(c) "Restricted Period" means a period of three years
from the Closing Date.
11.2 Seller's Undertakings. The Seller hereby undertakes to the
Purchaser that it will not itself, either alone or jointly with others, whether
as principal, agent, manager, majority shareholder, independent contractor or
in any other capacity, directly or indirectly through any other person, for its
own benefit or that of others:
(a) at any time during the Restricted Period engage in or
carry on any Restricted Business within the Restricted Area in competition with
the Purchaser (other than as a holder for investment of no more than 5% of any
class of shares or securities dealt in on a recognized stock exchange);
(b) at any time during the Restricted Period canvass or
solicit in relation to a Restricted Business the custom of any person who was
at any time during the period of 12 months preceding the Closing Date a
customer of the Mitre Division or accept from any such person orders for goods
or services comprised within the Restricted Business, or seek to induce any
such person to cease dealing with the Purchaser;
(c) at any time during the Restricted Period knowingly
assist any competitor of the Purchaser to a material extent with the primary
purpose of carrying on or developing any Restricted Business in the Restricted
Area;
(d) at any time during the Restricted Period provide any
financial assistance to any person for the primary purpose of assisting such
person to carry on or develop a Restricted Business in the Restricted Area in
competition with the Purchaser;
(e) at any time within 2 years of Closing Date solicit or
entice away any employee of the Purchaser or knowingly do any act whereby any
such employee is encouraged to leave the employment of the Purchaser whether or
not such employee would by reason of so leaving commit a breach of his contract
of employment;
(f) at any time following the Closing Date use the name
"Mitre" or any name capable of confusion therewith as a trade mark, whether by
using such name as part of a corporate name or otherwise;
(g) at any time after Closing Date make use of or
disclose to any third party any secret or confidential information relating
exclusively to the Mitre Division or its affairs or any of its trade secrets,
except if and insofar as such disclosure is required by law or by any stock
exchange or comes into the public domain through no fault of the Seller;
22
<PAGE> 23
(h) at any time after the Closing Date represent itself
or permit itself to be held out as being in any way connected with or
interested in the business of the Purchaser.
11.3 Severability. Each of the covenants contained in sub-clause
11.2 is entirely separate and severable and enforceable accordingly. Each of
such covenants is considered fair and reasonable in all the circumstances by
the parties but in the event that any such restriction shall be found to be
void or ineffective but would be valid and effective if some part thereof were
deleted or the duration or area of application reduced such restriction shall
apply with such modification as may be necessary to make it valid and
effective.
11.4 Assignment. The benefit of the covenants contained in this
Section 11 shall be assignable in whole or in part by the Purchaser to any
transferee of the business of the Purchaser but not otherwise.
11.5 Injunctive Relief. Notwithstanding the provisions of Section
10.6 above, in the event of a violation of threatened violation of any of the
foregoing provisions of this Section 11, Purchaser shall have no adequate
remedy at law and shall therefore be entitled to enforce the provisions of this
Section 11 by temporary injunctive or mandatory relief obtained in any court of
competent jurisdiction without the necessity of proving damage, posting any
bond or other security, and without prejudice to any other remedies which may
be available at law or in equity. Seller agrees that the State Court of the
State of Tennessee, Davidson County or the United States District Court for the
Middle District of Tennessee is a court of competent jurisdiction and the
parties each consent to the personal jurisdiction of the above courts for the
purposes of such an action or proceeding instituted to obtain equitable relief
relating to the provisions of this Section 11; and in connection therewith
Seller agrees that process in any action may be served upon them and shall be
deemed to be complete when the same is received by delivery or mail, as the
case may be, in the same manner as notices are required to be given pursuant to
the provisions of this Agreement. All fees and expenses incurred by Purchaser
in connection with enforcing its rights under this Agreement as permitted by
this Section 11 shall be paid by Seller in the event the Purchaser is granted
any temporary, permanent, mandatory or other equitable relief by any court of
competent jurisdiction.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed these presents
the day and year first above written.
SELLER:
GENESCO INC.
By: /s/ Roger G. Sisson
---------------------------------
Name: Roger G. Sisson
Title: Secretary
PURCHASER:
PENTLAND SPORTS GROUP, LTD.
By:/s/ Nahum G. Shar
---------------------------------
Name: Nahum G. Shar
Title: President
24
<PAGE> 1
EXHIBIT (10) aa.
DATED 14 AUGUST 1995
GENESCO INC.
AND
PENTLAND INDUSTRIES LIMITED
__________________________________________________
A G R E E M E N T
- RELATING TO -
THE SALE AND PURCHASE OF THE ENTIRE ISSUED
SHARE CAPITAL OF MITRE SPORTS INTERNATIONAL LIMITED
__________________________________________________
<PAGE> 2
SHARE PURCHASE AGREEMENT
DATED: 14 August 1995
PARTIES:
(1) GENESCO INC., a Tennessee corporation whose registered office is
at Genesco Park, Nashville, Tennessee, 37202 - 0731, USA ("the
Vendor"); and
(2) PENTLAND INDUSTRIES LIMITED a company registered in England
(Company Registration Number 2307419) whose registered office is
situated at The Pentland Centre, Lakeside, Squires Lane,
Finchley, London, N3 2QL ("the Purchaser").
RECITALS:
(A) Mitre Sports International Limited ("the Company") is a company
limited by shares incorporated under the Companies Act 1985
registered in England under number 2688851 whose registered
office is at Bay Hall Works, Birkby, Huddersfield, West
Yorkshire, HD1 5AY. At the date hereof it has an authorised
share capital of L.7,500,000 divided into 6,000,000 "A" Ordinary
Shares of L.1 each and 1,500,000 "B" Ordinary Shares of L.1
each, all of which have been allotted and issued and are fully
paid.
(B) The Vendor is the legal and equitable owner and the registered
holder of all of the shares in the capital of the Company.
(C) Particulars of the Company are set out in Schedule 1.
(D) The Vendor has agreed to sell and the Purchaser has agreed to
purchase all of the shares in the Company on and subject to the
terms of this Agreement.
<PAGE> 3
(E) By an agreement of even date the Vendor has agreed to sell and
Pentland Sports Group, Ltd has agreed to purchase, certain other
assets owned by the Vendor and used in connection with the
"Mitre" business carried on by the Vendor in the USA, Canada and
Mexico.
OPERATIVE TERMS
1. INTERPRETATION
1.1 In this Agreement and its Recitals and Schedules:
"THE ACCOUNTS" means the audited balance sheet of the Company
made up as at the Balance Sheet Date and the audited profit and
loss account of the Company for the financial year ended on the
Balance Sheet Date, together with all notes, reports, statements
and other documents annexed thereto in accordance with any legal
requirement;
"THE AGREED EXCHANGE RATE" means USD 1.597 to L.1.00;
"THE BALANCE SHEET" means the audited balance sheet of the
Company forming part of the Accounts;
"THE BALANCE SHEET DATE" means 31st January 1995;
"BUSINESS DAY" means any day except Saturdays and Sundays on
which banks in the City of London are open for business;
"CAA" means Capital Allowances Act 1990;
"THE COMPANY" means Mitre Sports International Limited;
"COMPANY'S AUDITORS" means Price Waterhouse of York House, York
Street, Manchester, M2 4WS;
<PAGE> 4
"COMPLETION" means completion of the sale and purchase of the
Shares pursuant to this Agreement;
"COMPLETION ACCOUNTS" shall bear the meaning set out in
Schedule 7;
"COMPLETION BALANCE SHEET" means the audited balance sheet of
the Company forming part of the Completion Accounts;
"THE COMPLETION DATE" means the date of this Agreement;
"THE DEED OF COVENANT" means a deed in the form set out in
Schedule 6;
"THE DISCLOSURE LETTER" means the letter of the same date as
this Agreement from the Vendor to the Purchaser;
"THE EMPLOYMENT STATUTES" means the Disabled Persons
(Employment) Act 1944, the Trade Union and Labour Relations Acts
1974 and 76, the Employment Protection Act 1975, the Employment
Protection (Consolidation) Act 1978, the Employment Act 1980,
the Contracts of Employment Act 1972, the Equal Pay Act 1970,
the Sex Discrimination Act 1975, the Health and Safety at Work
etc. Act 1974, the Race Relations Act 1976, the Trade Union Act
1984, the Wages Act 1986, the Sex Discrimination Act 1986 and
the Trade Union Reform and Employment Rights Act 1993;
"FA" means Finance Act;
"FRS" means a Financial Reporting Standard issued by The
Accounting Standards Board Limited or an SSAP;
"THE GENERAL WARRANTIES" means those Warranties set out in
Schedule 4;
"THE GENESCO CONTRACTS" means those contracts entered into by
the Vendor in respect of its U.S., Canada and Mexico "Mitre"
business and which it willnot
<PAGE> 5
be in a position properly to perform following Completion by
virtue of the transactions contemplated in this Agreement and/or
in the US Agreement, details of which are provided in Schedule
10;
"THE ICTA" means the Income and Corporation Taxes Act 1988;
"INTELLECTUAL PROPERTY" means patents, trade marks, service
marks, registered designs, utility models, applications and
rights to apply for any of the foregoing, copyrights,
unregistered design rights, inventions, trade secrets,
confidential know-how and registrable business names and any
similar rights, whether registrable or not, in any part of the
world;
"THE INTELLECTUAL PROPERTY RIGHTS" means that Intellectual
Property owned or used by the Company and details of which are
set out in Schedule 3 (not being a comprehensive list of the
Intellectual Property owned or used by the Company);
"THE INTER-COMPANY INDEBTEDNESS" means the amount which as at
Completion is owed by the Company to the Vendor, inclusive of
all balances (trading or otherwise), management charges and
accrued interest to the date of Completion;
"ITA" means the Inheritance Tax Act 1984;
"NET TANGIBLE ASSETS" means the aggregate value of all fixed and
current assets (excluding goodwill, the Intellectual Property
and any other intangible assets) minus the aggregate value of
all liabilities and provisions (including provisions in
accordance with SSAP 18 in respect of contingent liabilities)
and any reserves or capital created by the upward revaluation of
assets subsequent to the Balance Sheet Date all as shown in the
Completion Accounts prepared in accordance with the provisions
of Schedule 7;
<PAGE> 6
"OPEN LETTERS OF CREDIT" means those letters of credit which
have been opened by or to the order of the Vendor in respect of
the purchase of stock for the Company or for the United States,
Canadian and Mexican markets, which are outstanding as at
Completion and which are listed in Schedule 9, subject to the
following limits: for the Company - USD 1,000,000 and for the
United States, Canadian and Mexican market - USD 1,750,000;
"THE PROPERTIES" means the properties particulars of which are
set out in Schedule 2;
"THE PURCHASER'S ACCOUNTANTS" means Price Waterhouse, of
Southwark Towers, 32 London Bridge Street, London SE1 9SY;
"THE PURCHASER'S NOMINEE" means Linklaters & Paines of 59 - 67
Gresham Street, London, EC2V 7YA;
"THE PURCHASER'S SOLICITOR" John McLaren of The Pentland
Centre, Lakeside, Squires Lane, Finchley, London, N3 2QL;
"RELIEF" shall have the meaning set out in the Tax Deed of
Covenant;
"THE RETENTION" means the amount of USD 750,000 to be retained
out of the consideration pursuant to Clause 3 and to be dealt
with in accordance with Clause 5;
"THE SHARES" means each and all of the shares of the Company
comprising the whole of its issued and allotted share capital;
"THE STAKEHOLDERS' ACCOUNT" means the account referred to in
sub-clause 5.1;
"SSAP" means a Statement of Standard Accounting Practice adopted
by Accounting Standards Board Limited;
<PAGE> 7
"TAXATION" means all forms of taxation, (including duties,
rates, levies, withholdings, deductions, charges and imposts)
imposed in the United Kingdom or overseas, including but not
limited to:
(a) corporation tax, income tax, advance corporation tax,
any liability arising under Sections 419 or 601 ICTA,
national insurance contributions, social security
contributions, value added tax and customs duties;
(b) all penalties, surcharges, fines and interest relating
to any of the above; and
(c) any payment by way of settlement or compromise of any
claim in respect of any of the above;
"TAX DEED OF COVENANT" means the deed in the form set out in
Schedule 8;
"TCGA" means the Taxation of Chargeable Gains Act 1992;
"TMA" means the Taxes Management Act 1970;
"THE TAX WARRANTIES" means those Warranties set out in Schedule
5;
"PENSION SCHEME" means the Mitre Sports International Limited
Pension Scheme;
"US AGREEMENT" means an agreement in the agreed terms between
the Vendor (1) and Pentland Sports Group, Ltd (2) relating to
the sale and purchase of certain assets owned by the Vendor and
used in connection with the "Mitre" business in the USA, Canada
and Mexico;
"VATA" means the Value Added Tax Act 1994;
<PAGE> 8
"VENDOR'S ACCOUNT" means the account in the name of the
Vendor with the following account details:
Name of Account : Genesco Separate Asset Account
Bank: : NationsBank of Tennessee
ABA # : 0640-0002-0
Account # : 011-287-8053
"THE VENDORS ACCOUNTANTS" means Price Waterhouse, York House,
York Street, M2 4WS, Manchester;
"THE VENDOR'S SOLICITORS" means Messrs. Taylor Joynson Garrett,
Carmelite, 50 Victoria Embankment, London, EC4Y 0DX;
"THE WARRANTIES" means the warranties, representations and
undertakings set out in Schedules 4 and 5.
1.2 Any reference in this Agreement to a document being "in the
agreed terms" means that document in the terms agreed between
the parties and for the purpose of identification signed by the
Purchaser and the Vendor's Solicitors or such other terms as may
be agreed in writing between the parties in substitution
therefor.
1.3 In this Agreement, references to any statutory provision shall
include such provision as from time to time amended, whether
before on or (in the case of re-enactment or consolidation only)
after the date hereof, and shall be deemed to include provisions
of earlier legislation (as from time to time amended) which have
been re-enacted (with or without modification) or replaced
(directly or indirectly) by such provision and shall further
include all statutory instruments or orders from time to time
made pursuant thereto on or before the date hereof.
1.4 Words and phrases defined in the Companies Act 1985 (excluding
its Schedules and as amended by the Companies Act 1989) shall
have the same
<PAGE> 9
meanings in this Agreement unless they are otherwise defined in
this Agreement or unless the context or subject-matter otherwise
requires.
1.5 In this Agreement and its Schedules:
(a) the masculine gender shall include the feminine and
neuter and the singular number shall include the plural
and vice versa;
(b) references to persons shall include individuals, bodies
corporate, unincorporated associations and
partnerships;
(c) the headings are inserted for convenience only and
shall not affect the construction of this Agreement;
(d) references to Recitals, Clauses and Schedules and
sub-divisions thereof, unless a contrary intention
appears, are to the Recitals and Clauses of and
Schedules to this Agreement and sub-divisions thereof
respectively.
1.6 Each of the Schedules shall have effect as if expressly set out
in the body of this Agreement.
2. SALE AND PURCHASE OF SHARES
2.1 On and subject to the terms of this Agreement, the Vendor shall
sell and the Purchaser shall purchase the Shares on and with
effect from the Completion Date, free from all charges, liens,
equities, encumbrances, claims or restrictions whatsoever and
together with all rights attaching or accruing thereto and all
dividends and distributions declared, made or paid thereon or in
respect thereof on or after Completion.
2.2 Neither the Purchaser nor the Vendor shall be obliged to
complete the purchase or sale of any of the Shares unless the
purchase and sale of all the Shares and the completion of the US
Agreement occur simultaneously and if
<PAGE> 10
such sale and completion are not completed on the Completion
Date then either the Purchaser or the Vendor shall be entitled
to rescind this Agreement without liability of any kind.
3. CONSIDERATION
The purchase consideration payable by the Purchaser to the
Vendor for the Shares (subject to adjustment in accordance with
Schedule 7) ("the Purchase Consideration") shall be the
aggregate of
(a) USD 10,150,000; and
(b) the amount of cash or cash equivalents appearing on the
Completion Balance Sheet, subject to a maximum of USD
1,200,000 (such cash and cash equivalents together
being "the Cash Equivalents Amount"). For such
purposes "the Cash Equivalents Amount" shall mean cash
in hand and deposits repayable on demand with any bank
or other financial institution. Cash includes cash in
hand and deposits denominated in foreign currencies.
The Purchase Consideration (subject to adjustment in accordance
with Schedule 7) shall be paid on Completion:
(a) as to USD 10,600,000 by telegraphic transfer to the
Vendor's Account; and
(b) as to USD 750,000 ("the Retention") by telegraphic
transfer into the Stakeholders' Account, where it shall
be dealt with in accordance with clause 5 of this
Agreement.
4. COMPLETION
<PAGE> 11
4.1 Subject to the provisions of this Clause, Completion shall take
place at the offices of the Vendor on the Completion Date or at
such other place and/or on such other date as may be agreed
between the parties.
4.2 On Completion the Vendor shall cause to be delivered to the
Purchaser:
(a) duly completed and executed transfers of the Shares by
the registered holders thereof in favour of the
Purchaser (or as it may direct) together with the
relative share certificates;
(b) such other documents (including any power of attorney
under which any document required to be delivered under
this Clause has been executed and any waivers or
consents) as the Purchaser may require to enable the
Purchaser or its nominees to be registered as holders
of the Shares;
(c) the Common Seal, Certificate of Incorporation, the
Memorandum and Articles of Association and the up to
date statutory books of the Company;
(d) the Deed of Covenant duly executed by the covenantors
named therein;
(e) the Tax Deed of Covenant duly executed by the
covenantors named therein;
(f) duly executed releases, in the agreed terms, releasing
the Company from any liability whatsoever (actual or
contingent) which may be owing by the Company to the
Vendor subject to repayment by the Company to the
Vendor of the Inter-company Indebtedness in accordance
with the terms of this Agreement;
(g) a certificate from the Vendor's Solicitors in agreed
terms as to the title of the Company to the Properties
("the Certificate of Title").
<PAGE> 12
(h) the title deeds to the Properties;
(i) unconditional receipts for rent and any additional
rents or service charges due in respect of those of the
Properties held or occupied on lease or under licence;
(j) statements from each of the banks at which the Company
maintains an account as to the amounts standing to the
credit or debit of such accounts at the close of
business on the second business day preceding the
Completion Date ("the Reconciliation Date"), a
statement that all current cheque books and paying in
books for such accounts are in the possession of the
Company, together with a bank reconciliation statement
showing the bank position of the Company at the close
of business on the Reconciliation Date adjusted to
reflect credits since the Reconciliation Date to the
Completion Date inclusive and a list of unpresented
cheques as at the Reconciliation Date and of cheques
drawn since the Reconciliation Date to the Completion
Date inclusive and of standing orders payable from the
Reconciliation Date to the Completion Date inclusive.
Such reconciliation statements shall show amounts due
under such facilities to be no greater than:
<TABLE>
<S> <C>
Barclays Bank plc duty deferment bond -L.400,000
Barclays Bank plc overdraft -L.1,690,670
Barclays Bank plc letters of credit -USD 4,500,000
(including where applicable,
sterling letters of credit
converted at the Agreed Exchange
Rate);
</TABLE>
(k) irrevocable powers of attorney executed by the holders
of the Shares in favour of the Purchaser appointing the
Purchaser to be their lawful attorney for the purpose
of receiving notices of and attending and voting
<PAGE> 13
at all meetings of the members of the Company in
respect of the Shares and held from the date of this
Agreement to the day on which the Purchaser (or its
nominee) is entered in the register of members of the
Company as the holder of the Shares and irrevocable
authorities authorising:-
i) the Company to send any notices in respect of
the Vendor's holding of Shares to the
Purchaser; and
ii) the Purchaser to complete in such manner as it
thinks fit and to return proxy cards, consents
to short notice and any other document required
to be signed by the Vendor in its capacity as a
member;
(l) a duly executed agreement terminating the licence
between Benjamin Crook & Sons Limited and the Vendor
dated 13th March 1981;
(m) a statement from the Vendor that it will indemnify the
Company against any liabilities (including any
Taxation) arising by virtue of any agreement entered
into between the Vendor and the directors of the
Company relating to loyalty bonuses including but not
limited to those referred to in the letters from the
Vendor to each of Roger Holmes, Robert Reah, Simon
Peel, Duncan Benbridge and Duncan Anderson
respectively, each dated 4 August 1995 (save for that
to Duncan Anderson which is dated 13 July, 1995);
(n) copies of the Genesco Contracts;
(o) James Gulmi's letter of resignation as a trustee of the
Pension Scheme, which letter the Vendor shall accept,
on behalf of the Company, as being duly delivered in
accordance with the terms of the Pension Scheme;
<PAGE> 14
(p) evidence acceptable to the Purchaser that the person(s)
executing this agreement (and the documents
contemplated by this agreement) on behalf of the Vendor
are duly authorised to do so.
4.3 On Completion the Vendor shall cause a Board Meeting of the
Company to be duly convened and held at which:
(a) the said transfers of the Shares shall be approved for
registration (subject only to the transfers being duly
stamped at the cost of the Purchaser);
(b) Peter McGuigan and Andrew Rubin shall be appointed as
directors and Richard Stevens shall be appointed as
secretary of the Company and J. S. Gulmi and W. S. Wire
II shall retire from all their offices and employments
with the Company and Robert Reah shall resign as
secretary of the Company, each delivering to the
Company a deed acknowledging that he has no claim
outstanding for compensation or otherwise and without
any payment under the Employment Protection
(Consolidation) Act 1978;
(c) the Deed of Covenant shall be approved and executed as
appropriate;
(d) all existing instructions to bankers shall be revoked
and it shall be resolved to replace them with
alternative instructions in such form as the Purchaser
may require;
(e) the registered office of the Company shall be changed
to The Pentland Centre, Lakeside, Squires Lane,
Finchley, London N3 2QL;
(f) the Company's accounting reference date shall be
changed to 31st December; and
<PAGE> 15
(g) the repayment of the Inter-company Indebtedness and the
payment of the sum of USD 3,900,000 on account thereof
shall be approved.
4.4 On Completion the Purchaser shall, immediately following
compliance by the Vendor with the foregoing provisions:
(a) procure the transfer to the Vendor's Account of the sum
of USD 10,600,000 forming part of the Purchase
Consideration for the Shares;
(b) procure the transfer to the Stakeholder's Account of
the Retention;
(c) deliver to the Vendor's Solicitors counterparts of the
Deed of Covenant and the Tax Deed of Covenant duly
executed by the Purchaser;
(d) procure in so far as it able the Vendor's release from
the existing guarantee to Barclays Bank plc dated 1 May
1992;
(e) subject to any necessary consents, assume the Vendor's
liability to Barclays Bank plc and to First American
National Bank in respect of the Open Letters of Credit;
and
(f) provide evidence acceptable to the Vendor that the
person(s) executing this agreement (and the documents
contemplated by this agreement) on behalf of the
Purchaser are duly authorised to do so.
4.5 The Vendor's Solicitors are hereby irrevocably authorised by the
Vendor to receive all amounts expressed to be payable to it
hereunder and the receipt by the Vendor's Solicitors of each
such amount shall be an absolute discharge to the Purchaser to
the extent of the amount in question and the Purchaser shall not
be concerned to see to the application of any such amount.
<PAGE> 16
4.6 Immediately following Completion the parties will procure that
the Company will immediately repay to the Vendor the sum of USD
3,900,000 on account of the Inter-company Indebtedness.
4.7 The parties shall use their respective best endeavours to
procure at the earliest possible date the unconditional release
of the Vendor from all its actual and contingent liabilities
under and/or in respect of and/or by virtue of each and all of
the following (other than the Open Letters of Credit):
(a) Guarantee issued by the Vendor to Barclays Bank plc
dated 1 May 1992; and
(b) each of the Genesco Contracts; and
(c) each of the Open Letters of Credit.
Pending the obtaining of such unconditional release(s) and in
any event in respect of the Open Letters of Credit, the
Purchaser shall indemnify and keep indemnified (and shall
reimburse the Vendor on its first demand) against all and any
losses or other amounts which the Vendor may be obliged or
called upon to pay under and/or in respect of and/or by virtue
of the above guarantee, the Genesco Contracts and/or each of the
Open Letters of Credit respectively. In meeting their
obligations under this clause 4.7 in respect of the Open Letters
of Credit, the parties shall follow as nearly as possible the
procedures set out in the document attached to this agreement as
"Attachment A". The liability of the Purchaser to indemnify in
respect of any particular Open Letter of Credit shall be limited
to the "Liability Amount" attributed to it in Schedule 9,
subject to any subsequently agreed adjustment.
Without prejudice to the foregoing, with regard to the Genesco
Contract referred to as item 1 of Schedule 10, being the
contract dated 15 December 1993 between (1) the Vendor (2) the
Company and (3) Asahi Corporation, ("the Asahi Contract"), the
Vendor hereby assigns to the Purchaser and the Purchaser hereby
assumes from the Vendor all the Vendor's rights and obligations
(other than those accrued prior to the Completion Date) under
the Asahi Contract and the parties shall notify Asahi
Corporation of such assignment immediately following Completion.
Without prejudice to the foregoing, with regard to the Genesco
Contract referred to as item 2 of Schedule 10 being the contract
dated 31 May 1994 between (1) Francisco Marcos (2) the Company
and (3) the Vendor, ("the Marcos Contract"), the Vendor hereby
assigns to the Purchaser and the
<PAGE> 17
Purchaser hereby assumes from the Vendor all the Vendor's rights
and obligations (other than those accrued prior to the
Completion Date) under the Marcos Contract and the parties shall
notify Francisco Marcos of such assignment immediately following
Completion.
5. RETENTION
5.1 The Retention shall be paid into a designated interest-bearing
account with Lloyds Bank PLC in the joint names of the Vendors'
Solicitor and the Purchaser's Nominee ("the Stakeholders'
Account") immediately after Completion and the Retention
(together with interest accrued thereon) shall be applied in
accordance with the provisions of this Clause.
5.2 The Retention shall be held in the Stakeholders' Account until
the Completion Accounts become binding in accordance with
paragraph 3(D) of Schedule 7.
5.3 Within 14 days of the Completion Accounts becoming so binding,
the parties shall procure that any amounts payable to the
Purchaser in accordance with Schedule 7 (together with all
interest accrued thereon) shall be paid to the Purchaser, and
any balance of the Retention (together with all interest accrued
thereon) shall forthwith be released to the Vendor's Solicitor.
5.4 The Vendor and the Purchaser shall promptly give to the Vendor's
Solicitor and the Purchaser's Nominee respectively all such
written instructions as shall be
<PAGE> 18
necessary to give effect to the provisions of this clause and on
Completion shall issue to the Vendors' Solicitors and the
Purchaser's Nominee a written undertaking accordingly.
6. WARRANTIES
6.1 The Vendor hereby represents, warrants and undertakes to the
Purchaser (for itself and as trustee for its successors in
title) in the terms of the Warranties and agrees that if any of
the Warranties is found to be untrue or incorrect, then, subject
to the provisions of this Agreement the Purchaser shall be
entitled to claim damages in an amount equal to the amount by
which the value of the Shares is less than it would have been if
such Warranty had been true and correct, together with all costs
and expenses incurred or sustained by the Purchaser as a result
of such breach.
6.2 The Warranties are given subject to the matters fully and fairly
disclosed in the Disclosure Letter and in the documents annexed
thereto but no other information of which the Purchaser may have
knowledge (actual or constructive) shall reduce the amount
recoverable in respect of any breach of Warranty.
6.3 Each of the Warranties set out in each paragraph and each
sub-paragraph of Schedules 4 and 5 shall be separate and
independent and save as expressly provided shall not be limited
by reference to any other paragraph or sub-paragraph.
6.4 Where any statement set out in Schedules 4 or 5 is expressed to
be given or made to the best of the Vendor's knowledge or to the
best of the Vendor's knowledge and belief after having made all
proper enquiry, or as qualified in some other manner having
substantially the same effect, such statement (save where
otherwise expressly stated) shall be deemed to be qualified by
the additional statement that the Vendor has made such enquiries
as are
<PAGE> 19
reasonable in the circumstances including, in all cases,
enquiries of the Company.
6.5 (a) The Purchaser has entered into this Agreement on the
basis of the Warranties and in reliance on them.
(b) Liability under any of the Warranties shall not be
confined to breaches discovered before Completion nor
in any way be modified or discharged by Completion.
6.6 Any payment made by the Vendor to the Purchaser in respect of
claims under the Warranties or under the Tax Deed of Covenant
shall be treated by the parties as a reduction in the
consideration for the Shares.
6.7 The benefit of the Warranties shall be capable of being assigned
in whole or in part.
6.8 In the event of a claim alleging sexual discrimination being
brought by an individual on the basis of exclusion from
membership of the Pension Scheme as a result of working fewer
than 15 hours per week, the Vendor shall indemnify the Purchaser
against all liabilities and costs arising as a result of any
such claim but only to the extent that such liabilities and
costs relate to periods of employment prior to Completion.
The Purchaser shall promptly inform or shall use its best
endeavours to procure that the Company promptly informs the
Vendor of any matter which comes to its attention and which in
its reasonable opinion may give rise to liability under this
indemnity and shall conduct any claim according to any
directions of the Vendor and in particular shall not admit
liability or settle the liability without the prior consent of
the Vendor.
<PAGE> 20
7. LIMITATION ON WARRANTY AND COVENANT CLAIMS
7.1 (a) The Vendor shall be under no liability whatsoever in
respect of any breach or non-fulfilment of any of the
General Warranties unless the Purchaser has served on
the Vendor a written notice on or before the date which
is twenty calendar months from the Completion Date
referring specifically (so far as is reasonably
possible) to the Warranty which the Purchaser alleges
has been breached or upon which the Purchaser relies
and giving reasonable details (so far as is reasonably
possible) of the claim including the Purchaser's best
estimate of the amount of the liability of the Vendor
in respect thereof and unless (if the relevant claim
has not been settled, withdrawn or agreed) proceedings
shall have been commenced and served upon the Vendor
(and not discontinued) on or before the date which is
twenty six calendar months from the Completion Date.
(b) The Vendor shall be under no liability whatsoever in
respect of any breach or non-fulfilment of any of the
Tax Warranties nor in respect of any claim under the
Tax Deed of Covenant unless the Purchaser has served on
the Vendor a written notice on or before the seventh
anniversary of the Completion Date referring
specifically (so far as is reasonably possible) in the
case of the Tax Warranties to the Tax Warranty which
the Purchaser alleges has been breached or upon which
the Purchaser relies and giving reasonable details of
the claim including the Purchaser's best estimate of
the amount of the liability of the Vendor in respect
thereof and unless (if the relevant claim has not been
settled, withdrawn or agreed) proceedings shall have
been commenced and served upon the Vendor (and not
discontinued) on or before the date which is ninety
calendar months from the Completion Date.
7.2 The Purchaser acknowledges that save for the Warranties, the
Purchaser has not relied in relation to the purchase of the
Shares, and was not induced to purchase the Shares, on or by any
warranties, representations, undertakings,
<PAGE> 21
indemnities or covenants of any description, howsoever or
whatsoever and whether express or implied. In addition, the
Purchaser irrevocably and unconditionally waives any right which
it may have or might have had to claim damages and/or to rescind
this agreement for any misrepresentation not contained in this
agreement (or any of the other documents referred to in this
agreement) or for breach of any express or implied warranties
not specifically set out in this agreement.
7.3 The Purchaser shall not be entitled to make any claim or claims
(however many in number) under the Warranties or the Tax Deed of
Covenant where the sum claimed is less than L.500 or its
equivalent in other currencies (in the case of USD, converted at
the Agreed Exchange Rate), and any such claim or claims shall be
disregarded in computing the figure referred to in sub-clause
7.4.
7.4 The Vendor shall not be liable in respect of any claim under the
Warranties or under the Tax Deed of Covenant unless and to the
extent that the aggregate cumulative liability of the Vendor in
respect of all such claims exceeds L.50,000 or its equivalent in
other currencies (in the case of USD, converted at the Agreed
Exchange Rate) but in such event the Vendor shall be liable in
respect of the whole amount (subject to sub-clause 7.3) and not
merely the excess of such claims over such amount.
7.5 The Purchaser shall not be entitled to recover under the
Warranties and the Tax Deed of Covenant in aggregate any sum in
excess of the aggregate of:
(a) the Purchase Consideration (as adjusted in accordance
with the provisions of Schedule 7); and
(b) the consideration of US $3,846,560 paid by Pentland
Sports Group Limited ("PSG") to the Vendor under the US
Agreement in respect of the "Assets" (as defined in the
US Agreement) as adjusted in accordance with the
provisions of clause 1.3 of the US Agreement;
<PAGE> 22
LESS the aggregate amount of any claim(s) at any time recovered
by PSG from the Vendor for breach of any warranty, indemnity or
representation given to PSG by the Vendor under the terms of the
US Agreement.
For the purposes of this clause 7.5, the Agreed Exchange Rate
shall be used where applicable.
7.6 The liability of the Vendor for breach of any Warranty or for a
claim under the Tax Deed of Covenant shall be reduced by the
value of any recoveries which have been, or subsequently are,
actually received or obtained by the Purchaser or the Company:
(a) from any third party responsible for the act, matter or
circumstances giving rise to such breach or claim; or
(b) from any related insurance monies received in respect
thereof.
If any recovery is made after the Vendor has made payment to the
Purchaser in respect of any such liability, the Purchaser shall
refund or procure that there is refunded to the Vendor the
lesser of:
(i) the sum of such payment by the Vendor; and
(ii) the sum of such recovery;
in each case after deducting all reasonable costs, charges and
expenses incurred by the Purchaser or the Company in obtaining
such recovery.
7.7 If the Vendor pays at any time to the Purchaser or to the
Company a sum pursuant to a claim in respect of the Warranties
or under the Tax Deed of Covenant and the Purchaser or the
Company subsequently becomes entitled to recover from some other
person any sum in respect of any matter giving rise to such
claim, the Purchaser shall, and shall procure that the Company
shall,
<PAGE> 23
if the Vendor so requires, at the entire cost of the Vendor, use
its best endeavours to enforce such recovery, and shall
immediately repay to the Vendor (without interest) so much of
the sum paid by the Vendor to the Purchaser or the Company as
does not exceed the sum recovered from such other person (less
any costs, charges and expenses incurred by the Purchaser and/or
the Company in recovering that sum from such other person, which
have not previously been reimbursed by the Vendor.)
7.8 If the Vendor is liable to the Purchaser under the Warranties or
pursuant to the Tax Deed of Covenant by reason of an obligation
of the Company to pay advance corporation tax, or any sum
recoverable from the Company as if it were advance corporation
tax, any sum paid to the Purchaser in respect of such liability
shall be refunded, less any Taxation suffered on such tax, when
and to the extent that the Company becomes entitled to a
reduction in liability to mainstream corporation tax by reason
of such payment. Any payment due from the Purchaser under this
sub-clause shall be made five Business Days after the date when
the Company's Taxation liability which has been so reduced
becomes due and payable.
7.9 The Vendor shall be entitled to require and the Purchaser shall
procure the auditors of the Company to certify any sum due by
the Purchaser under sub-clause 7.8. Unless such certificate is
challenged by the Vendor within 21 days of its receipt by the
Vendor then it shall in the absence of manifest error be binding
on the Vendor. Following any such challenge by the Vendor and
unless the matter in dispute can be agreed between the Purchaser
and the Vendor within 21 days of such challenge then either
party may at any time thereafter refer the matter in dispute to
arbitration and the mechanism set out in paragraph 3(C) of
Schedule 7 shall apply.
7.10 If the Vendor is liable both in respect of a breach of Warranty
and under the Tax Deed of Covenant, the Purchaser shall be
entitled to claim in respect of either or both. The Purchaser
shall not however be entitled to recover from the Vendor under
the Warranties or the Tax Deed of Covenant more than once in
<PAGE> 24
respect of the same damage suffered, and accordingly the Vendor
shall not be liable in respect of any breach of the Warranties
if and to the extent that the loss is or has been included in a
claim under the Tax Deed of Covenant which has been satisfied,
nor shall the Vendor be liable in respect of a claim under the
Tax Deed of Covenant if and to the extent that the loss is or
has been included in a claim for breach of the Warranties which
has been satisfied.
7.11 The Vendors' liability in respect of any breach of any of the
Warranties or under the Tax Deed of Covenant:
(a) shall be reduced by the extent that such liability
arises or is increased as a result of any legislation
not in force at today's date or of any change or
changes in legislation or the withdrawal after today's
date of any extra statutory concession previously made
by the Inland Revenue or any other fiscal authority
whether or not such change or changes or withdrawal
purport to be effective retrospectively in whole or in
part;
(b) shall be reduced by the extent that such liability
arises or is increased as a result of any change in the
basis or method of calculation of, or of any increase
in the rates of Taxation in either case made or imposed
by legislation after Completion with retrospective
effect to any period ending before Completion;
(c) shall be reduced if and to the extent that such
liability is attributable to any act, omission,
transaction or arrangement of the Purchaser or the
Company after Completion; and
(d) shall be reduced if and to the extent that such loss
has been or is made good or is otherwise compensated
for without cost to the Purchaser or the Company.
7.12 If the relevant loss, damage, cost, expense or liability of the
Company upon which a claim for breach of any of the Warranties
or under the Tax Deed of
<PAGE> 25
Covenant is based, results in a reduction in the Taxation
actually paid by the Company, then the relevant loss, damage,
cost, expense or liability recoverable by the Purchaser from the
Vendor in respect of such claim shall be decreased by the amount
of such reduction or, as appropriate, the sum payable to the
Purchaser by the Vendor for breach of the relevant Warranty or
under the Tax Deed of Covenant shall be so decreased.
7.13 If under any of the provisions in this clause 7 a claim against
the Vendor is expressed as being reduced by reason of some
receipt or recovery under any insurance or from any other third
party, or if the Purchaser is obliged to make any payment to the
Vendor, the amount of such reduction or payment shall be
decreased by a sum equal to the Taxation due and payable by the
Purchaser and/or the Company in respect of such receipt or
recovery.
7.14 The Vendor shall be entitled to require, and the Purchaser shall
procure, that the auditors of the Company shall certify any
decrease referred to in subclause 7.12 or any Taxation referred
to in subclause 7.13. Unless such certificate is challenged by
the Vendor within 21 days of its receipt by the Vendor then it
shall in the absence of manifest error be binding on the Vendor.
Following any such challenge by the Vendor and unless the matter
in dispute can be agreed between the Purchaser and the Vendor
within 21 days of such challenge then either party may at any
time thereafter refer the matter in dispute to arbitration and
the mechanism set out in paragraph 3(C) of Schedule 7 shall
apply.
7.15 No claim against the Vendor relating to or arising out of any of
the Warranties or under the Tax Deed of Covenant shall be made
to the extent that the subject matter of such claim has been
reflected in the preparation of the Accounts, or results in an
adjustment in accordance with Schedule 7 of the consideration to
be paid by the Purchaser to the Vendor for the Shares.
7.16 The Vendor shall be under no liability under the Warranties in
respect of any matter fully and fairly disclosed in the
Disclosure Letter.
<PAGE> 26
8. CONFIDENTIALITY AND ANNOUNCEMENTS
8.1 For the purpose of assuring to the Purchaser the full benefit of
the business and goodwill of the Company and in consideration of
the agreement of the Purchaser to buy the Shares on the terms
hereof the Vendor hereby agrees with the Purchaser and its
successors in title that it will not at any time hereafter
divulge or communicate to any person (other than to officers,
employees or professional advisers of the Vendor whose position
makes it necessary for them to know the same or to the Purchaser
or its officers, employees or professional advisers ("authorised
persons") and save as may be required by the provisions of any
applicable law or the regulations of any relevant stock
exchange) any confidential information concerning the business,
accounts, financial or contractual arrangements or other
dealings, transactions or affairs of the Company which may be
within or which may come to its knowledge and that it will use
its best endeavours to prevent the publication or disclosure of
any confidential information by any authorised person. The
Vendor will at the request of the Purchaser use its reasonable
endeavours to enforce any contractual rights which the Vendor
may have to require the return to it of any confidential
information relating to the Company and previously supplied by
the Vendor to any prospective purchaser of the Shares or the
business of the Company.
8.2 Save as may be required by law or by the rules of any stock
exchange no announcement or information concerning this sale and
purchase or any ancillary matter shall be made or released
before or after Completion to the public or to the press
(national, provincial, local or trade) or the suppliers or
customers of the Company by any of the parties hereto without
the prior written consent of the Purchaser and the Vendor which
will not be unreasonably withheld. Where any announcement is
required by law or the rules of any stock exchange the parties
shall consult with each other prior to such announcement and use
all reasonable endeavours to agree the terms of such
announcement.
<PAGE> 27
8.3 No announcement or information concerning this sale and purchase
or any ancillary matter shall be made after Completion to any
employees of the Company by the Vendor without the prior
consent of the Purchaser (which consent shall not be
unreasonably withheld or delayed) PROVIDED that nothing shall
restrict the Vendor from making such disclosures to directors of
the Company as may be reasonably necessary for the performance
by such directors of their duties.
9. FURTHER ASSURANCE AND AVAILABILITY OF INFORMATION
9.1 The Vendor shall perform such acts and execute such documents as
may be reasonably required on or after Completion by the
Purchaser for securing to or vesting in the Purchaser the legal
and beneficial ownership of the Shares in accordance with the
terms and conditions of this Agreement and assuring to the
Purchaser the rights hereby granted.
9.2 The parties shall cause to be made available and shall procure
that both the Vendor's Accountants and the Purchaser's
Accountants shall make available to each of the parties all
information in the possession or control of the Vendor, the
Company, the Vendor's Accountants, the Purchaser or the
Purchaser's Accountants which the parties may from time to time
reasonably require (before or after Completion) relating to the
business and affairs of the Company (but, in the case of the
Vendor, in connection with this Agreement only) and each party
shall permit the other party to have access on reasonable notice
and at reasonable times to documents containing such information
and to take copies thereof.
10. INTEREST
If any party fails to make any payment hereunder on the due date
or within the applicable period for payment, such party shall
pay interest on the amount for the time being outstanding at the
rate of 3% per annum above the base lending rate of Barclays
Bank plc for the time being in force on the basis of actual days
<PAGE> 28
elapsed from the due date for payment or from the date of expiry
of such period (as the case may be) until payment in full (after
as well as before judgement).
11. CONTINUING OBLIGATIONS
11.1 Each of the obligations, warranties, indemnities and
undertakings accepted or given by the Vendor or the Purchaser
pursuant to this Agreement (hereinafter called "the
Obligations"), excluding any of the Obligations fully performed
at Completion, shall continue in full force and effect
notwithstanding Completion taking place.
11.2 The parties recognise that Roger Holmes ("RH") has reserved the
right to contend that his employment with the Company is
governed by an alleged undated agreement between himself and
Grampian Holdings Plc ("Grampian") which he has signed but which
RH has acknowledged has not been signed by Grampian. The Vendor
has never acknowledged to RH that it considers such contract to
be in force.
In the event that the Purchaser causes the Company to terminate
RH's employment with the Company at any time on or before 30
November 1995, then
(a) The Vendor and the Purchaser shall each use all
reasonable efforts to minimise the level of damages or
compensation which may be payable to RH as a result of
such termination and, in particular, the parties shall
cause the Company to challenge any contention by RH
that he is entitled to more than 12 months' notice of
termination under the terms of his employment and the
Vendor shall seek to give such evidential support as it
can in support of such contention; and
(b) The Vendor shall reimburse the Company for any amount
which the Company is obliged to pay to RH by way of
damages for wrongful
<PAGE> 29
dismissal (but excluding compensation for unfair
dismissal or redundancy) to the extent that (if such be
the case) such damages are increased by virtue of RH
establishing that the notice period under the terms of
his employment with the Company exceeds 12 months, but
subject to a maximum reimbursement obligation on the
Vendor of L.50,000. No settlement of any claim for
such damages in respect of which the Vendor will be
obliged to make a contribution will be made without the
prior approval of the Vendor, such approval not to be
unreasonably withheld.
12. COSTS
Each party to this Agreement shall pay its own costs, charges
and expenses incurred in the preparation, completion and
implementation of this Agreement (and the documents referred to
herein).
13. NOTICES
13.1 Any notice or other communication to be given or made under this
Agreement or the Tax Deed of Covenant must be in writing and
shall either be delivered personally or sent by first class
registered post or facsimile transmission. The address for
service of each of the parties shall be the following address or
such other address as the party to be served may have previously
notified to the other:
To the Vendor: Genesco Inc.,
490 Genesco Park
Nashville
Tennessee 37202
Tel: 001 - 615 - 3678325
Fax: 001 - 615 - 3677421
Attention: James S Gulmi
<PAGE> 30
To the Purchaser: Pentland Industries Ltd
The Pentland Centre
Lakeside
Squires Lane
Finchley
London, N3 2QL
Tel: 0181 346 2600
Fax: 0181 346 2700
Attention: Frank A Farrant
With a copy for information to Clive
R Kelly, General Counsel at the same
address.
All notices shall be deemed to have been served as follows:
(a) if personally delivered, at the time of delivery;
(b) if posted by first class registered post, at the
expiration of 72 hours after the envelope containing
the same was delivered into the custody of the postal
authorities and shall be effective notwithstanding that
it may be misdelivered or returned undelivered; and
(c) if communicated by facsimile transmission, at the time
of transmission provided that a copy of such facsimile
transmission is posted by first class registered post
on the same day.
PROVIDED that where, in the case of delivery by hand or
transmission by facsimile, such delivery or transmission occurs
after 6 pm on a Business Day or on a day which is not a Business
Day, service shall be deemed to occur at 9 am on the next
following Business Day.
13.2 In proving such service it shall be sufficient to prove that
such personal delivery was made, or that the envelope containing
such notice was properly addressed and delivered into the
custody of the postal authorities as a pre-paid first class
<PAGE> 31
registered letter, and that the facsimile transmission was made
after obtaining in person or by telephone appropriate evidence
of the capacity of the addressee to receive the same, as the
case may be.
13.3 The Vendor hereby appoints the Vendor's Solicitor as its
representative who may (without prejudice to the right of the
Vendor to do so itself) authorise the making of any request,
election, proposal or consent expressed to be made on behalf of
the Vendor to the Purchaser.
14. SEVERABILITY
If any provision or provisions of this Agreement (or of any
document referred to herein) is or at any time becomes illegal,
invalid or unenforceable in any respect, the legality, validity
and enforceability of the remaining provisions of this Agreement
(or such document) shall not in any way be affected or impaired
thereby.
15. ENTIRE AGREEMENT AND VARIATION
15.1 This Agreement (together with the other documents referred to
herein) constitutes the entire agreement between the parties in
relation to the transactions referred to herein or therein and
supersedes any previous agreement between the parties in
relation to such transactions.
15.2 Each of the parties hereto confirms that, in agreeing to enter
into this Agreement, it has not relied on any representation,
warranty or undertaking except those contained in this Agreement
and (by way of qualification to the Warranties) the Disclosure
Letter.
15.3 No variation of any of the terms of this Agreement (or of any
other documents referred to herein) shall be effective unless it
is in writing and signed by or on behalf of each of the parties
hereto or thereto. The expression "variation" shall include any
variation, supplement, deletion or replacement however effected.
<PAGE> 32
16. GENERAL PROVISIONS
16.1 Any right of rescission or termination conferred upon either
party under this Agreement shall (unless otherwise expressed) be
in addition to and without prejudice to all other rights and
remedies available to it by reason of any breach of any
provisions of this Agreement.
16.2 No delay or omission of either party in exercising any right,
power or privilege hereunder shall operate to impair such right,
power or privilege or be construed as a waiver thereof and no
single or partial exercise or non-exercise of any right, power
or privilege shall in any circumstances preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege.
16.3 The Vendor agrees that it and its nominees hereby waive any
rights which may have been conferred on them under the Articles
of Association of the Company or otherwise or in any other way
to have any of the Shares offered to them for purchase at any
time on or before the transfer of the Shares pursuant to the
provisions of this Agreement.
17. GOVERNING LAW AND JURISDICTION
This Agreement (together with all documents referred to herein
and unless otherwise provided for therein) shall be governed by
and construed and take effect in accordance with English law and
each of the parties hereto submits to the non-exclusive
jurisdiction of the High Court of England.
<PAGE> 33
AS WITNESS the hands of the parties hereto or of their duly authorised
representatives the day and year first before written.
SIGNED by [Roger G. Sisson] )
for and on behalf of )
GENESCO INC. ) /s/ Roger G. Sisson
SIGNED by [John S. McLaren] )
for and on behalf of )
PENTLAND INDUSTRIES )
LIMITED ) /s/ John S. McLaren
<PAGE> 1
<TABLE>
EXHIBIT 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and
Common Share Equivalent
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
-------------------------------------- ------------------------------------
1995 1994 1995 1994
------- ------- ------- -------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations $ (1,185) $ 2,285 $(14,516) $ (249)
Preferred dividend requirements $ 76 $ 76 $ 151 $ 151
----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $ (1,261) 24,344 $ 2,209 24,317 $(14,667) 24,344 $ (400) 24,312
Employees preferred and stock options deemed
to be a common stock equivalent -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $ (1,261) 24,344 $ 2,209 24,317 $(14,667) 24,344 $ (400) 24,312
PER SHARE $ (.05) $ .09 $ (.60) $ (.02)
==================================================================================================================================
Net earnings (loss) $ 514 $ (516) $ (164) $ (3,189)
Preferred dividend requirements $ 76 $ 76 $ 151 $ 151
----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock
and average common shares outstanding $ 438 24,344 $ (592) 24,317 $ (315) 24,344 $ (3,340) 24,312
Employees preferred and stock options deemed
to be a common stock equivalent -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Total net earnings (loss) $ 438 24,344 $ (592) 24,317 $ (315) 24,344 $ (3,340) 24,312
PER SHARE $ .02 $ (.02) $ (.01) $ (.14)
==================================================================================================================================
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $ (1,261) 24,344 $ 2,209 24,317 $(14,667) 24,344 $ (400) 24,312
Senior securities the conversion of which
would dilute earnings per share -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $ (1,261) 24,344 $ 2,209 24,317 $(14,667) 24,344 $ (400) 24,312
PER SHARE $ (.05) $ .09 $ (.60) $ (.02)
==================================================================================================================================
Net earnings (loss) applicable to common stock
and average common shares outstanding $ 438 24,344 $ (592) 24,317 $ (315) 24,344 $ (3,340) 24,312
Senior securities the conversion of which
would dilute earnings per share -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Total net earnings (loss) $ 438 24,344 $ (592) 24,317 $ (315) 24,344 $ (3,340) 24,312
PER SHARE $ .02 $ (.02) $ (.01) $ (.14)
==================================================================================================================================
</TABLE>
All figures in thousands except amount per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SECOND QUARTER FISCAL 1996 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 5,388
<SECURITIES> 0
<RECEIVABLES> 32,375
<ALLOWANCES> 1,294
<INVENTORY> 89,427
<CURRENT-ASSETS> 168,346
<PP&E> 83,635
<DEPRECIATION> 55,509
<TOTAL-ASSETS> 211,634
<CURRENT-LIABILITIES> 67,411
<BONDS> 77,065
<COMMON> 24,832
0
7,944
<OTHER-SE> (3,532)
<TOTAL-LIABILITY-AND-EQUITY> 211,634
<SALES> 202,825
<TOTAL-REVENUES> 202,825
<CGS> 124,789
<TOTAL-COSTS> 124,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,273
<INTEREST-EXPENSE> 4,777
<INCOME-PRETAX> (14,501)
<INCOME-TAX> 15
<INCOME-CONTINUING> (14,516)
<DISCONTINUED> 14,352
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164)
<EPS-PRIMARY> $(.01)
<EPS-DILUTED> $(.01)
</TABLE>
